Participatory Accountability and Collective Action

Is Historical Cost Accounting a Panacea? Market Stress, Incentive Distortions, and Gains Trading

Technological Revolutions and Debt Hangovers: Is There a Causal Link?

Abstract:
Three major private debt caused recessions in developed economies — the Great Recession, the Japanese crisis of the 90s, and the Great Depression — have been preceded by periods of great technological innovation and economic transformation. Motivated by this fact, we write a business cycle model featuring imperfect information. We estimate this model using time series data for the three episodes. This exercise, together with other reduced form evidence, allows us to highlight some similarities between the three episodes. Indeed, our estimates suggest that these economies have gone through a slow moving process in which a technological revolution creates a boom in productivity, followed by a vague of optimism about the long run. The end of the boom implied a slowdown of innovation, together with a slowdown of aggregate productivity growth. Because of imperfect information, beliefs were persistent and, therefore, the private sector remained optimistic for a sizeable period of time even after the slowdown of productivity. We analyze the implications of optimism in a model with explicit borrowing and lending. In the model, the degree of optimism observed in the data implies a large accumulation of debt. The debt burden coupled with the slowdown of productivity can drag the economy into a long recession lasting, according to our estimates, about 10 years.

Monetary Shocks with Observation and Menu Costs (with F. Alvarez and F. Lippi)

Abstract:

We compute the impulse response of output and prices to an aggregate monetary shock in a general equilibrium model where firms set prices subject to observation and menu costs. We study how the predictions about the aggregate effects of monetary shocks depend on the relative size of the information and adjustment frictions.
We find that empirically reasonable observations costs increase the impact and the persistence of the output response to monetary shocks with respect to models with menu cost only. However, we also find that the large power of monetary shocks typical of models with Calvo type exogenous adjustments cannot be rationalized with any empirically reasonable combination of menu and observation costs.

Topics in Asset Pricing

Topics in Asset Pricing

Topics in Asset Pricing

Topics in Asset Pricing

Topics in Asset Pricing