Theses Doctoral

Essays in Empirical Macroeconomics

Herreno, Juan

This dissertation consists on three essays, inquiring about the usefulness of disaggregated data and cross-sectional causal effects to improve our understanding of traditional questions in macroeconomics, both for economic fluctuations and long-run outcomes. In Chapter 1, I explore whether the large body of cross-sectional evidence that established the adverse effects of cuts in the supply of bank lending on firm outcomes and the allocation of credit is relevant at the aggregate level. I estimate this aggregate effect using a new general equilibrium model that incorporates multibank firms, relationship banking, endogenous credit dependence, and bank market power. I use a set of cross-sectional patterns to estimate the key structural parameters of the model. The effect of an aggregate lending cut on aggregate output is large: a 1 percent decline in aggregate bank lending supply reduces aggregate output by 0.2 percent. The structure of labor and credit markets is important in reaching this answer. Under an alternative parametrization of the model that ignores input market frictions, the response of aggregate output is three times smaller. Under my preferred parametrization, the cross-sectional effects survive aggregation in general equilibrium. Instead, with frictionless input markets the cross-sectional patterns over-estimate the aggregate response by a factor of five.

In Chapter 2, written with Sergio Ocampo, we study how the efficacy of development policies---such as job-guarantee programs, unemployment insurance, and micro-finance---depends on the prevalence of low-earning self-employed individuals. To this end, we develop a new general equilibrium occupational choice model that is consistent with the behavior and composition of self-employment. Our model differs from previous work by allowing unemployment risk to shape the selection of agents into self-employment. Models that rely only on financial frictions are at odds with crucial features of self-employment in developing economies---in particular, the concentration of self-employed agents among the lowest earners in the economy, and their willingness to accept salaried jobs when offered to them. These features support the prevalence of subsistence entrepreneurs in developing economies, who play a critical role in shaping policy responses. Their willingness to accept jobs at market wages leads to a muted response of wages to labor demand shocks, such as the implementation of a job-guarantee program. In addition, offering small unemployment benefits reduces subsistence entrepreneurship, thereby increasing productivity and output. In contrast, micro-finance exacerbates subsistence entrepreneurship, thereby reducing productivity.

Finally, in chapter 3, with Andres Drenik and Pablo Ottonello, we study the importance of information frictions in asset markets at the aggregate level. We develop a methodology to identify the extent of information frictions based on a broad class of models of trade in asset markets, which predict that these frictions affect the relationship between listed prices and selling probabilities. We apply our methodology to physical capital markets data, using a unique dataset on a panel of nonresidential structures listed for trade. We show that the patterns of prices and duration are consistent with the presence of asymmetric information. On the one hand, capital units that are more expensive because of their observable characteristics tend to have lower duration, as predicted by models of trading under a full information model. On the other hand, capital units that are expensive beyond their observable characteristics tend to have a longer duration, as predicted by models of trading under asymmetric information. Combining model and data, we estimate that asymmetric information can explain 21% of the +30% dispersion in price differences of units with similar observed characteristics. We quantify the effects of information frictions on allocations, prices, and liquidity, and show that the estimated degree of information frictions can to lead to 15% lower output due to low trading probabilities of high-quality capital.


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More About This Work

Academic Units
Thesis Advisors
La'O, Jennifer
Steinsson, Jón
Ph.D., Columbia University
Published Here
July 6, 2020