ABSTRACT This paper studies aggregate markup cyclicality through firm‐level heterogeneity, reallocation, and aggregation. Using the U.S. firm data for 1990–2016, we find that markups are procyclical for young firms and countercyclical for older firms following monetary policy shocks. Economic activity also reallocates modestly toward young firms. As the firm population ages, the aggregate markup response shifts from acyclical or mildly procyclical to countercyclical. These findings help reconcile conflicting evidence on markup cyclicality and imply that firm demographics shape monetary‐policy transmission and the roles of demand and supply shocks in business cycles.
ABSTRACT This paper examines the effect of idiosyncratic uncertainty on trade elasticities in a canonical heterogeneous‐firm model. We identify two channels through which uncertainty affects elasticities: a selection effect, whereby uncertainty lowers export participation thresholds and a dispersion effect, whereby uncertainty lowers the dispersion of export selection shocks, with an ambiguous impact on elasticities. We develop a methodology to quantify trade elasticities under uncertainty and apply it to Brazilian firm‐level export data. Relative to a complete‐information framework, uncertainty amplifies trade elasticities on average, with heterogeneous effects across industries that are largest among highly substitutable and high‐uncertainty products.
ABSTRACT This discussion develops a parsimonious framework for norm dynamics. The interaction between social pressure to conform and older generations attachment to past practices generates intergenerational inertia and a persistent wedge between behavior and the frictionless optimum. I characterize the determinants of this wedge and highlight the role of demographic transition. I illustrate the framework's broader applicability to scientific paradigms and policy reform.
ABSTRACT The gradual rise in temperatures motivates conceptualizing climate change as a phenomenon shaping the propagation of macroeconomic shocks, rather than as an independent shock. We formalize this in a theoretical model, showing that climate change induces a structural shift by steepening the aggregate supply curve, exacerbating the price effects of demand shocks while dampening the output response. Our empirical evidence is consistent with this prediction: higher temperatures raise the share of inflation variation attributable to demand shocks by up to 10 percentage points, underscoring the role of climate change in intensifying stagflationary dynamics rather than independently driving business cycles.
ABSTRACT Larger firms feature (i) longer hours worked, (ii) higher wages, and (iii) smaller (larger) wage penalties for working long (short) hours. We reconcile these patterns in a general equilibrium model, which features the endogenous interaction of hours, wages, and firm size. In the model, workers willing to work longer hours sort into larger firms that offer a wage premium. Complementarities in hours generate wage penalties that increase with the distance from the usual hours. We use the model to argue that variation in average hours across firms contributes significantly to wage inequality.
This paper rationalizes the adoption of a complementary currency (CC) in a small, local economy. A local money shortage occurs when the supply of official currency, determined endogenously by trade with a larger economy, falls short of the liquidity needed for first-best activity. A CC then supplements liquidity and boosts local trade at the expense of external trade; the welfare-maximizing CC supply is strictly positive. A calibration to coca-growing villages in Colombia, where coca-base circulates as a local CC, suggests its liquidity role raises local trade by roughly a third.
ABSTRACT We study social security reforms in economies with segmented labor markets and pension systems. We develop a life‐cycle general equilibrium model with heterogeneous agents and endogenous retirement and sectoral choice across public, formal, and informal jobs. Calibrated to Brazil, the model shows that unifying pension systems and raising the minimum retirement age reduce the pension deficit by nearly 40 percent, while increasing output, capital accumulation, and welfare, despite redistributive effects across age groups, sectors, and along the transition path. Sectoral reallocation plays a central role in shaping reform effects, and ignoring these margins substantially underestimates the macroeconomic consequences of pension reforms.
Modern macroeconomics ignores the recent proliferation of new monies. We show in our model that new monies like credit cards or stable coins or crypto currencies or helicopter money can cause a huge increase in prices, like the 1970s inflation when credit cards emerged in full use. These monies are not perfect substitutes, so shrinking conventional money supply to compensate for the growth of new monies comes at a welfare cost. Price levels are determined by money chasing goods, measured by the separate quantities of each kind of money and the scale of individual transactions. In Part I we introduce a one period version of our model in which we concentrate on the transactions role of monies. We show how fiat wealth (net of taxes) can be positive if there are enough gains to trade. Monies that raise fiat wealth (such as helicopter money) cause more inflation—eventually even hyperinflation—by increasing the interest rate, which reduces transactions. In contrast, credit cards (and central bank purchases of bonds) also cause inflation, but they enhance transactions and welfare. In Part II we present a multiperiod version in which the store‐of‐value role of money, and expectations about future policy, also affect inflation.
Heterogeneous agent incomplete markets models offer a new perspective on price and inflation determination. In contrast to complete markets, the price level is determined from the asset-market clearing condition. Fiscal and monetary policy then jointly and uniquely determine the finite steady-state price level and the inflation rate, including in a steady state in which the nominal interest rate is constant. Fiscal policy can determine the long-run inflation rate for a fiscal rule which sets the growth rate of nominal government debt, whereas both fiscal and monetary policy determine the long-run inflation rate under different tax rules.
We develop a rational, Walrasian model of speculative bubbles inspired by the Kindleberger-Minsky view, which describes bubbles as wave-like market processes. Touched off by an initial shock, price booms are initially self-reinforcing but become self-destructive later when prices surpass fundamental value. Previous models in this vein have been criticized due to ad hoc features, such as prices driven by behavioral forces or particular trading protocols. Our model allays these concerns by relying only on multidimensional uncertainty to prevent unraveling via backward induction. Standard market clearing, moreover, makes the model more compatible with established macroeconomic and asset pricing frameworks.
