Working Papers:

• Jobless Recoveries: The Role of Risk Premia (Job Market Paper)

Abstract: This paper shows that the link between asset price fluctuations and the labor market can explain important features of the recent US economic recoveries. The dynamics of economic recoveries appears to have experienced a structural change around the mid-1980s. In particular, the three most recent recessions were followed by a very sluggish recovery of the labor market. The paper connects this structural change to the empirical finding that post mid-1980s unemployment co-moves more strongly with measures of expected stock market returns. I investigate the link between fluctuations of expected stock market returns and labor market recoveries in a general equilibrium model with search and matching frictions. Intuitively, high expected stock market returns in recoveries imply that firms are facing a higher cost of equity capital during that time. When a firm's cost of capital increases, it applies a higher discount rate to its future cash flows. As a result, the present value of a payoff on job creation declines and the firm's hiring incentives are low. I show that risk premia fluctuations help to explain structural change in labor market recoveries around the mid-1980s.

• The Origins and Effects of Macroeconomic Uncertainty (with Francesco Bianchi and Howard Kung).

Revise and Resubmit at Quantitative Economics

Abstract: We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty shocks have larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession.