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Working Paper
Entry and Exit, Unemployment, and Macroeconomic Tail Risk
This paper builds a nonlinear business cycle model with endogenous firm entry and exit and equilibrium unemployment. The entry and exit mechanism generates asymmetry and amplifies the transmission of productivity shocks, exposing the economy to significant tail risk. When calibrating the rates of entry and exit to match their shares of job creation and destruction, our quantitative model generates higher-order moments consistent with U.S. data. Firm exit particularly amplifies the severity and persistence of deep recessions such as the COVID-19 crisis. In the absence of entry and exit, the ...
Working Paper
Credit Misallocation and Macro Dynamics with Oligopolistic Financial Intermediaries
Bank market power shapes firm investment and financing dynamics and hence affects the transmission of macroeconomic shocks. Motivated by a secular increase in the concentration of the US banking industry, I study bank market power through the lens of a dynamic general equilibrium model with oligopolistic banks and heterogeneous firms. The lack of competition allows banks to price discriminate and charge firm-specific markups in excess of default premia. In turn, the cross-sectional dispersion of markups amplifies the impact of macroeconomic shocks. During a crisis, banks exploit their market ...
Working Paper
Entry and Exit, Unemployment, and the Business Cycle
Establishment entry and exit is strongly correlated with output and unemployment. This paper examines how these linkages affect business cycle dynamics through the lens of a search and matching model augmented to include multi-worker establishments that endogenously enter and exit. Analytical results show cyclical entry and exit cause reallocation of inputs that amplifies and skews business cycle dynamics. When the model is calibrated to the data, it generates realistic asymmetry in output and unemployment, data-consistent counter-cyclical endogenous uncertainty and a 55% higher welfare cost ...
Working Paper
Firm Dynamics and the Origins of Aggregate Fluctuations
What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not ...
Working Paper
Fewer but Better : Sudden Stops, Firm Entry, and Financial Selection
We incorporate endogenous technical change into a real business cycle small open economy framework to study the productivity costs of sudden stops. In this economy, productivity growth is determined by the entry of new firms and the expansion decisions of incumbent firms. New firms are created after the implementation of business ideas, yet the quality of ideas is heterogeneous and good ideas are scarce. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop ...
Working Paper
Financial development and long-run volatility trends
Countries with more developed financial markets tend to have significantly lower aggregate volatility. This relationship is also highly non-linear starting from a low level of financial development the reduction in aggregate volatility is far more significant with respect to financial deepening than when the financial market is more developed. We build a fully-edged heterogeneous-agent model with an endogenous financial market of private credit and debt to rationalize these stylized facts. We show how financial development that promotes better credit allocations under more relaxed borrowing ...
Working Paper
Business Dynamics in the National Establishment Time Series (NETS)/Leland Crane, Ryan Decker
Business microdata have proven useful in a number of fields, but the main sources of comprehensive microdata are subject to significant confidentiality restrictions. A growing number of papers instead use a private data source seeking to cover the universe of U.S. business establishments, the National Establishment Time Series (NETS). Previous research documents the representativeness of NETS in terms of the distribution of employment and establishment counts across industry, geography, and establishment size. But there exists considerable need among researchers for microdata suitable for ...
Working Paper
Persistence of Shocks and the Reallocation of Labor
This paper proposes a theoretical and quantitative analysis of the reallocation of labor across firms in response to idiosyncratic shocks of different persistence. Creating and destroying jobs is costly and workers are paid a share of the value of the marginal worker. The model predicts that employment and labor costs react differently to transitory shocks and permanent shocks. Quantitative evaluation of the model on a panel of French firms shows the model?s performance. Modest adjustment costs are needed to reproduce observed job reallocation and inaction rates. Removing adjustment costs ...