Working Papers
Optimal Monetary Policy in HANK
latest version November 2022 (first draft April 2022)
I study the optimal monetary policy in a New Keynesian model with heterogeneous households. The Ramsey planner maximizes aggregate welfare in an economy with rich heterogeneity in the income distribution, as well as a wealth distribution that features an occasionally binding borrowing constraint. I show that heterogeneity qualitatively changes optimal monetary policy relative to the representative agent economy. I highlight that the importance of the novel incentive of the optimal policy in this setting comes from counteracting the increase of hand-to-mouth households in recessions. The mechanism acts through mitigating unequal exposure of households to an aggregate shock, hence the effect is partially present even in the absence of this incentive.
Presented at: BGSE Jamboree (Oct 2020); CREI Lunch (Dec 2020); CREI Lunch (Mar 2022); First PhD Workshop in Money and Finance (May 2022); Econometric Society Australasia Meeting (Jul 2022); EEA Congress (Aug 2022); New Challenges to Monetary Policy (Sep 2022); CREI Lunch (Sep 2022)
Heterogeneous Markups Cyclicality and Monetary Policy
Firms' markups cyclicality is at the heart of monetary policy transmission in the New Keynesian model. Using US Compustat data and employing local projection techniques, we uncover a novel empirical fact: dominant firms have a more countercyclical markup response after an unexpected contractionary monetary policy shock. Using a heterogeneous firms New Keynesian model with demand accumulation and endogenous markups that evolve over the life-cycle of producers, we show that this is due to the different demand elasticities faced by the firms. Dominant firms face a more inelastic demand, which implies a lower pass-through rate from costs to prices. Therefore, after a contractionary monetary policy shock, dominant firms pass less the reduction in marginal costs to prices compared to competitors, and increase their markups by more, as documented empirically. After calibrating the model to US micro-level data, we also find that firms' heterogeneous demand elasticities can lead to the amplification of monetary policy amplification.
Presented at: CREI Lunch (Mar 2021); BGSE Jamboree (Oct 2021); PhD-EVS (Feb 2022); RES (Apr 2022); Spring Meeting of Young Economists (May 2022); Individual Risks and the Macroeconomy (Jun 2022)
Labor and Family Dynamics in a Joint-Search Framework
(joint with Marta Morazzoni) latest version November 2021
We study the interplay of job search and family dynamics in a heterogeneous agents model. Empirical evidence for the US shows that married households have higher wages and lower unemployment rates compared to singles, and that highly-educated agents tend to sort in couples and have higher marriage rates. We develop a model of job search and family dynamics to rationalize these findings. In our set up, married agents can insure better one another against unemployment and idiosyncratic risks. But, importantly, endogenizing household's formation generates both sorting and a mechanism of selection-into-joint-households that determines productivity differences in the sample composition of married and singles. The calibrated model explains 75% of the wage marital premium, 60% of the unemployment marital gap and the bulk of the documented marital patterns, and it is used as a laboratory to evaluate optimal unemployment insurance schemes and family benefits for single and joint-households.
Presented at: BGSE Jamboree (Oct 2020); CREI Lunch (Dec 2020); Webinar in Gender and Family Economics (Jun 2021); ESPE (Jun 2021); EEA-ESEM (Aug 2021); Spanish Macroeconomic Network (Oct 2021); Dale Mortensen Copenhagen Conference (Oct 2021); Symposium of the Spanish Economic Association (Dec 2021)
Discussions
Estimating Nonlinear Heterogeneous Agents Models with Neural Networks
Presentation by Matthias Rottner at CEBRA Annual Meeting, Aug 2022 slides
The Distributional Dynamics of Wages Over The Business Cycle
Presentation by Victor Saldarriaga at Barcelona School of Economics Jamboree, May 2022 slides
Optimal fiscal policy with Ricardian and hand-to-mouth agents
Presentation by Shangdi Hou at Barcelona School of Economics Jamboree, Oct 2021 slides
Presentation by Matthias Rottner at CEBRA Annual Meeting, Aug 2022 slides
The Distributional Dynamics of Wages Over The Business Cycle
Presentation by Victor Saldarriaga at Barcelona School of Economics Jamboree, May 2022 slides
Optimal fiscal policy with Ricardian and hand-to-mouth agents
Presentation by Shangdi Hou at Barcelona School of Economics Jamboree, Oct 2021 slides