Research
Publications
Unraveling News: Reconciling Conflicting Evidences
(joint with Sarah Fischer)
The B.E. Journal of Macroeconomics, vol.21, no.2, 2021, pp. 695-743. https://doi.org/10.1515/bejm-2019-0208
First working paper version: August 2017. Latest working paper version: February 2019 (available here).
Abstract:
This paper addresses the lack of consensus in the empirical literature regarding the effects of news shocks. We put emphasis on the different identification schemes that have been employed in the literature. We identify the news shock as the shock with maximum contribution to TFP at and over different horizons. We find that the choice of identification scheme, and more specifically the horizon can explain the contrasting findings in the literature. For short horizons, TFP increases almost immediately which indicates that we are not identifying a news shock. The impulse responses are very similar to those of a current TFP shock.
(joint with Sarah Fischer)
The B.E. Journal of Macroeconomics, vol.21, no.2, 2021, pp. 695-743. https://doi.org/10.1515/bejm-2019-0208
First working paper version: August 2017. Latest working paper version: February 2019 (available here).
Abstract:
This paper addresses the lack of consensus in the empirical literature regarding the effects of news shocks. We put emphasis on the different identification schemes that have been employed in the literature. We identify the news shock as the shock with maximum contribution to TFP at and over different horizons. We find that the choice of identification scheme, and more specifically the horizon can explain the contrasting findings in the literature. For short horizons, TFP increases almost immediately which indicates that we are not identifying a news shock. The impulse responses are very similar to those of a current TFP shock.
Working Papers
Multinationals' Entry: Boon or Bane for Non-Frontier Economies?
(joint with Guido Cozzi and Silvia Galli)
First version: November, 2018. Latest version: April, 2021 (available here).
Abstract:
Most countries in the world are not at the technological frontier, yet their economies grow and fluctuate. This paper sets up a quantitative model of endogenous growth with business cycle fluctuations to analyze the medium frequency fluctuations in non-frontier countries. The growth mechanism is a Schumpeterian creative destruction framework embedded into a real business cycle dynamic stochastic general equilibrium model, with standard and non-standard features. We allow multinational firms to enter the economy and challenge existing incumbents, which permits us to study the tension between their direct positive productivity contribution and their indirect negative contribution through the expected obsolescence of domestic innovators. We estimate the model using a full-information approach and show that multinationals’ entry is both boon and bane for non-frontier economies.
Unemployment and Human Capital in a Schumpeterian Economy
(joint with Guido Cozzi)
First version: February, 2020.
Abstract:
In this paper we introduce hiring frictions in a DSGE model with endogenized growth and human capital accumulation. The integration of all these elements in a DSGE is not straightforward, but it opens the door to a more rigorous and complete analysis of the interplay between skill accumulation, innovation and unemployment. The impulse response functions show some interesting dynamics. For example, government support for R&D, by increasing skilled labor demand not only reduces skilled unemployment, but, by increasing the skilled wage, also encourages more and more young to embark in higher education rather than remain unskilled. This eventually reduces unemployment also among the unskilled. Moreover, an increase in disembodied productivity leads to an increase in unskilled unemployment, but because some of the young enroll in higher education, the consequences are not as high as would otherwise be. Student enrollment leads to an increase in the technological frontier, and having more skilled workers available for research, the innovation probability and embodied productivity increase.
Medium Frequencies with Endogenous Human Capital
(joint with Guido Cozzi and Margaret Davenport)
First version: December, 2018. Latest version: July, 2020.
Abstract:
In this paper we set up the first macroeconomic model able to account for medium frequencies with endogenous human capital accumulation. To that purpose we develop a DSGE model with endogenous adoption of an exogenously evolving technological frontier. The model includes complex family structures, but also allows for elastic labor supply. The introduction of both an extensive and intensive margin of labor supply helps to better represent the business cycle. Our findings indicate that while R&D policy has been often blamed to result in higher wages for R&D labor, without effects on real R&D investment, this should be complemented by the longer-term positive effects via higher education. Moreover, we show that increased tuition fees lead to a reduction in students enrollment that has consequences for economic growth. One important feature of our model is that it can break the Barro-King curse and generate a comovement between consumption and investment in response to a marginal efficiency of investment shock through a strong complementarity between physical capital investment and human capital investment and R&D which completely offsets the elusive short-term negative effects on consumption.
