Macroeconomics & International Finance Seminars

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

Winter 2020

January 7
Ezra Oberfeld, Princeton
"Plants in Space"
Host: Ajay Shenoy
Firms place establishments in many locations and do so in different ways. We study a model in which heterogeneous firms place multiple establishments in heterogeneous locations. In the model, each firm trades off the benefit of reaching customers more easily with more establishments (lower transportation costs) against both cannibalizing its own demand and a span of control cost that lowers the firm's productivity. Using insights from discrete geometry, we study a tractable limiting case of this economy in which these forces operate at a local level. The model delivers clear predictions about how the span of control cost leads to partial sorting across space, about how concerns about cannibalization affect they way firms grow their local footprints, and about how these patterns are shaped by transportation costs. We confront these predictions with comprehensive microdata and find empirical support.  

January 14 - CANCELLED
Arlene Wong, Princeton
"State Dependent Effects of Monetary Policy: The Refinancing Channel"
Host: Brenda Samaniego
This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize.

January 21
Monika Piazzesi, Stanford
"Learning About Housing Costs: Survey Evidence from the German House Price Boom"
Host: Alonso Villacorta
This paper uses new household survey data to study expectation formation during the ongoing German housing boom. On average, households predict reversal to trend and, hence, underestimate actual price growth. In the cross section, housing tenure is a sufficient statistic for forecasts given standard household characteristics. Renters are more optimistic than owners and therefore make better forecasts. A model of learning about housing cost explains these facts: renters pay for housing services and consequently understand their value better than owners, who simply consume them. As a result, renters are more optimistic in booms driven by an increase in rents or a recovery from financial distress. The model is also consistent with survey data on  households’ plans and reported sources of information.

February 11
Erik Hurst, Chicago Booth School of Business
"Income Growth and the Distributional Effects of Urban Spatial Sorting"
Host: Brenda Samaniego
We explore the impact of rising incomes at the top of the distribution on spatial sorting patterns within large U.S. cities. We develop and quantify a spatial model of a city with het- erogeneous agents and non-homothetic preferences for neighborhoods with endogenous amenity quality. As the rich get richer, demand increases for the high quality amenities available in downtown neighborhoods. Rising demand drives up house prices and spurs the development of higher quality neighborhoods downtown. This gentrification of downtowns makes poor incumbents worse off, as they are either displaced to the suburbs or pay higher rents for amenities that they do not value as much. We quantify the corresponding impact on well-being inequality. Through the lens of the quantified model, the change in the income distribution between 1990 and 2014 led to neighborhood change and spatial resorting within urban areas that increased the welfare of richer households relative to that of poorer households, above and beyond rising nominal income inequality. 

February 18
Mauricio Ulate, SF Fed
"New-Keynesian Trade: Understanding the Employment and Welfare Effects of Sector-Level Shocks"
There is a growing empirical consensus suggesting that sector-specific productivity increases in a foreign country can have important unemployment and nonemployment effects across the different regions of a domestic economy. Such employment changes cannot be explained by the workhorse quantitative trade model since it assumes full employment and a perfectly inelastic labor supply curve. In this paper we show how adding downward nominal wage rigidity and home employment allows the quantitative trade model to generate changes in unemployment and nonemployment that match those uncovered by the empirical literature studying the “China Shock.” We also compare the associated welfare effects predicted by this model with those in the model without unemployment. We find that the China Shock leads to welfare increases in most states of the U.S., including many that experience unemployment during the transition. On average across U.S. states, nominal rigidities reduce the gains from the China Shock from 36 to 26 basis points.

March 3
David Wiczer, Stony Brook
Host: Brenda Samaniego

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 - CANCELLED
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%.