Publications
"The Full Recession: Private versus Social Costs of COVID-19," International Economic Review, 2024, 65, 547-582 (with Juan Carlos Cordoba and Siqiang Yang) [pdf]
2020 official recession figures ignore the costs associated with the loss of human life due to COVID-19. This paper constructs full recession measures that take into account the death toll. Our model features non-expected utility, leisure, age-specific survival rates, and tractable heterogeneity. We find an average full recession of 10.7%, which contrasts with the 2.77% official contraction of real GDP in 2020. This full recession reflects the net value of an aggregate drop in consumption of 2.7%, an average increase of 197 leisure hours and about 540,000 lives lost in the first year of the pandemic. We also find that the full recession varies widely across ages, and that for a utilitarian planner it is in the order of 14.5%, aligning with that of individuals in their late 50s.
"Financial Transfers from Parents to Adult Children," Journal of Economic Behavior and Organization, 2023, 208, 286-303 (with Siqiang Yang) [pdf]
This paper uses 1996-2014 longitudinal HRS data to establish the relative importance of intervivos transfers, bequests and coresidency in the United States. We find that when computing the relative importance of intervivos transfers versus bequests, the aggregate perspective that pools all data into a single cross-section is very different than the parent-level longitudinal perspective, highlighting the special value of panel data. This difference reflects the fact that large bequests are highly concentrated and play an influential role at the aggregate level, while at the micro parent-level, intervivos transfers constitute the main form of financial support for most parents. Regarding coresidency, we find that although older children and parents tend to coreside when the child is helping the parent, coresidency tends to be more prevalent among poorer, younger parents and their children. Children who ever coreside with parents also receive larger total intervivos transfers.
Media coverage: Wall Street Journal, Julia Carpenter, “Well Into Adulthood and Still Getting Money From Their Parents,” January 25, 2024 [link]
"Matching Pell Grants: Implications for College Debt and Parental Transfers," American Economic Association Papers & Proceedings, 2023, 113, 524-529 (with Patricia Beeson, Daniele Coen-Pirani and Jessica LaVoice) [pdf] [online appendix]
The rising cost of college in the last few decades has brought the issues of student debt and student labor supply to the forefront of public policy and academic debates on college affordability. This paper exploits a financial aid policy change enacted by a large public US university to assess the impact of a plausibly exogenous and relatively large reduction in college costs for Pell students on their debt accumulation, and measures of parental transfers received and labor supply. We interpret the results in light of a simple model of investment in human capital with debt and parental transfers.
"The Elasticity of Intergenerational Substitution, Parental Altruism and Fertility Choice, " Review of Economic Studies, 2019, 86, 1935-1972 (with Juan Carlos Cordoba) [pdf]
Dynastic models common in macroeconomics use a single parameter to control the willingness of individuals to substitute consumption both intertemporally, or across periods, and intergenerationally, or across parents and their children. This paper defines the concept of elasticity of intergenerational substitution (EGS), and extends a standard dynastic model in order to disentangle the EGS from the EIS, or elasticity of intertemporal substitution. A calibrated version of the model lends strong support to the notion that the EGS is significantly larger than one. In contrast, estimates of the EIS suggests that it is at most one. What disciplines the identification is the need to match empirically plausible fertility rates for the US. We illustrate the potential role of the EGS in macroeconomics.
“Beyond GDP: Is There a Law of One Shadow Price?,” European Economic Review, 2017, 100, 390-411 (with Fabrice Murtin, Romina Boarini, and Juan Carlos Cordoba) [pdf]
This paper builds a welfare measure encompassing household disposable income, unemployment and longevity, which are valued either from life satisfaction data (using “subjective shadow prices”) or from calibrated utility functions (with “model-based shadow prices”). The two different sets of shadow prices are shown to be broadly consistent once a number of conditions are fulfilled: i) running life satisfaction regressions at the country level rather than at the individual level in order to reduce the downward bias on the income variable due to measurement errors; (ii) valuing the unemployment risk in a state-contingent framework rather than under the veil of ignorance; (iii) disentangling relative risk aversion parameters for unemployment and vital risks; (iv) calibrating the utility function on adult lifespan rather than life expectancy at birth.