The Impact of Technological Change
First version: November 2017. Latest version: February 2019 (available here).
Abstract:
In this paper I introduce recent measures of technological change, based on counts of books in the field of technology and technological standardization, in an otherwise standard vector autoregressive model, to show the relative importance of unanticipated productivity shocks, technology shocks, and anticipated productivity (news) shocks, in driving macroeconomic fluctuations. The results indicate that news shocks play a more important role than technology shocks at business cycle frequencies, while in the medium- to long-run technology shocks take the lead. Unanticipated productivity shocks do not seem to be a significant source of aggregate fluctuations regardless of the forecast horizon.
This paper received the Isaac Kerstenetzky Young Researcher Award of the Getulio Vargas Foundation in September 2018.
News Shocks: Different Effects in Boom and Recession?
(joint with Sarah Fischer)
First version: May 2015. Latest version: February 2019 (available here).
Abstract:
This paper investigates the nonlinearity in the effects of news shocks about technological innovations. In a maximally flexible logistic smooth transition vector autoregressive model, state-dependent effects of news shocks are identified based on medium-run restrictions. We propose a novel approach to impose these restrictions in a nonlinear model using the generalized forecast error variance decomposition. We compute generalized impulse response functions that allow for regime transition and find evidence of state-dependency. The results also indicate that the probability of a regime switch is highly influenced by the news shocks.
News as Slow Diffusing Technology
(joint with Sarah Fischer)
Abstract:
In this paper we develop a theoretical model which proposes an explanation for the evolution of productivity and delivers the comovement of macroeconomic aggregates as a response to a news shock. We introduce an endogenous growth framework with horizontal innovations in a small dynamic stochastic general equilibrium model with real frictions. The model predictions match the empirical results of news shocks qualitatively.
(joint with Guido Cozzi and Silvia Galli)
First version: November, 2018. Latest version: April, 2021 (available here).
Abstract:
Most countries in the world are not at the technological frontier, yet their economies grow and fluctuate. This paper sets up a quantitative model of endogenous growth with business cycle fluctuations to analyze the medium frequency fluctuations in non-frontier countries. The growth mechanism is a Schumpeterian creative destruction framework embedded into a real business cycle dynamic stochastic general equilibrium model, with standard and non-standard features. We allow multinational firms to enter the economy and challenge existing incumbents, which permits us to study the tension between their direct positive productivity contribution and their indirect negative contribution through the expected obsolescence of domestic innovators. We estimate the model using a full-information approach and show that multinationals’ entry is both boon and bane for non-frontier economies.
Unemployment and Human Capital in a Schumpeterian Economy
(joint with Guido Cozzi)
First version: February, 2020.
Abstract:
In this paper we introduce hiring frictions in a DSGE model with endogenized growth and human capital accumulation. The integration of all these elements in a DSGE is not straightforward, but it opens the door to a more rigorous and complete analysis of the interplay between skill accumulation, innovation and unemployment. The impulse response functions show some interesting dynamics. For example, government support for R&D, by increasing skilled labor demand not only reduces skilled unemployment, but, by increasing the skilled wage, also encourages more and more young to embark in higher education rather than remain unskilled. This eventually reduces unemployment also among the unskilled. Moreover, an increase in disembodied productivity leads to an increase in unskilled unemployment, but because some of the young enroll in higher education, the consequences are not as high as would otherwise be. Student enrollment leads to an increase in the technological frontier, and having more skilled workers available for research, the innovation probability and embodied productivity increase.
Medium Frequencies with Endogenous Human Capital
(joint with Guido Cozzi and Margaret Davenport)
First version: December, 2018. Latest version: July, 2020.
