Research
Publications
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Runs versus Lemons: Information Disclosure and Fiscal Capacity
Review of Economic Studies (October 2017)
With Miguel Faria-e-Castro and Thomas PhilipponWe study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model, governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the cost of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.
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Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence
Online AppendixAmerican Economic Journal: Macroeconomics (July 2019)
With Diego Anzoategui, Diego Comin and Mark GertlerWe examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We first present panel data evidence that technology diffusion is highly cyclical. We then develop and estimate a macroeconomic model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We then show that the model’s implied cyclicality of technology diffusion is consistent with the panel data evidence. We next use the model to assess the sources of the productivity slowdown. We find that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow.
Working Papers
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Putty-Clay Automation
Online Appendix
CEPR DP16022Please note this paper supersedes Automation, Growth and Factor Shares
This paper develops a model of automation as embodied technological progress (putty-clay automation). The gradual discovery and obsolescence of technologies gives rise to a distribution of capital with varying degrees of automation. I derive conditions under which, aggregating over heterogeneous production units, output can be represented as a CES production function, the parameters of which are determined endogenously by the distribution of technology. Through the lens of the canonical model, I show how the distribution of automation technology determines its aggregate effects; in the long run, only the distribution of technology matters. The transition dynamics of the economy in response to an increase in frontier automation technology are consistent with notable micro and macro US stylized facts of recent decades: at firm level, increased concentration, a fall in the labor share driven by reallocation towards low labor share establishments, and a stable median labor share; at macro level, slowing total factor productivity growth and a fall in the real interest rate
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Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets
With Thomas Philippon and Markus Sihvonen
We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a banking union; a capital market union; and complete financial markets. We show that a banking union is efficient at sharing all domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). Using a calibrated model we provide evidence of substantial welfare gains from a banking union and, in the presence of supply shocks, from a capital market union.
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A Note on Information Disclosure and Adverse Selection
With Miguel Faria-e-Castro and Thomas Philippon
We analyze public disclosure in a financial market with private information as in Myers and Majluf (1984). Firms need outside financing to invest in valuable projects but they are privately informed about the quality of their assets. Adverse selection in credit markets can then lead to suboptimal investment. We characterize a set of policies that robustly increase investment.
Work in Progress
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Automation Potential and Diffusion
With Johan Moen-Vorum
We introduce a novel methodology to measure the invention and diffusion of labor-replacing technology in the US economy. First, we measure the relevance of US patents introduced from 1900-2020 to work tasks performed by human workers using a natural language processing algorithm. After controlling for the confounding effects of the evolution of language, we obtain a measure that we call the automation potential of newly introduced technology: the potential for that technology to eventually replace human workers in the performance of tasks. In a local projections framework, we project long-horizon changes in task demand onto automation potential and find large negative effects, suggesting i) that our measure captures the development of automation technology, and ii) that such technology diffuses slowly into the economy.
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(In)efficient Credit Booms: the Role of Collateral
With Diego Anzoategui, Pau Rabanal and Filiz D. Unsal
Using data from different sources we find that credit booms are episodes where interest spreads are low, prices of assets typically used as collateral are high and collateral to credit ratios are low. We propose a model featuring search and information frictions in the credit market that can account for these empirical facts. In the model, banks use collateral to be able to separate good from bad entrepreneurs and the amount of collateral needed is a function of the aggregate shocks in the economy. When collateral needs are not satisfied, banks optimally decide to relax credit standards to be able to allocate more capital to good entrepreneurs. We provide necessary conditions that need to be met to observe booms with loose credit standards in equilibrium. We also use the model to analyze policy implications and show that credit booms can be constrained inefficient, opening room for welfare-improving macro-prudential policy. The optimal policy, which can be approximated by a state-contingent tax on new credit lines, dampens the increase in credit and the drop in spreads and collateralization during booms.