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Report
Firm dynamics and financial development
This paper studies the impact of cross-country variation in financial market development on firms? financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms? financial structure in the data and show that financial restrictions can account for the ...
Working Paper
A Quantitative Analysis of Tariffs Across U.S. States
We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2% to 25% across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to –0:3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred" tariff rate varies greatly across states. Foreign retaliation in trade policy ...
Newsletter
What Is Driving U.S. Inflation amid a Global Inflation Surge?
In June 2022, the 12-month inflation rate of the U.S. Consumer Price Index (CPI) hit 9.1%, its highest level in over 40 years. The U.S. is not alone: Across the industrialized world, inflation is accelerating during the recovery from the pandemic recession. Although inflation is surging globally, the sources of inflation are different in each country.
Working Paper
The Relationship between Debt and Output
In this paper we empirically explore the relationship between debt and output in a panel of 72 countries over the period 1970–2014 using a vector autoregression (VAR). We document two puzzling empirical findings that contrast with what is predicted by a standard small open economy model by Aguiar and Gopinath (2007), where debt and output endogenously respond to total factor productivity (TFP) shocks. First, developing countries’ debt falls after a positive output shock, while the model predicts a debt expansion. Second, output declines in developed and developing countries after a debt ...
Working Paper
A Quantitative Analysis of Tariffs across U.S. States
We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2 to 25 across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to $-0.3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred'' tariff rate varies greatly across states. Foreign retaliation in trade policy ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Report
Structural change in an open economy
We develop a tractable, three-sector model to study structural change in a two-country world. The model features an endogenous pattern of trade dictated by comparative advantage. We derive an intuitive expression linking sectoral employment shares to sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in productivity and in trade barriers affect expenditure and net export shares, and thus, employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff
Covid-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for Covid-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with ...
Journal Article
Understanding Global Trends in Long-run Real Interest Rates
The authors explore trends in long-run real interest rates and their underlying factors for the 20 largest economies from the 1950s through the present day. {{p}}Real, or inflation-adjusted, interest rates may well be the most important prices for any nation?s economy. They govern intertemporal purchasing decisions facing households, firms, and all levels of government. That is, virtually all interactions in the marketplace that entail making a choice between spending now and spending later necessarily involve real interest rates, which specify the real cost of borrowing to make a purchase ...