Abstract:
In this paper we set up the first macroeconomic model able to account for medium frequencies with endogenous human capital accumulation. To that purpose we develop a DSGE model with endogenous adoption of an exogenously evolving technological frontier. The model includes complex family structures, but also allows for elastic labor supply. The introduction of both an extensive and intensive margin of labor supply helps to better represent the business cycle. Our findings indicate that while R&D policy has been often blamed to result in higher wages for R&D labor, without effects on real R&D investment, this should be complemented by the longer-term positive effects via higher education. Moreover, we show that increased tuition fees lead to a reduction in students enrollment that has consequences for economic growth. One important feature of our model is that it can break the Barro-King curse and generate a comovement between consumption and investment in response to a marginal efficiency of investment shock through a strong complementarity between physical capital investment and human capital investment and R&D which completely offsets the elusive short-term negative effects on consumption.
The Impact of Technological Change
First version: November 2017. Latest version: February 2019 (available here).
Abstract:
In this paper I introduce recent measures of technological change, based on counts of books in the field of technology and technological standardization, in an otherwise standard vector autoregressive model, to show the relative importance of unanticipated productivity shocks, technology shocks, and anticipated productivity (news) shocks, in driving macroeconomic fluctuations. The results indicate that news shocks play a more important role than technology shocks at business cycle frequencies, while in the medium- to long-run technology shocks take the lead. Unanticipated productivity shocks do not seem to be a significant source of aggregate fluctuations regardless of the forecast horizon.
This paper received the Isaac Kerstenetzky Young Researcher Award of the Getulio Vargas Foundation in September 2018.
News Shocks: Different Effects in Boom and Recession?
(joint with Sarah Fischer)
First version: May 2015. Latest version: February 2019 (available here).
Abstract:
This paper investigates the nonlinearity in the effects of news shocks about technological innovations. In a maximally flexible logistic smooth transition vector autoregressive model, state-dependent effects of news shocks are identified based on medium-run restrictions. We propose a novel approach to impose these restrictions in a nonlinear model using the generalized forecast error variance decomposition. We compute generalized impulse response functions that allow for regime transition and find evidence of state-dependency. The results also indicate that the probability of a regime switch is highly influenced by the news shocks.
News as Slow Diffusing Technology
(joint with Sarah Fischer)
Abstract:
In this paper we develop a theoretical model which proposes an explanation for the evolution of productivity and delivers the comovement of macroeconomic aggregates as a response to a news shock. We introduce an endogenous growth framework with horizontal innovations in a small dynamic stochastic general equilibrium model with real frictions. The model predictions match the empirical results of news shocks qualitatively.
Older (Retired) Projects
Should the National Bank of Romania use a dynamic stochastic general equilibrium model for Romania in its monetary policy decision process?
Abstract:
Dynamic stochastic general equilibrium (DSGE) models are currently the most important tool of macroeconomic modeling, being used or under development in most policy making and academic institutions. Nevertheless, the National Bank of Romania (NBR) has not yet developed such a model for the Romanian economy. Thus, through this paper, it will be shown the advantages of using a DSGE model in the monetary policy of Romania, a developing country which is trying to fulfill the economic convergence criteria as an Euro-area candidate, arguments which will be further used in order to formulate the appropriate recommendation for the NBR.
This paper received the Costin Murgescu Award for Economic Research in 2012. The paper is available here.
Abstract:
Dynamic stochastic general equilibrium (DSGE) models are currently the most important tool of macroeconomic modeling, being used or under development in most policy making and academic institutions. Nevertheless, the National Bank of Romania (NBR) has not yet developed such a model for the Romanian economy. Thus, through this paper, it will be shown the advantages of using a DSGE model in the monetary policy of Romania, a developing country which is trying to fulfill the economic convergence criteria as an Euro-area candidate, arguments which will be further used in order to formulate the appropriate recommendation for the NBR.
This paper received the Costin Murgescu Award for Economic Research in 2012. The paper is available here.