Publications
Publications
Abstract
The paper estimates the dynamic impact of structural oil market shocks on the balance sheet of US firms, using industry level data covering manufacturing, trade and mining sectors. For manufacturing firms, findings indicate that an unexpected disruption in oil supply that raises oil prices by 1% lowers firm profits by 1.3% on impact. On the other hand, profits rise by 0.39% in response to the same increase in the price of oil, when it is driven by a positive movement in the global demand for oil, and by 0.79% after an unexpected surge in speculative oil demand. The positive balance sheet effect of speculative oil shocks on the manufacturing sector contrasts their negative effect on global economic activity. An explanation follows from the industry level analysis, which suggests that speculation in the oil market creates a ripple effect in downstream industries and raises inventory demand for petroleum and chemical products. In contrast to its secondary role in explaining historical variations in the price of oil and profits in trade and mining sectors, oil supply shocks are found to have been the dominant oil market innovations in driving fluctuations in manufacturing firms' profits. The analysis also finds a limited response of production costs to exogenous changes in the oil price, disputing the classic notion that the cost share of oil in an industry determines its level of exposure to oil market shocks.
Abstract
Large productivity gaps across sectors persist and the process of structural transformation is stagnant in many developing economies. This wedge between observed and optimal labor allocations reflects the presence of institutional and market frictions, which impose costs on the optimal reallocation of labor from low to high productivity sectors. Using a panel of cross-country sector-level data, I estimate a dynamic panel error correction model that captures the dynamics of sectoral labor flows. The model estimates provide a new set of stylized facts on the dynamics of the structural transformation process, and a measure of the magnitude of frictions facing labor flows. In addition, I analyze the contribution of labor regulations and reforms to the pace at which labor flows across economic sectors. Results suggest that policy reforms need to steer between the goal of easing job creation and destruction, while supporting labor supply incentives to reallocate through strong social nets, labor protection, and risk sharing.
"Firm Financing and the Relative Demand for Labor and Capital", Journal of Economic Dynamics and Controls (2024).
Abstract
During both the 2008 and the COVID crises, aggregate employment in Europe and the US fell despite continuing growth in the aggregate capital stock. Using more than one million firm-year observations of small and medium European firms between 2003 and 2018, this paper introduces new stylized facts on how firms' relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides the first micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. Identification of exogenous variations in firm financing costs relies on the heterogeneous effects of ECB monetary policy surprises on financing costs (credit channel) across the firm distribution. The results suggest that maintaining a well functioning credit market supports a higher labor share of economic growth.
Capital Markets, COVID-19 and Policy Measures, with Martina Hengge (2020). Under Review. Featured in Covid Economics 45: 32-64, and as a VOX EU column.
Abstract
The COVID-19 episode triggered a historically large wave of capital reallocation and provided an opportunity to revisit the relevance of domestic policies for capital flows. Using high-frequency country-level data, this paper examines how COVID-19 cases, the stringency of the lockdown, and the fiscal and monetary policy response determined the dynamics of portfolio flows. Despite the sizeable impact of global factors, we find that these domestic factors played a key role, particularly for emerging markets and bond flows. Our results indicate that rising domestic COVID-19 cases had a strong positive effect on portfolio flows. Lockdown and fiscal policy measures also supported portfolio flows. In contrast, we find that interest rate cuts led to a decline in portfolio flows as investors searched for yield. Finally, we show that these policies and pre-COVID-19 macroeconomic conditions contributed to countries' exposure to the global shock.
"Jobless and Wageless Growth: The Composition Effects of Credit Easing", Job Market Paper
An updated version is coming out soon...
Abstract
The period of jobless and wageless growth that followed the great recession in the United States raises the question why expansionary credit policies were less effective for the recovery in employment and average real wage growth in comparison to output growth. Indeed, empirical evidence from a structural time series analysis of US labor and credit markets indicates that expanding credit supply negatively affects both aggregate labor intensity and the aggregate real wage. This paper offers one explanation that relies on the composition effects of credit expansion. I find that the pass-through of aggregate credit supply fluctuations to investment and hiring decisions is stronger for industries that face higher borrowing costs. Firms in these industries prefer collateralizable capital to labor, and pay lower wages because higher default risk and borrowing costs lower the expected surplus of filled jobs. Consequently, expanding credit supply increases the share in total output of firms that have low labor intensity and pay low wages, therefore exerting negative pressure on the aggregate labor share. This intuition is consistent with a dynamic model of heterogeneous firms and an aggregate financial sector that accounts for the interaction between financial and labor market frictions. The paper, therefore, raises the concern that the main thrust of credit easing may not target firms that have strong potential to hire or pay high wages.
"Structural Reforms and Labor Reallocation: A Cross-Country Analysis", with Anta Ndoye, Sanaa Nadeem, and Gregory Auclair, IMF Working Paper Series (2018).
Abstract
Institutional and market frictions impose costs on the reallocation of labor from low to high productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity. Using cross-country sector-level data, we use a dynamic panel error correction model to compute the speed of sectoral labor adjustment, as well as the contribution of structural reforms in governance, labor and product markets, trade and openness, and the financial sector to lowering the costs of labor reallocation. We find that, on average, sectoral employment shares converge towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year; this speed of labor adjustment varies across sectors and income groups. On structural reforms, we find a significant association between more efficient labor reallocation and financial market liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization, better education and more flexible labor and product markets.
"Affordable rental housing: Making it part of Europe's recovery", with AKarpowicz, I., Marinkov, Marina, Mineshima, Aiko, Salas, Jorge, Tudyka, Andreas, Schaechter, Andrea, Departmental Paper Series (2021).
Abstract
Institutional and market frictions impose costs on the reallocation of labor from low to high productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity. Using cross-country sector-level data, we use a dynamic panel error correction model to compute the speed of sectoral labor adjustment, as well as the contribution of structural reforms in governance, labor and product markets, trade and openness, and the financial sector to lowering the costs of labor reallocation. We find that, on average, sectoral employment shares converge towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year; this speed of labor adjustment varies across sectors and income groups. On structural reforms, we find a significant association between more efficient labor reallocation and financial market liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization, better education and more flexible labor and product markets.