Macroeconomics

Thomas Piketty
Author of Capital in the Twenty-First Century

Population growth has declined markedly in almost all major economies since the 1970s. We argue this trend has important consequences for the process of firm dynamics and aggregate growth. We study a rich semi-endogenous growth model of firm dynamics and show analytically that a decline in population growth reduces creative destruction, increases average firm size and concentration, raises market power and misallocation, and lowers aggregate growth in the long-run.

Climate scientists have long emphasized the importance of climate tipping points like thawing permafrost, ice sheet disintegration, and changes in atmospheric circulation. Yet, save for a few fragmented studies, climate economics has either ignored them or represented them in highly stylized ways. We provide unified estimates of the economic impacts of all eight climate tipping points covered in the economic literature so far using a meta-analytic integrated assessment model (IAM) with a modular structure.

We propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, using cash-flows on various listed equity and fixed income instruments. The second step values the replicating portfolio using a flexible asset pricing model that accurately prices the systematic risk in listed equity and fixed income instruments of different horizons.

With its fixation on equilibrium thinking and an exclusive focus on market factors that can be precisely measured, the neoclassical orthodoxy in economics is fundamentally unequipped to deal with today's biggest problems. Change within the discipline is underway, but it cannot come fast enough.

We provide tools to analyze information design problems subject to constraints. We do so by showing that the techniques in Le Treust and Tomala (2019) extend to the case of multiple inequality and equality constraints. This showcases the power of the results in that paper to analyze problems of information design subject to constraints. We illustrate our results with applications to mechanism design with limited commitment (Doval and Skreta, 2020) and persuasion of a privately informed receiver (Kolotilin et al., 2017).

We show that a rise in the minimum wage accounts for a large decline in earnings inequality in Brazil since 1994. To this end, we combine rich administrative and survey data with an equilibrium model of the Brazilian labor market. Our results imply that the minimum wage has far-reaching spillover effects on wages higher up in the distribution, accounting for one-third of the 25.9 log point fall in the variance of log earnings in Brazil since 1994. At the same time, the minimum wage's effects on employment and output are muted by reallocation of workers toward more productive firms.

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro-economic aggregates and credit provision as well as the sharp change in credit spreads observed during the Great Recession.

Compared with existing payment systems, Bitcoin’s throughput is low. Designed to address Bitcoin’s scalability challenge, the Lightning Network (LN) is a protocol allowing two parties to secure bitcoin payments and escrow holdings between them. In a lightning channel, each party commits collateral towards future payments to the counterparty and payments are cryptographically secured updates of collaterals. The network of channels increases transaction speed and reduces blockchain congestion.