"Risk Aversion and the Value of Life,” Review of Economic Studies, 2017, 84, 1472-1509 (with Juan Carlos Cordoba) [pdf]
We show that state non-separable preferences à la Epstein-Zin-Weil (EZW) provide a tractable and flexible framework to study the economics of health and longevity. This utility representation: (i) admits a preference for timing of resolution of uncertainty regarding mortality risks; (ii) links the marginal valuation of survival to the level of survival; (iii) can preserve homotheticity even for low degrees of intertemporal substitution without generating implausible predictions regarding the value of life; and (iv) adds needed flexibility to account for the empirical evidence on the value of life. We illustrate the implications of EZW preferences for the economic value of observed differences in life expectancy across countries and over time, and for the value of life over the life cycle.
“Fertility, Social Mobility, and Long Run Inequality,” Journal of Monetary Economics, 2016, 77, 103-124 (with Juan Carlos Cordoba and Xiying Liu) [pdf]
Dynastic altruistic models with endogenous fertility have been shown to be unable to generate enough intergenerational persistence. Using a Bewley model with endogenous fertility we show that it is possible to recover persistence. Key ingredients for our result include exponential child discounting, discrete number of children, diminishing costs of child rearing, and an elasticity of intergenerational substitution larger than one. Our model provides a unified framework of analysis for long-run inequality that incorporates fertility choices.
“Intergenerational Transfers and the Fertility-Income Relationship,” Economic Journal, 2016, 126, 949-977 (with Juan Carlos Cordoba) [pdf]
Evidence from cross-sectional data reveals a negative relationship between family income and fertility. This paper argues that constraints to intergenerational transfers are crucial for understanding this relationship. If parents could legally impose debt obligations on their children to recover the costs incurred in raising them, then fertility would be independent of parental income. A relationship between fertility and income arises when parents are unable to leave debts because of legal, enforcement, or moral constraints. This relationship is negative when the intergenerational elasticity of substitution is larger than one, case in which parental consumption is a good substitute for children's consumption.
"What Explains Schooling Differences Across Countries?,” Journal of Monetary Economics, 2013, 60, 184-202 (with Juan Carlos Cordoba) [pdf]
This paper provides a theory that explains the cross-country distribution of average years of schooling, as well as the so called human capital premium puzzle. In our theory, credit frictions as well as differences in access to public education, fertility and mortality turn out to be the key reasons why schooling differs across countries. Differences in growth rates and in wages are second order.
“Productivity, Trade and the R&D Content of Intermediate Inputs,” European Economic Review, 2012, 56, 1573-1592 (with Shuichiro Nishioka) [pdf]
This paper explores a novel way to evaluate the extent to which R&D knowledge embodied in intermediate inputs correlates with productivity at the industry level. We propose the concept of R&D content of intermediates, which represents the knowledge stock embodied in intermediate inputs used in production. Using a sample of 32 countries and 13 manufacturing industries we compute the elasticity of industry-level TFP with respect to the R&D content of intermediates. We find that among high-R&D industries, the R&D embodied in inputs purchased from the own industry is significantly associated with industry-level TFP. In this case, both own-industry domestic inputs as well as those imported from G5 countries are relevant. In contrast, intermediate input trade does not appear to be a significant channel of R&D diffusion among low-R&D industries.
“Agriculture and Aggregation,” Economic Letters, 2009, 105 (1), 110-112 (with Juan Carlos Cordoba) [pdf]
We study the shape of the aggregate production function in the presence of land-intensive agriculture. The traditional Cobb-Douglas formulation is corrected to include a "diversification component." The implied TFP differences across countries are larger than what Solow residuals suggest.
“Endogenous TFP and Cross-Country Income Differences,” Journal of Monetary Economics, 2008, 55 (6), 1158-1170 (with Juan Carlos Cordoba) [pdf]
Using a class of endogenous growth models that exhibit international spillovers, we show that most of the cross-country differences in output per worker are explained by barriers to the accumulation of rival factors (physical and human capital) rather than by barriers to the accumulation of knowledge. This is shown theoretically, by comparing models with exogenous and endogenous TFP, and quantitatively by using a carefully calibrated version of the model. The main finding is that barriers to the accumulation of physical and human capital explain up to 64% of income gaps relative to the US.
