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Author:Melcangi, Davide 

Report
Firms’ Precautionary Savings and Employment during a Credit Crisis

Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? I use U.K. firm-level accounting data to discipline a heterogeneous-firm model in which the interaction between real and financial frictions induces precautionary cash holdings. In the data, firms increased their cash ratios during the last recession, and cash-intensive firms displayed higher employment growth. A tightening of firms? credit conditions generates the same dynamics in the model. Unconstrained firms pre-emptively respond to credit supply shocks, and this ...
Staff Reports , Paper 904

Report
The marginal propensity to hire

This paper studies the link between firm-level financial constraints and employment decisions, as well as the implications for the propagation of aggregate shocks. I exploit the idea that, when the financial constraint binds, a firm adjusts its employment in response to cash flow shocks. I identify such shocks from changes to business rates, a U.K. tax based on a periodically estimated value of the property occupied by the firm. A 2010 revaluation implied that similar firms, occupying similar properties in narrowly defined geographical locations, experienced different tax changes, allowing me ...
Staff Reports , Paper 875

Discussion Paper
How Did State Reopenings Affect Small Businesses?

In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer ...
Liberty Street Economics , Paper 20200921

Discussion Paper
Did State Reopenings Increase Consumer Spending?

The spread of COVID-19 in the United States has had a profound impact on economic activity. Beginning in March, most states imposed severe restrictions on households and businesses to slow the spread of the virus. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. As the virus has re-emerged, a number of states have taken steps to reverse the reopening of their economies. For example, Texas and Florida closed bars again in June, and Arizona additionally paused operations of gyms and movie theatres. Taken together, these measures raise the question of ...
Liberty Street Economics , Paper 20200918b

Report
Stock Market Participation, Inequality, and Monetary Policy

What role does stock investment play in the transmission of monetary policy to the real economy? We study this question using a New Keynesian model with heterogeneous households. Following a monetary tightening, stock market participants rebalance their investments away from stocks, in line with empirical evidence on mutual fund flows. This response depresses aggregate investment and hence aggregate output and income, which feeds back into an even larger decline in stock investment. The strength of this channel is, however, highly sensitive to household heterogeneity. Therefore, we design the ...
Staff Reports , Paper 932

Report
Latent Heterogeneity in the Marginal Propensity to Consume

We estimate the distribution of marginal propensities to consume (MPCs) using a novel clustering approach that generalizes the fuzzy C-means algorithm to regression settings. We apply the estimator to the 2008 stimulus payments, exploiting the randomized timing of disbursements, and find considerable heterogeneity in MPCs that varies by consumption good. We document observable determinants of this heterogeneity, without imposing ex ante assumptions on such relationships; MPCs correlate positively with income and the average propensity to consume, but much heterogeneity remains unexplained. ...
Staff Reports , Paper 902

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