Job Market Papers (for other papers I am equally proud of see Research) 1. ‘Endogenous
Entry, Product Variety and Business Cycles’, with Fabio Ghironi (Boston College)
and Marc Melitz (Princeton), Presented i.a. at NBER’s
Economic Fluctuations and Growth Meeting, New York, 2006. Abstract: This paper builds a framework for the analysis
of macroeconomic fluctuations that incorporates the endogenous determination
of the number of producers over the business cycle. Economic expansions
induce higher entry rates by prospective entrants subject to irreversible
investment costs. The sluggish response of the number of producers
(due to the sunk entry costs) generates a new and potentially important
endogenous propagation mechanism for real business cycle models. The
stock-market price of investment in the creation of new productive
units determines household saving decisions, producer entry, and the
allocation of labor across sectors. The model performs at least as
well as the traditional setup with respect to the implied second-moment
properties of key macroeconomic aggregates. In addition, our framework
jointly predicts a procyclical number of producers and procyclical
profits even for preference specifications that imply countercyclical
markups. When we include physical capital, the model can reproduce
the variance and autocorrelation of GDP found in the data. 2. ‘Limited Asset Market Participation, Monetary Policy and (Inverted) Keynesian Logic’, (version revised and resubmitted to Journal of Economic Theory), older version here: Nuffield College, Oxford, W.P. 09/05. Abstract: This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While 'moderate' participation rates strengthen the role of monetary policy, low enough participation causes an inversion of results dictated by ('Keynesian') conventional wisdom. The slope of the 'IS' curve changes sign, the 'Taylor principle' is inverted, optimal welfare-maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed. However, a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation. Our results may justify Fed's behavior during the Great Inflation period. Presentation would also draw on companion paper: 2.a Asset Market Participation, Monetary Policy Rules and the Great Inflation’, with Roland Straub (IMF), International Monetary Fund W.P. 06/06 (submitted). Abstract: This paper uses an empirically richer version of previous paper’s model to argue that limited asset market participation is crucial in explaining U.S. macroeconomic performance and monetary policy before the 1980s, and their changes thereafter. We argue that the policy of the Federal Reserve in the pre-Volcker era, often associated with a passive monetary policy rule, was closer to optimal than conventional wisdom suggests and may thus have remained unchanged at a fundamental level thereafter. We provide institutional and empirical evidence for our hypothesis, in the latter case using Bayesian estimation techniques, and show that our model is able to explain most features of the 'Great Inflation'. Last updated: 23 November 2006 |