“Do Self-Control Preferences Help Explain the Puzzling Behavior of Asset Prices?,” Journal of Monetary Economics, 2007, 54 (4), 1035-1050 (with David N. DeJong) [pdf]
In the context of a simple asset-pricing environment, we study the ability of self-control preferences to account for the stock-price volatility, risk-free-rate and equity-premium puzzles. Using a full-information estimation procedure, we estimate the presence of a quantitatively small self-control effect in the data. Moreover, with results obtained using CRRA preferences serving as a benchmark, we find that the adoption of self-control preferences makes only a marginal contribution towards a resolution of these puzzles.
“Tariffs and Growth: An Empirical Exploration of Contingent Relationships,” Review of Economics and Statistics, 2006, 88 (4), 625-640 (with David N. DeJong) [pdf]
A large body of empirical research indicates that countries with relatively low policy-induced trade barriers tend to enjoy relatively rapid growth, ceteris paribus. In contrast, alternative theoretical models suggest that the relationship between trade barriers and growth may be contingent on the level of development. Employing a direct trade-barrier measure --ad-valorem tariff rates-- we find evidence of such a contingency: the marginal impact of tariffs on growth is declining in the level of per capita income. Moreover, evidence of a negative relationship between tariffs and growth is apparent only among the world's rich countries.
“Real Exchange Rate Targeting, Macroeconomic Performance, and Sectoral Income Distribution in Developing Countries,” Journal of International Trade and Economic Development, 2005, 14 (2), 167-196 [pdf]
This paper uses a two-sector general equilibrium model to analyze both steady-state and stochastic dynamic effects of two real exchange rate targeting policies: a constant-target and a band-target rule. In the model, targeting is implemented by imposing a stochastic fully-rebatable tax on the consumption of nontraded goods. The first result is that when comparing only steady states, a real exchange rate appreciation favors labor and capital in the nontraded sector, while factors in the traded sector are favored by depreciations. A second result is that both rules reduce the volatility of investment and the trade balance. The third key result is that in the stochastic economy sectoral income distribution outcomes depend on the design of the constant and band-target rules. In particular, a variety of outcomes may be generated depending on the magnitude of the constant target, or the amplitude of the band, relative to the volatility of productivity shocks.
“Trade Liberalization and the Skill Premium in Developing Economies,” Journal of Monetary Economics, 2005, 52 (3), 601-619 [pdf]
Empirical evidence shows that while the skill premium narrowed in some developing countries following trade liberalization, it widened in others, or even exhibited non-monotonic behavior. This paper studies a simple dynamic general equilibrium trade model in which differences in initial conditions across developing countries play a key role in explaining the variety of skill premium behaviors. Differences in initial conditions in terms of skilled labor and physical capital emerge in the model due to differences in trade policies. The model can generate non-monotonic behavior for the skill premium following trade liberalization.
“Collateral Constraints in a Monetary Economy,” Journal of the European Economic Association, 2004, 2 (6), 1172-1205 (with Juan Carlos Cordoba) - Reprinted in: Liquidity and Crisis, 2011, edited by Franklin Allen, Elena Carletti, Jan Pieter Krahnen and Marcel Tyrell [pdf]
This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and money supply is managed via open-market operations. We find that a monetary shock generates persistent movements in aggregate output, the amplitude of which depends upon whether or not debt contracts are indexed. If only nominal contracts are traded, money shocks can trigger large output fluctuations. In this case a money expansion triggers a boom, whereas money contractions generate recessions. In contrast, if contracts are indexed then amplification is not only smaller; it can also generate the reverse results. When the possibility of default and renegotiation is considered, the model can generate asymmetric business cycles with recessions milder than booms. Finally, monetary shocks generate a highly persistent dampening cycle rather than a smoothly declining deviation.
“Credit Cycles Redux,” International Economic Review, 2004, 45 (4), 1011-1046 (with Juan Carlos Cordoba) [pdf]
Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a "knife-edge" type of result.