Macroeconomics

We use information in higher-order moments to identify aggregate supply and aggregate
demand shocks for the U.S. economy. Traditional methods based on sign restrictions and/or
second-order moments yield only “set” or “interval” identification but higher-order moments
are shown to considerably aid identification. Aggregate supply shocks dominated recessions
in the 1970s and early 1980s, while aggregate demand shocks dominated most later recessions.

This paper studies lockdown policy in a dynamic economy without government commitment. Lockdown imposes a cap on labor supply, which improves health prospects at the cost of economic output and consumption. A government would like to commit to the extent of future lockdowns in order to guarantee an economic outlook that supports efficient levels of investment into intermediate inputs. However, such a commitment is not credible, since investments are sunk at the time when the government chooses a lockdown. As a result, lockdown under lack of commitment deviates from the optimal policy.

We study a fiscal policy model in which the government is present-biased towards public spending. Society chooses a fiscal rule to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to privately observed shocks to the value of spending. Unlike prior work, we examine rules under limited enforcement: the government has full policy discretion and can only be incentivized to comply with a rule via the use of penalties which are joint and bounded. We show that optimal incentives must be bang-bang.

In a monetary union, the risk-free rate cannot adjust to country-level fiscal positions, leaving only default spreads and convenience yields to respond. Empirically, we find that convenience yields explain a large share of the variation in Eurozone sovereign bond yields. Eurozone sovereign bonds earn larger convenience yields when their governments run larger surpluses. Since convenience yields generate substantial seigniorage revenue from debt issuance, our estimates imply economically large fiscal costs from low convenience yields for peripheral countries in the Eurozone.

It is hard to look at a crisis like Russia’s invasion of Ukraine and see a moment of opportunity. We—to say nothing of Ukrainians—are still very much in a crisis, and a compounding one at that, with potential long-lasting economic and political consequences.

We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices - which impacts future policy -- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs.

The covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets. The government has responded with a massive intervention in corporate credit markets. We study equilibrium dynamics of macroeconomic quantities and prices, and how they are affected by government intervention in the corporate debt markets. We find that the interventions should be highly effective at preventing a much deeper crisis by reducing corporate bankruptcies by about half, and short-circuiting the doom loop between corporate and financial sector fragility.

We explore the relationship between the volatility of a firm's local environment and its organizational structure. Using micro-level data on managers working for a large retailer, we empirically test and provide support for our theory that a more volatile local environment results in more decentralization only when the need for coordination among sub-units is low. In contrast, more local volatility is associated with more centralization when coordination needs are high.

We argue that economists have studied the role of management from three perspectives: contingency theory (CT), an organization-centric empirical approach (OC), and a leader-centric empirical approach (LC). To reconcile these three perspectives, we augment a standard dynamic firm model with organizational capital, an intangible, slow-moving, productive asset that can be produced only with the direct input of the firm’s leadership and that is subject to an agency problem.