I examine the lasting impact of productivity shocks on technological adoption using a model where firms, which face heterogeneous fixed costs for implementing and operating a technology, must decide whether to adopt or abandon it after an unexpected productivity shock. Due to complementarity in the production of the final good, individual technological choices are interlinked, thereby amplifying and prolonging the effects of large shocks. By merging international cross-country data from three databases and employing a local projections method designed to detect non-linearities without relying on any a priori functional form assumptions, I find that the estimates align closely with the model's predictions. A simplified version of the model, calibrated to match the empirical estimates, reveals that subsidizing the operational costs of the technology leads to welfare improvements by averting harm to the economy's productive potential.
Hysteresis, Endogenous Growth, and Monetary Policy
(Nominated best paper award at the Delhi Winter School 2021, CDE and Econometric Society)
I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have long-run effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.
Monetary Policy, Growth, and Sectoral Reallocation (with Michaela Elfsbacka Schmöller, Bank of Finland).
In this paper, we study monetary policy under asymmetric shocks which shift resources between sectors, taking into account differential sectoral contributions to aggregate total factor productivity (TFP) growth. Previous work on sectoral reallocation has not yet accounted for a key property: sectors have heterogenous growth rates of TFP with direct effects on macroeconomic dynamics and monetary policy. In particular, reallocation between sectors with heterogeneous growth affects endogenous growth of aggregate TFP and thus potential output and, moreover, inflationary pressures through marginal costs. To address this gap in the literature, we develop a multi-sector New Keynesian model with endogenous growth and heterogeneous sectoral contributions to long-run growth. Specifically, we contribute to the literature by (i) examining the role of nominal rigidities under frictional reallocation, (ii) investigating the role of monetary policy under various asymmetric shocks, and (iii) studying the long-run impact of reallocation episodes. Our findings suggest that the reallocation-induced TFP response plays a critical role in the conduct of monetary policy, while monetary policy, in turn, shapes the reallocation process and underlying macroeconomic adjustments.
Assessing grocery shopping behaviors during a health crisis (with Dennis-Bauer, S., Jaller, M., and Forscher, E.) Transportation Research Interdisciplinary Perspectives Vol.25, 2024
Determinants of housing bubbles' duration in OECD countries (with Gomez-Gonzalez, J., and Sanin-Restrepo, S). International Finance, Vol. 21(2), 140-157, 2018.
Finance Neutral Potential Output: An Evaluation on an Emerging Market Monetary Policy Context. Economic Systems, Vol. 41(3), 389-407, 2017.
Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies (with Tenjo, F., Gomez-Gonzalez, J., Ojeda, J., and Jaulin, O). Economic Systems, Vol. 40(3), 335-518, 2016.
Credit and Business Cycles: An Empirical Analysis in the Frequency Domain (with Gomez-Gonzalez, J., Gaitan, C., Villamizar, M. and Zarate, H). Ensayos sobre Politica Economica, Vol. 33(78), 176-189, 2015.
Loan Growth and Bank Risk: New Evidence (with Gomez-Gonzalez, J.E. and Murcia, A). Financial Markets and Portfolio Management, Vol. 27(4) , 365-379, 2013.
El Mercado Mundial del Cafe y su Impacto en Colombia (with Caicedo, E., Cano, C., Tique, E. and Vallejo, C). Banco de la Republica, 2013.