Research
Working Papers
Abstract: This paper shows that the effects of house prices on consumption and residential investment vary with changes in financial conditions. I find that consumption is more responsive to house prices when financial conditions tighten whereas residential investment is less responsive. To explain this new finding, I employ a life-cycle model that accounts for the financial conditions and quantitatively explore its effects. I demonstrate that middle-aged and older households show larger consumption responses to house price changes when financial conditions tighten, consistent with the aggregate empirical evidence. I rationalize this outcome by a financial-state-dependent substitution effect between consumption and residential investment facing changes in house prices.
The Welfare and Distributional Consequences of Corporate Tax Cuts in Open Economies (with Hashmat Khan, Minjoon Lee, and Raul Razo-Garcia |Revised & Resubmitted to the Journal of Money, Credit and Banking)
Abstract: We develop an open-economy heterogeneous household model with incomplete markets to quantitatively evaluate the welfare and distributional effects---both within and across countries---of the corporate tax cut (Tax Cuts and Jobs Act, TCJA) implemented in the U.S. in 2017. The model allows for examining outcomes under various possibilities including the tax cut in the U.S. being permanent versus temporary and potential fiscal responses of other countries to the TCJA. We find that the TCJA is regressive in the U.S. and has relatively more regressive outcomes in other countries. Whether the wealth-poor in the U.S. benefit from the TCJA or not depends on the persistence of the tax cut. Finally, when a small country reduces its corporate tax in response to the TCJA, it has a progressive distributional result in its own economy.
Abstract: We show that the evidence is not strong enough to conclude that collateral shocks have been a dominant source of U.S. business cycles. Collateral shocks, as described in Becard and Gauthier (2022), which tighten bank lending standards for both households and firms, account for only 7 percent of the cyclical variation in output, and 1 percent of consumption, over the period from 1985:Q1 to 2009:Q3. During this time, lending standards for both households and firms were the most closely aligned in the data. Through counterfactual exercises, we isolate the role of estimated collateral shocks and model parameters to explain the findings.
Geography and the Technique Effect: Evidence from Canada (with Kevin Andrew, Jevan Cherniwchan, and Hashmat Khan) (Submitted)
Abstract: The technique effect – the reduction in aggregate pollution emissions due to reductions in the pollution intensity of individual industries – is often interpreted as evidence that countries are getting cleaner because of improvements in how goods and services are produced. We extend the standard decomposition used in previous research to show the technique effect may also capture changes in the geography of economic activity. An empirical application to Canada suggests such changes may be economically important. While the technique effect decreased aggregate Canadian pollution intensity by 18.0% between 2009-2021, if the pollution intensity of production had remained fixed, within-industry shifts in production across Canada would have increased aggregate pollution intensity by over 11%. The technique effect decreased Canadian pollution intensity because these within-industry shifts were accompanied by reductions in pollution intensity that were greatest in provinces that received the largest within-industry reallocation of economic activity