“A Job Ladder Model of Firm, Worker, and Earnings Dynamics" (Job Market Paper). Find it here.
Abstract: This paper proposes a multiworker firm model with on-the-job search and decreasing returns-to-scale production. A coalition wage bargaining solution between a firm and its incumbent workers yields tractability, results in privately efficient recruiting decisions, and delivers an explicit expression for the wage function. I show how a calibrated version of the model can replicate untargeted empirical facts on the cross-sectional dispersion in firm growth and on measured elasticities of separation rates, quitting rates and vacancy duration with respect to wages. The model delivers net poaching rates by firm size and firm wage and can rationalize the absence of a firm size ladder and the presence of a wage ladder. In terms of business cycles, the model can replicate the cyclical properties of job flows and workers flows, and the elasticity of the wages of new hires relative to existing workers with respect to unemployment.
“Finite-State Markov-Chain Approximations: A Hidden Markov Approach'', with Eva F. Janssens. Find it here.
Abstract: This paper proposes a novel finite-state Markov chain approximation method for Markov processes with continuous support. The method can be used for both uni- and multivariate processes, as well as non-stationary processes such as those with a life-cycle component. The method is based on minimizing the information loss between a misspecified approximating model and the true data generating process. The method outperforms existing methods in several dimensions, including parsimoniousness. We compare the performance of our method to existing methods through the lens of an asset-pricing model, and a life-cycle consumption-savings model. We find the choice of the discretization method matters for the accuracy of the model solutions, the welfare costs of risk, and the amount of wealth inequality a life-cycle model can generate.
SCE Graduate Student Prize 2022, presented at NBER SI 2022 (Dynamic Equilibrium Models)
“Commitment in the Canonical Sovereign Default Model", with Xavier Mateos-Planas, Jose-Victor Rios-Rull, and Adrien Wicht. Find it here.
Abstract: We study the role of lack commitment in shaping the allocations of the canonical incomplete-markets sovereign default model of Eaton and Gersovitz (1981). We show how the equilibrium with commitment to the circumstances under which default can be undertaken involves a very different set of functional equations than in the equilibrium without commitment. It turns out that, in practice, under commitment default does not exist in all but very extreme quantitative environments. We document how the standard specification of Arellano (2008) displays no default if there is commitment, even in the absence of both utility cost and exclusion from borrowing. While less standard specifications can produce some default under commitment, we provide examples that demonstrate how rare default is. We interpret default as a recourse of last resort.
Work in Progress
“Unemployment Take-Up and Labor Search''
Abstract: The quantitative implications of counter-cyclical unemployment benefit take-up are evaluated in a real business cycle model with labor market search. Combining data from the Department of Labor (DOL) and the Survey of Income and Program Participation (SIPP), I document that recipients of unemployment benefits take longer to regain employment than non-recipients. I embed a take-up decision in an otherwise standard real business cycle labor search model. The lower job-finding rate of recipients coupled with the share of recipients rising during recessions provides a significant amplification channel for movements in labor productivity. The model can also rationalize a take-up rate below one without assuming a stigma cost associated with receiving benefits.
“Monetary Policy in Incomplete Market Models: Theory and Evidence”, with Marcus Hagedorn, Iourii Manovskii and Kurt Mitman
“The Generalized Euler Equation and the Bankruptcy-Sovereign Default Problem”, with Xavier Mateos-Planas, José Víctor Ríos-Rull and Adrien Wicht. Long Slides. Short Slides.
Abstract: This paper characterizes the equilibrium of the standard incomplete markets models with defaults and long-term debt. A risk-averse borrower issues long-term non-contigent bonds but cannot commit to its future selves to repay what it owes. We characterize and solve for the Markov equilibrium of the dynamic game with successive borrowers through a Euler equation with derivative on future actions – i.e. a generalized Euler equation. We disentangle the effect due to default and dilution of legacy creditors and show that prices and policy functions exhibit jumps in various places. Taking the limit of finite horizon, we show existence and uniqueness of the Markov equilibrium.