Abstract: What are the welfare implications of trade shocks? Theoretically, we provide a sufficient statistic that measures changes in welfare for the set of workers who start within a region, to a first-order approximation, taking into account adjustment in frictional unemployment, labor force participation, the sectors to which workers apply for jobs, and the regions in which workers choose to live. Our theory is flexible; for instance, it allows for arbitrary heterogeneity in worker productivity and non-pecuniary returns (amenities) across unemployment, labor force non-participation, sectors, and regions. Empirically, we apply these insights to measure changes in welfare between 2000-2007 across workers who start in different commuting zones (CZs) in the U.S. in the year 2000. Finally, we identify the differential impact across CZs of a particular trade shock: granting China permanent normal trade relations.

Abstract: This paper examines how liquidity shocks caused by currency shortages impact exports. We explore this in the context of India's 2016 currency demonetization, a sudden government policy announcement that led to 86% of the country's currency in circulation being rendered illegal within hours. Our analysis uses novel data, including high-frequency customs transaction records matched with exporting firms and their balance sheets, as well as with inter-district domestic trade. While the cash shortages do not directly affect exporting firms, we find a significant and immediate decline in real exports for firms whose domestic customers experience liquidity shocks.

Abstract: This paper explores how different margins of market share are related to firm markups and their implications for misallocation. Using merged microdata on producers and consumers, we document that while firms’ market shares are related mainly to their number of customers, their price-cost markups are associated only with their average sales per customer. We develop a new model with endogenous customer acquisition that reflects this empirical evidence. When calibrated, this model predicts a higher degree of markup dispersion, which suggests greater efficiency losses due to customer misallocation. An analysis of the efficient allocation in this model reveals that compared with the equilibrium, aggregate TFP and output are 12.2% and 25.5% higher, respectively.

Abstract: We study how regional housing market disruptions spill over across US local markets through intrafirm spatial networks created by multimarket firms. We identify spillovers by linking granular data on product-county-level prices and quantities with producer-level information and exploiting variation in firms’ exposure to differential declines in local house prices. A firm’s local sales decrease following a local housing price decline but do so more strongly to indirect exposure to the housing price decline originating in its other markets. The barcode-level data reveal a novel uniform product replacement mechanism behind the spillover: Firms replace higher-value products with lower-value products in response to the housing market disruptions, and such product replacements are synchronized across markets within each firm, including the markets with stable housing prices. These results have new implications for (i) firm-level returns to scale, (ii) intrafirm spillover mechanisms, and (iii) regional household consumption.

Abstract: I study how a credit crunch affects output price dynamics. I build a unique micro-level dataset that combines scanner-level prices and quantities with producer information, including the producer’s banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers’ failure as a quasi-experiment and find that the firms that face a negative credit supply shock decrease their output prices approximately 15% more than their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and to generate additional cash flow from the product market. I find strong empirical support for this hypothesis: (i) the firms that face a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) this effect is stronger for the firms and sectors with a high initial inventory or small initial cash holdings.

Abstract: We develop a framework to analyze the impact of trade shocks on a range of labor market adjustment margins in economies with a large number of sectors and labor groups. We provide analytic results characterizing equilibria. We show that labor groups earning a greater share of wage income in sectors with relative price declines experience a relative increase in unemployment and non-participation and decrease in wages and welfare. Our framework provides a guide for quantitative and empirical investigations into the labor-market impacts of trade shocks.

Abstract: We study business cycles with cyclical returns to scale. Contrary to tightly parameterized production functions (e.g., Cobb-Douglas and constant elasticity of substitution), we empirically identify strong input complementarity that leads to procyclical returns to scale. We, therefore, propose a flexible translog production function that allows complementarity-induced procyclical returns to scale. We integrate this function into a standard medium-scale dynamic stochastic general equilibrium (DSGE) model. Our estimated model with input complementarity (i) features procyclical returns to scale and acyclical price markups, (ii) better matches the cyclicality of factor shares, and (iii) significantly decreases the contribution of markup shocks to output fluctuations relative to those of the standard model.