Search Results
Working Paper
Misallocation Costs of Digging Deeper into the Central Bank Toolkit
Central bank large-scale asset purchases, particularly the purchase of corporate bonds of nonfinancial firms, can induce a misallocation of resources through their heterogeneous effect on firms cost of capital. First, we analytically demonstrate the mechanism in a static model. We then evaluate the misallocation of resources induced by corporate bond buys and the associated output losses in a calibrated heterogeneous firm New Keynesian DSGE model. The calibrated model suggests misallocation effects from corporate bond buys can be large enough to make them less effective than government bond ...
Working Paper
The Effect of Export Market Access on Labor Market Power: Firm-level Evidence from Vietnam
We examine the impact of an export market expansion created by the US-Vietnam Bilateral Trade Agreement (BTA) on labor market competition among Vietnamese manufacturing firms. We measure distortionary wedges between equilibrium marginal revenue products of labor (MRPL) and wages nonparametrically and find that the median firm pays workers 59% of their MRPL. The BTA permanently decreases labor market distortion in manufacturing by 3.4%, mainly for domestic private firms. The median distortion is 26% higher for women than men, and the decline in distortion for women drives the overall ...
Working Paper
Tax Heterogeneity and Misallocation
There is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies. Using US firm-level balance sheet data alongside measures of effective marginal tax rates, we find a positive correlation between tax rates and factor productivity, suggesting that tax asymmetry exacerbates the distortions from other ...
Working Paper
Capital Allocation and Productivity in South Europe
Following the introduction of the euro in 1999, countries in the South experienced large capital inflows and low productivity. We use data for manufacturing firms in Spain to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor across firms, and a significant increase in productivity losses from misallocation over time. We develop a model of heterogeneous firms facing financial frictions and investment adjustment costs. The model generates cross-sectional and time-series patterns in size, productivity, capital ...
Working Paper
Misallocation and Productivity in the Lead Up to the Eurozone Crisis
We use Portuguese firm-level data to investigate whether changes in resource misallocation may have contributed to the poor economic performance of some southern and peripheral European countries leading up to the Eurozone crisis. We extend Hsieh and Klenow's (2009) methodology to include intermediate inputs and consider all sectors of the economy (agriculture, manufacturing, and services). We find that within-industry misallocation almost doubled between 1996 and 2011. Equalizing total factor revenue productivity across firms within an industry could have boosted valued-added 48 percent and ...
Working Paper
Accounting for Productivity Dispersion over the Business Cycle
This paper presents accounting decompositions of changes in aggregate labor and capital productivity. Our simplest decomposition breaks changes in an aggregate productivity ratio into two components: A mean component, which captures common changes to firm factor productivity ratios, and a dispersion component, which captures changes in the variance and higher order moments of their distribution. In standard models with heterogeneous firms and frictions to firm input decisions, the dispersion component is a function of changes in the second and higher moments of the log of marginal revenue ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
Working Paper
The Allocation of Immigrant Talent: Macroeconomic Implications for the U.S. and Across Countries
We quantify the labor market barriers that immigrants face, using an occupational choice model with natives and immigrants of multiple types subject to wedges that distort their allocations. We find sizable output gains from removing immigrant wedges in the U.S., representing 25% of immigrants' overall economic contribution, and that these wedges alter the impact of alternative immigration policies. We harmonize microdata across 19 economies and exploit cross-country variation in immigrant outcomes and estimated wedges to examine the drivers of differences in wedges and gains from their ...
Working Paper
The Allocation of Immigrant Talent: Macroeconomic Implications for the U.S. and Across Countries
We quantify the barriers to the economic integration of immigrants using an occupational choice model with natives and immigrants of multiple types subject to wedges that distort their allocations. We show that key parameters, including wedges, can be estimated to match the distribution of employment and earnings across individuals and occupations. We find sizable output gains from removing immigrant wedges in the U.S., accounting for 7 percent of immigrants’ overall economic contribution. These gains arise from increased labor force participation and from reallocation from manual toward ...