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Journal Article
Money Aggregates, Debt, Pent-Up Demand, and Inflation: Evidence from WWII
The COVID-19 pandemic produced a massive decline in U.S. consumption in 2020 and swift fiscal and monetary policy responses. After growing at a rather steady 5 percent rate for decades, the money supply (M2) increased 25 percent over the past year alongside unprecedented fiscal support, raising some inflation concerns. Concurrent with the reopening of the economy as vaccines roll out, this article derives some lessons from the U.S. experience during and after WWII. The debt-to-GDP ratio increased from 40 percent to 110 percent because of the war effort. Most of it was financed by Fed debt ...
Discussion Paper
Remittances and COVID-19: A Tale of Two Countries
Looking at the effects of the COVID-19 pandemic on workers' remittances flowing from the United States, this article focuses on the experiences of two countries, El Salvador and Mexico, which account for approximately 30 percent of all immigrants currently residing in the United States. Following the second quarter's economic lockdown, transfers to these countries experienced perplexing dynamics. Specifically, remittances to El Salvador witnessed a record 40 percent sudden drop, while Mexico recorded an unexpected 35 percent increase. We discuss some of the narratives proposed to explain this ...
Discussion Paper
COVID-19 International Evidence: Some Notable Puzzles
This article uses international evidence to argue that we still have limited knowledge about the efficacy of widely used preventive actions, such as social distancing and face masks, in containing the spread of the novel COVID-19 virus. I document three puzzles. One, Peru enacted unprecedented lockdowns early in the pandemic, which led to a record contraction in economic activity. The country’s residents also adopted near-universal face mask usage. None of these actions, however, prevented Peru from experiencing the world’s highest per capita mortality rate from the virus. Second, ...
Working Paper
Offshoring, Low-skilled Immigration, and Labor Market Polarization
During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded in high- and low-skill occupations. Real wages have not followed the same pattern. While earnings for high-skill occupations have risen robustly, wages for both low- and middle-skill workers have remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize their asymmetric effect on employment and ...
Working Paper
Fintech Entry, Firm Financial Inclusion, and Macroeconomic Dynamics in Emerging Economies
We build a model with a traditional banking system, endogenous entry of firms and fintech intermediaries, and firm heterogeneity in credit access and usage to study the credit-market, macroeconomic, and business cycle implications of the recent sizable growth in the number of fintech intermediaries in emerging economies. Our analysis delivers three findings. First, the impact of greater fintech entry on firm financial inclusion depends on whether greater entry is driven by lower entry costs for fintech intermediaries or lower barriers to fintech credit for unbanked firms. Second, greater ...
Journal Article
Financial development, remittances, and real exchange rate appreciation
For developing countries, remittances are an important and expanding source of capital, equivalent to two-thirds of overall foreign direct investment and nearly 2 percent of gross domestic product. ; This article examines the relationship between remittance inflows, financial sector development, and the real exchange rate. The authors test whether financial sector development can prevent appreciation of the real exchange rate. In particular, they show that well-developed financial sectors can more effectively channel remittances into investment opportunities. ; Using panel data for 109 ...
Journal Article
Remittances and COVID-19: A Tale of Two Countries
Looking at the effects of the COVID-19 pandemic on workers’ remittances flowing from the United States, this article focuses on the experiences of two countries, El Salvador and Mexico, which account for approximately 30 percent of all immigrants currently residing in the United States. Following the second quarter’s economic lockdown, transfers to these countries experienced perplexing dynamics.Specifically, remittances to El Salvador witnessed a record 40 percent sudden drop, while Mexico recorded an unexpected 35 percent increase. We discuss some of the narratives proposed to explain ...
Journal Article
Remittances ebb and flow with the immigration tide
Many people in developing countries rely on the remittance payments sent back home by family members working abroad. An economic slowdown in the United States has dampened the growth of this payment method. Changing migration patterns, economic developments, and new technologies and policies are affecting how - and how many - remittances are sent abroad.
Working Paper
Digital Adoption, Automation, and Labor Markets in Developing and Emerging Economies
We document a strong negative link between self-employment and the rate of digital adoption by firms in developing and emerging economies. No link between digital adoption and the unemployment rate is found, however. To explain this evidence, we build a general equilibrium search-and-matching model with endogenous labor force participation, self-employment, endogenous firm entry, and information-and-communications technology adoption. The main finding is that changes in the cost of technology adoption per se cannot rationalize the evidence. Instead, changes in firms' barriers to entry ...
Working Paper
Microentrepreneurship and the business cycle: is self-employment a desired outcome?
Should a central bank accommodate energy price shocks? Should the central bank use core inflation or headline inflation with the volatile energy component in its Taylor rule? To answer these questions, we build a dynamic stochastic general equilibrium model with energy use, durable goods, and nominal rigidities to study the effects of an energy price shock and its impact on the macroeconomy when the central bank follows a Taylor rule. We then study how the economy performs under alternative parameterizations of the rule with different weights on headline and core inflation after an increase ...