We investigate whether different criteria are used in evaluating male and female leaders when outcomes are determined by unobservable choices and luck. Evaluators form beliefs about leaders' choices (perceived intentions) and make discretionary payments. We find that while payments to male leaders are determined by both outcomes and perceived intentions, those to female leaders are determined by outcomes only. We label this new source of gender bias as the gender criteria gap. Our findings imply that high outcomes are necessary for women to get bonuses, but men can receive bonuses for low outcomes if evaluators hold them in high regard.
College loans facilitate access to education, but the repayment burden may distort posteducation human capital investment. We examine the role of college loans and loan repayment policies through a structural model of individuals' dynamic decisions on borrowing/saving, labor supply, and costly human capital investment. We estimate two versions of the model using data from NLSY79: one with natural borrowing limits and another with parameterized limits. Counterfactual simulations suggest that, relative to the standard fixed repayment plan, income-driven repayment (IDR) plans modestly increase educational attainment, lifetime earnings, and individual welfare; accounting for lifetime income taxes, they also increase government revenue.
We analyze market entry efficiency in single- and two-sector closed-economy Melitz-Ottaviano (MO) models without an outside good. Comparing market and second-best outcomes, we find that market entry is efficient in the single-sector model. This efficiency also holds in a symmetric two-sector setting. When sectors have asymmetric demand and the level of asymmetry is sufficiently small, the market yields excessive entry into the "high-demand" sector. This inefficiency arises from the presence of an additional aggregator in MO preferences.
We quantitatively analyze the impact of US banking deregulation in the 1980s on the aggregate economy. Using recent econometric techniques, we first reexamine existing empirical evidence on the real effects of banking deregulation. We then construct a quantitative model that integrates imperfectly competitive banks into a general equilibrium framework of firm dynamics and occupational choice. Consistent with the empirical evidence, deregulation significantly increases output growth and firm entry. Increased competition among banks and the entrepreneurs' occupational choices play an important role in shaping the economy's response to deregulation.
From 2006 until 2020, the probability of selling a house in the U.S. declined sharply after listing for 2 weeks. Moreover, sales within the first 2 weeks of listing ("quick sales") and sales happening afterward ("slow sales") behaved differently over the housing cycle. The probability and associated price of a quick sale recovered from the slump sooner, faster, and more prominently than a slow sale. This paper demonstrates that a calibrated stock-flow matching model not only generates quantitatively consistent sales, prices, listings, and time on the market but also captures distinctions between fast and slow sales over the housing cycle.
We examine the decentralization of liquor policies in Texas during the Post-Prohibition era using newly collected historical legislative roll call data. By combining these data with local referendum vote shares, we analyze both legislators' and constituents' preferences on liquor policy. We develop a probabilistic voting model incorporating spillovers and peer effects. Results reveal substantial heterogeneity in preferences among voters, reflecting differing attitudes toward alcohol regulation. Spillover effects are significant, yet the model predicts notable gains from decentralization. Finally, we link legislators' policy preferences to alcohol consumption data and compare model-based welfare estimates with traditional consumption-based measures.
How does the targeting of personal income tax cuts affect the output multiplier? This paper provides quantitative evidence using a heterogeneous-agent New-Keynesian model calibrated to match US distributions of income, wealth, marginal tax rates, and marginal propensities to consume. Labor supply is determined by household preferences on the intensive margin and search frictions on the extensive margin. The model evaluates tax cuts for the bottom-90 (B90%) and top-10% of the income distribution in national and cross-region settings, replicating influential empirical research designs. B90 tax cuts generate larger output effects while incentive effects play a central role in transmission.
We embed labor market monopsony into a dynamic heterogeneous-firm general equilibrium model with exporting, horizontal FDI, and rich firm lifecycle dynamics. Rising marginal costs with monopsony slow and limit incumbent firm growth in response to liberalization, shifting adjustment to the extensive margin. Calibrated to US micro data, welfare gains from tariff reduction are over four times larger under monopsony than with perfect labor markets. The difference is mostly driven by new exporter creation and firm entry along the transition path. By contrast, lowering outward FDI taxes gives powerful quantitative welfare losses under monopsony, as firms undertake FDI to escape domestic wage pressure.
We study the evolution of China's production and trade patterns during its integration into the global economy. Using firm-level microdata, we document how production and exports shifted across industries and within industries across firms. We quantify a Ricardian-Heckscher-Ohlin model with heterogeneous firms to account for these changes. Counterfactuals show capital deepening pushed China's production and exports toward greater capital intensity, while labor-biased productivity growth provided an offsetting force. The model generates an inverted-U pattern in China's trade openness-peaking in the mid-2000s and declining through the 2020s-alongside a continuous rise in the world's exposure to Chinese exports.
Economists have long studied how parental behavior shapes within-family inequality, yet empirical findings remain mixed. Using twins data from China and Sweden, we examine the predominant mechanisms reported in the literature. Parents in both countries invest similarly during childhood. Inter vivos transfers, however, differ: Chinese parents reinforce income inequality, whereas Swedish parents distribute wealth equally; the reinforcing pattern reflects exchange motives. Bequests are divided equally in both countries. Parental education plays a key role: less educated parents reinforce income inequality, whereas more educated parents transfer wealth equally. Cross-country differences in parental education may thus help explain the mixed findings.
