Working papers
"The Lost Generation of the Great Recession" [Job market paper]
This paper analyzes the effects of the Great Recession on different generations. While older generations have suffered the largest decline in wealth due to the collapse in asset prices, younger generations have suffered the largest decline in labor income. Potentially, the young may benefit from the purchase of cheaper assets, especially if they have access to credit. To analyze the impact of these channels, I construct an overlapping generations model with borrowing constraints in which households choose a portfolio over housing as well as risk-free and risky financial assets. Shocks to labor efficiency and uncertainty regarding the return on risky assets generate a recession with a drop in asset prices and cross-sectional changes in consumption, investment, and wealth that are consistent with the recent recession. In particular, younger generations experience the largest decline in nondurable consumption and housing investment, a fact that is supported by the data. Overall, the young suffer the largest welfare losses, equivalent to a 5 percent reduction in lifetime consumption.
"A Theory of Sudden Stops, Foreign Reserves, and Rollover Risk in Emerging Economies" with Illenin Kondo
Emerging economies, unlike advanced economies, have accumulated large foreign reserves holdings. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a crucial role in reducing debt rollover crises ("sudden stops"), akin to the role of bank reserves in preventing bank runs. An unexpected increase in rollover risk leads to a global rise in sudden stops, prompting emerging economies to update their priors about the risk they face. We show that a global increase in rollover risk explains the outburst of sudden stops in the late 1990s, the subsequent increase in foreign reserves holdings, and the salient absence of sudden stops ever since.
"Firms, Financing, and Barriers to Growth" with Jose Asturias, Timothy Kehoe, and Kim Ruhl
We construct a model in which aggregate growth is driven by the continual entry of new firms that face barriers to entry that are exacerbated by financial frictions. We show that economies with more severe financial frictions have lower levels of output and consumption along the balanced growth path compared to economies with lower levels of financial frictions, even though all economies grow at the same, constant, rate. Improvements in financial markets generate faster-than-trend growth as the economy transitions to the new balanced growth path. The model generates sharp predictions regarding the rate of firm creation and aggregate output levels, as well as aggregate growth rates; these predictions are borne out in the cross country data.