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Working Paper
Financial and Macroeconomic Data Through the Lens of a Nonlinear Dynamic Factor Model
Through the lens of a nonlinear dynamic factor model, we study the role of exogenous shocks and internal propagation forces in driving the fluctuations of macroeconomic and financial data. The proposed model 1) allows for nonlinear dynamics in the state and measurement equations; 2) can generate asymmetric, state-dependent, and size-dependent responses of observables to shocks; and 3) can produce time-varying volatility and asymmetric tail risks in predictive distributions. We find evidence in favor of nonlinear dynamics in two important U.S. applications. The first uses interest rate data to ...
Working Paper
The Health Channel of Business Cycles
We document that economic contractions causally worsen health among working-age adults and that poor health predicts negative labor market outcomes. These findings reveal a health channel of business cycles. To quantify its magnitude, we build a dynamic general equilibrium model with incomplete markets where agents differ in their health, labor productivity, and wealth. The health channel captures the two-way feedback between pure health shocks — which raise the risk of downward health transitions — and other aggregate shocks, namely, demand and productivity. Our novel estimation strategy ...