Entrepreneurs, Sudden Stops, and Inequality [Link] (Revised draft coming soon)
Abstract: This paper quantifies the importance of heterogeneity across entrepreneurs in accounting for aggregate and distributional dynamics during sudden stops. Using Argentinian household survey data from 1996 and 2003, I establish that the income distribution of entrepreneurs widened relative to that of workers. Motivated by this, I develop a small open-economy, heterogeneous-agent model with occupational choice in which households endogenously select into being a worker, a self-employed entrepreneur, and an employer entrepreneur. The model rationalizes aggregate and distributional features of sudden stops that standard models cannot. The model shows that a tax on assets and capital reduces the probability of a sudden stop, reduces long-run welfare, and dampens the relative widening of the income distributions by disincentivizing entrepreneurship.
Did Durable Goods Producing States Suffer a Greater Great Depression? (with Dong Cheng and Mario Crucini)
Abstract: We develop a three-sector, two-region model of durable goods and apply this model to study business cycle dynamics across regions of the U.S. during the Great Depression. The focus is on the ability of the durable goods channel coupled with specialization across regions to generate different cyclical amplitudes across durable good exporting and importing regions.
Aggregate and Distributional Consequences of Monetary Unions
Abstract: This paper quantifies the upper bound of aggregate and distributional costs of a monetary union using a two-sector heterogeneous-agent New Keynesian model. The magnitude of the contraction in the aggregate variables is shown to be larger during recessions when the economy is in a monetary union. From a distributional perspective, it also finds that being in a monetary union amplifies the rise of consumption and wealth inequalities. Overall, these results suggest that being in a monetary union can be costly and worsen inequality for a small open economy because the resources cannot reallocate efficiently across sectors due to the government’s inability to devalue its currency during recessions.