• Curriculum Vitae [PDF ]

Publications

• "Excess Capacity in a Fixed Cost Economy", European Economic Review 91 (2017):245-260. [ | Paper ]

  "This paper proposes a new mechanism that can explain persistent economic slack. The theory shows that when producers face negligible marginal costs and desired spending is below the economy’s capacity, the economy features slack in equilibrium, even when prices are flexible and there are no other frictions. A heterogeneous household version of the model demonstrates how an economy can enter a capacity trap in response to a temporary negative demand shock: when demand by some consumers falls temporarily, other consumers’ permanent income (and hence their desired consumption) also falls. Since output is demand-determined, the permanent fall in desired consumption causes a permanent state of excess capacity.

• "Welfare Consequences of Asymmetric Growth", Journal of Economic Behavior and Organization 126 (2016):1-17.Lead article. [ | Paper ]

  Standard models in macroeconomics and development economics imply that growth in the aggregate enhances welfare for everyone in the economy. I show that instead, if economic growth is biased towards the consumption bundle of the rich, the welfare of the poor may fall. I document the relevance of this mechanism during the latter part of the Twentieth Century by showing that new information technology disproportionately benefited sectors consumed by the rich.

• "How Can Government Spending Stimulate Consumption?", Review of Economic Dynamics, 18 (2015):551-574. [ | Paper ]

  "Recent empirical work finds that government spending shocks can cause aggregate consumption to increase. This paper builds on the framework of imperfect information in Lucas (1972) and Lorenzoni (2009) to show how government spending can stimulate consumption. Owners of firms targeted by an increase in government spending perceive an increase in their permanent income relative to their future tax liabilities, while owners of firms not targeted remain unaware of the implicit increase in future tax liabilities, causing aggregate consumption to increase. I show that a testable implication of this model—namely that the value of firms should increase in response to government spending shocks, implying all else equal an increase in aggregate stock returns—is consistent with empirical evidence.

• "The Role of Inventories and Speculative Trading in the Global Market for Crude Oil" (with Lutz Kilian), Journal of Applied Econometrics, 29(3), April 2014, 454-478. [ | Paper]

  We develop a structural model of the global market for crude oil that for the first time explicitly allows for shocks to the speculative demand for oil as well as shocks to flow demand and flow supply. The speculative component of the real price of oil is identified with the help of data on oil inventories. The estimates rule out explanations of the 2003-08 oil price surge based on unexpectedly diminishing oil supplies and based on speculative trading. Instead, this surge was caused by unexpected increases in world oil consumption driven by the global business cycle. There is evidence, however, that speculative demand shifts played an important role during earlier oil price shock episodes including 1979, 1986, and 1990. Our analysis implies that additional regulation of oil markets would not have prevented the 2003-08 oil price surge. We also show that, even after accounting for the role of inventories in smoothing oil consumption, our estimate of the short-run price elasticity of oil demand is much higher than traditional estimates from dynamic models that do not account for price endogeneity.

• "Why Agnostic Sign Restrictions Are Not Enough: Understanding the Dynamics of Oil Market VAR Models" (with Lutz Kilian), Journal of the European Economic Association (2012), 10(5): 1166-1188. [ | Paper ]

  Sign restrictions on the responses generated by structural vector autoregressive models have been proposed as an alternative approach to the use of exclusion restrictions on the impact multiplier matrix. In recent years such models have been increasingly used to identify demand and supply shocks in the market for crude oil. We demonstrate that sign restrictions alone are insufficient to infer the responses of the real price of oil to such shocks. Moreover, the conventional assumption that all admissible models are equally likely is routinely violated in oil market models, calling into question the use of posterior median responses to characterize the responses to structural shocks. When combining sign restrictions with additional empirically plausible bounds on the magnitude of the short-run oil supply elasticity and on the impact response of real activity, however, it is possible to reduce the set of admissible model solutions to a small number of qualitatively similar estimates. The resulting model estimates are broadly consistent with earlier results regarding the relative importance of demand and supply shocks for the real price of oil based on structural VAR models identified by exclusion restrictions, but imply very different dynamics from the posterior median responses in VAR models based on sign restrictions only.

