Macroeconomics & International Finance Seminars

Tuesday 1:40–3:00 p.m.
499 Engineering II

Fall 2019

October 17 (Note different day)
Daniel Murphy, Darden School of Business, University of Virginia
"Saving-Constrained Households"
Host: Brenda Samaniego

October 22
Victor Ortego-Marti, UC Riverside
"Efficiency in the Housing Market with Search Frictions"
Host: Brenda Samaniego
This paper studies efficiency in the housing market with search and matching frictions and endogenous entry of buyers. Two externalities are present in the market. Search and matching frictions produce the usual congestion and thick market externalities. The endogenous entry of buyers leads to an additional externality. As more buyers enter the market, they raise costs for other buyers. Buyers' decision to enter the market does not internalize this externality and, therefore, the decentralized equilibrium is inefficient. We show that the inefficiency persist even when the Hosios-Mortensen-Pissarides condition holds or search is directed. Further, the paper explores the potential for housing market policies to restore the efficient allocation. Finally, in a quantitative exercise we analyze how far the decentralized equilibrium is from the optimal allocation.

October 29 - CANCELLED
Ina Simonovska, UC Davis
"The Risky Capital of Emerging Markets"
Host: Grace Gu
We use macroeconomic data to build a panel of international capital returns over a long horizon across both developed and developing countries. We document two facts: poor and emerging markets exhibit (1) high average returns to capital and (2) high betas on US returns. We quantitatively explore whether consumption-based risk faced by a US investor can reconcile these patterns. Long-run risks lead to return disparities at least 55% as large as those in the data. Fact (2), although not a sufficient statistic, is informative about the extent of long-run risk in foreign capital, and so about fact (1). 

November 5
Andres Drenik, Columbia University
"Devaluations, Inflation, and Labor Income Dynamics"
Host: Alonso Villacorta
We study labor income dynamics during large devaluations in Argentina, using a novel monthly administrative employer-employee matched dataset covering the universe of formal workers in the 1996-2017 period. First, we find that during the economic recovery after the 2002 devaluation, real income inequality decreases mainly due to the sluggish adjustment at the top of the distribution. That is, the recovery of real income is heterogeneous, can be predicted by workers’ characteristics, and has large effects on inequality. Second, we find that the main driver of employment is the on-impact drop in the separation rate. We decompose the decrease in the total cross-sectional variance in a between-sector, between-firm, and within-firm components. The contribution of each component is around one-third. We explore potential mechanisms for these facts, finding empirical support for mechanisms involving an increase in inflation, heterogeneous exposure to trade, and heterogeneous degrees of unionization across the income distribution.

November 12
Jean Paul L'Huilier, Brandeis University
"Raising the Ination Target: How Much Extra Room Does it Really Give?"
Host: Hikaru Saijo
Less than intended. Therefore, in order to get, say, 2 pp. of eective extra room for monetary policy, the target needs to be raised to more than 4%. In this paper, we investigate the constraints on a policy aimed at achieving more monetary policy room by raising the ination target. A theoretical analysis shows that the actual eective room gained when raising the target is always smaller than the intended room. The reason is a shift in the behavior of the private sector: Prices adjust more frequently, lowering the potency of monetary policy. We derive a simple formula for the eective gain expressed in terms of the potency of monetary policy. We then quantitatively investigate this channel across dierent models, based on a calibration using micro data. We nd that, by raising the target to 4%, the monetary authority only gains between 0.51 and 1.60 percentage points (pp.) of policy room (not 2 pp. as intended). In order to achieve 2 pp. additional policy room, the target needs to be raised to approximately 5%. The quantitative models allow to derive the Bayesian distribution of the eective room under parameter uncertainty.

November 19
Hanno Lustig, Stanford University
"The Government Risk Premium Puzzle"
Host: Alonso Villacorta
The market value of outstanding government debt reflects the expected present discounted value of current and future primary surpluses. When the discount rate is consistent with the term structure of interest rates and equity prices and government spending growth dynamics are estimated from the data, a government risk premium puzzle emerges. Since tax revenues are pro-cyclical while government spending is counter-cyclical, the tax revenue claim has a higher risk premium and a lower value than the spending claim. This makes the value of the surplus claim negative, and implies that the U.S. government should be a creditor rather than a debtor. We resolve this puzzle by postulating a small but persistent component in expected spending growth, and infer it from the market value of the outstanding government bond portfolio. This component offsets the pro-cyclical movements in current surpluses, reducing its risk and increasing its value. The resulting model is used to study the optimal maturity structure of government debt, and to quantify deviations of the observed portfolio from the optimal one.

November 26
Julian Begenau, Stanford GSB
"Financial Regulation in a Quantitative Model of the Modern Banking System"
Host: Grace Gu / Alonso Villacorta
How does the shadow banking system respond to changes in capital regulation of commercial banks? We propose a tractable quantitative general equilibrium model with regulated and unregulated banks to study the unintended consequences of capital requirements. Tightening the capital requirement from the status quo leads to a safer banking system despite riskier shadow banking activity. A reduction in aggregate liquidity provision decreases the funding costs of all banks, raising profits and investment. Calibrating the model to data on financial institutions in the U.S., the optimal capital requirement is around 17%.