Working Papers

Liquidity, Unemployment, and the Stock Market, joint with William Branch. Slides

Interest-rate spreads and the unemployment rate vary negatively with stock prices.  Liquidity plays a role in a Mortensen-Pissarides economy with a twist: households self-insure against preference shocks by accumulating equity claims.  Higher stock market valuations relax liquidity constraints, creating an aggregate demand channel that strengthens firms' hiring incentives.  Quantitatively, a negative shock to stocks decreases the liquidity value of equity and increases unemployment.  A ``perfect storm'' of an increase in risk and a drop in the velocity of publicly-provided assets produces a self-fulfilling crash to an equilibrium with high unemployment and low stock prices. Fragile economies rely on privately-issued assets.
(Presented at the 2017 Midwest Macroeconomics Conference, Baton Rouge; 2017 Society for Computational Economics Conference, New York)

Productive demand, sectoral comovement, and total capacity utilization, joint with Marshall Urias,  Slides 

(Presented at Hong Kong Junior Macro Reading Group, May 2024, Australia Money and Macro Workshop, March 2023;  Hong Kong Junior Macro Reading Group, August 2022)

We develop and estimate, using Bayesian techniques, a three-sector DSGE model in which demand shocks influence productivity due to goods market frictions: value added falls short of potential output because some firms are left unmatched and without customers. Our identification procedure is novel through the use of sectoral data and, in particular, total capacity utilization of non-durables and services. The model counterpart of these empirical measures is a weighted average of shopping effort and variable capital utilization.  First, we analyze a simple version of the model and show that using capacity utilization as an observable greatly improves the precision of estimated shopping-related parameters and implies a strong demand channel. Moreover, the model-implied capacity utilization would otherwise be ten times less volatile than the data. In the general model, we show that key shopping parameters are well identified and that shocks to shopping effort and its news component explain a major part of the forecast error variance decomposition of output, the Solow residual, the relative price of investment, hours, and utilization. Capacity utilization explains about 80% of the variance of the Solow residual. Search demand shocks are essential for generating positive comovement of utilization among the utilization series.

Unemployment and Labor Productivity Comovement: the Role of Firm Exit, joint with Miroslav Gabrovski, Slides

The Diamond-Mortensen-Pissarides model implies a nearly perfect correlation between labor productivity and unemployment/vacancies, yet the relationship in the data is mild. We show that incorporating sunk entry costs and vacancy creation in an otherwise standard setup can reconcile the discrepancy. Sunk costs cause vacancies to be a positively valued, predetermined variable. If the destruction shock is infrequent, then most vacancies were created in the past, and hence the number of vacancies in the market correlate more closely with past than current labor productivity.  Provided the destruction shock is calibrated to match either micro-level evidence on product destruction and firm exit rates or commonly used values in the growth literature, the model reproduces the empirically observed mild correlation between productivity and unemployment without breaking the strong negative co-movement between unemployment and vacancies.


Unsecured Credit, Product Variety, and Unemployment Dynamics, Macroeconomic Dynamics , Online Appendix
(Presented at the 2016 Midwest Macro Workshop; 2016 West Coast Search and Matching Workshop, San Francisco Federal Reserve; 2016 Western Economics Association International, Portland)

Corporate Finance, Monetary Policy, and Aggregate Demand Journal of Economic Dynamics and Control, Slides
(Presented at the 2019 Western Economics Association International, San Francisco; the 2018 Society of Economics Dynamics Conference, Xiamen; Ashoka University)

New Monetarism with Endogenous Product Variety and Monopolistic Competition, Journal of Economic Dynamics and Control
(Presented at the 2015 Spring Midwest Macro Workshop, St. Louis; 2015 Search, Money, Liquidity, and Finance Workshop for PhD Students, UC Irvine)

Decentralizing Constrained-Efficient Allocations in the Lagos-Wright Pure Currency Economy, joint with Ayushi Bajaj, Guillaume Rocheteau, and Tai-Wei Hu, Journal of Economic Theory 

Work in Progress

Liquidity, Unemployment, and Fiscal Policy, joint with Oliko Vardishvili.