• "Why Do Boomers Plan To Work Longer?" (with Gordon Mermin and Richard Johnson), Journal of Gerontology: Social Sciences (2007), 62B(5): S286-S294

Working Papers

• "Fiscal Stimulus and Consumer Debt (with Yuliya Demyanyk and Elena Loutskina)" [ | PDF ]

  " In the aftermath of the consumer debt-induced recession policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate aggregate demand and aggregate supply side economic mechanisms potentially underlying this result.

• "Savings Externalities in a Second Best World" (with Andrew Hayashi) [ link ]
• "Debt Burdens and the Interest Rate Response to Fiscal Stimulus: Theory and Cross-County Evidence" (with Jorge Miranda-Pinto, Kieran Walsh, and Eric Young)
• "Drilling and Debt" (with Erik Gilje and Elena Loutskina) [ | PDF ]

  This paper documents a new mechanism through which debt affects the real investment decisions of firms. Using detailed project level data in the oil and gas industry, we find that highly levered firms pull forward project completion at the expense of long run project returns and firm value. This behavior is particularly pronounced prior to debt renegotiations. We test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing long run project returns to enhance collateral prior to debt renegotiations.

• "Spending Shocks and Interest Rates" (with Kieran Walsh) [ | PDF ]

  The elasticity of interest rates with respect to government spending is central to many policy debates including, for example, austerity in the European Union. Most macroeconomic models imply that increases in aggregate demand due to non-monetary forces cause real interest rates to rise, but empirical evidence from the US generally fails to support this prediction. We propose a novel explanation for how increases in aggregate demand (driven either by public or private shocks) can have a zero or negative effect on interest rates: when national income is demand-determined and cash is used to cover short-term needs, government or private spending shocks may generate an excess supply of loans. Our model has three key features: (1) demand-determined output, (2) portfolio heterogeneity (as we have both borrowers and lenders), and (3) asset market segmentation (different groups adjust using different asset classes). Data from the Treasury's General Account and the Survey of Consumer Finances support our premise that spending shocks are often financed with money-like assets. Evidence from the Consumer Expenditure Survey corroborates a key implication of our theory: demand shocks of rich savers decrease interest rates.

• "Demand Complementarities and Cross-Country Price Differences" [ | PDF ]

  Empirical studies document a relationship between markups and income across countries and over time. This paper proposes a novel mechanism to explain the relationship between markups and income: Consumers’ utility from final goods and services depends on their consumption of complementary goods and services. I develop a two-country model to demonstrate the relevance of the demand complementarities mechanism for understanding real exchange rates. In countries with more complementary goods and services consumer demand is less elastic, enabling monopolistically competitive firms to charge higher prices. The paper provides empirical evidence documenting a dependence of prices on demand complementarities.

• "Home Production, Expenditure, and Economic Geography" [ | PDF ]

  "This paper develops a theory that embodies a new microfoundation for the benefits of urban density that offset the costs of land scarcity. Market production of services is efficient because customers effectively share land and other factors of production, leaving them idle for less time. Proximity between consumers and service establishments reduces the time cost of purchasing services. Both of these benefits cause residents of dense areas to purchase services on the market that their suburban counterparts produce at home. Empirical evidence demonstrates that the theory can account for variation in expenditure, home production, labor supply, and land prices.

• "Excess Supply in the Spot Market for Labor" [ | PDF ]

  "A distinguishing feature of labor services is that they are immediately perishable. This paper explores the implications of immediate perishability for the market for homogenous labor services that are sold in a centralized exchange. The analysis sheds light on the nature of unemployment and labor market participation. The paper also explores implications for the role of labor cartels and firms in providing workers an alternative to selling their labor services on the spot market. Cartels can be pareto superior to competition in the spot market because they organize labor to reduce excess supply.

Other

• Urban Institute Publications