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Working Papers

  • [2001]

    Nezih Guner, Yuliya Kulikova, Arnau Valladares-Esteban

    Does the Added Worker Effect Matter?


    The added worker effect (AWE) measures the entry of individuals into the labor force due to their partners' job loss. We propose a new method to calculate the AWE, which allows us to estimate its effect on any labor market outcome. We show that the AWE reduces the fraction of households with two non-employed members. The AWE also accounts for why women's employment is less cyclical and more symmetric compared to men. In recessions, while some women lose their employment, others enter the labor market and nd jobs. This keeps the female employment relatively stable.

  • [2002]

    Dante Amengual, Xinyue Bei, Enrique Sentana

    Hypothesis Tests with a Repeatedly Singular Information Matrix


    We study score-type tests in likelihood contexts in which the nullity of the information matrix under the null is larger than one, thereby generalizing earlier results in the literature. Examples include multivariate skew normal distributions, Hermite expansions of Gaussian copulas, purely non-linear predictive regressions, multiplicative seasonal time series models and multivariate regression models with selectivity. Our proposal, which involves higher order derivatives, is asymptotically equivalent to the likelihood ratio but only requires estimation under the null. We conduct extensive Monte Carlo exercises that study the finite sample size and power properties of our proposal and compare it to alternative approaches.

  • [2003]

    Yarine Fawaz, Pedro Mira

    Social isolation, health dynamics, and mortality: Evidence across 21 Europe countries


    We provide a comprehensive picture of the health effects of social isolation using longitudinal data over 21 European countries (SHARE) and seven waves (14 years) : first by looking at how social isolation at baseline impacts mortality at follow-up using Cox duration models, then looking at the dynamics of the health effects of social isolation, i.e. how social isolation at baseline affects functional, physical, mental and cognitive health at each future wave, when controlling for all these facets of health at baseline along with an extensive set of other covariates, in a standard linear regression framework. Our results suggest social isolation leads to worse health along all the dimensions we observe, and this effect is persistent. Being socially isolated at baseline is associated with a 20 to 30% increase in the mortality hazard, in line with other studies. Allowing for heterogeneity across countries, we find a remarkably strong association (up to a 45% increase) in Eastern countries. This association is not just picking up a correlation of social isolation with concurrent loneliness, health behaviors or health care utilization.

  • [2004]

    Dante Amengual, Enrique Sentana, Zhanyuan Tian

    Gaussian Rank Correlation and Regression


    We study the statistical properties of Pearson correlation coefficients of Gaussian ranks, and Gaussian rank regressions - OLS applied to those ranks. We show that these procedures are fully efficient when the true copula is Gaussian and the margins are non-parametrically estimated, and remain consistent for their population analogues otherwise. We compare them to Spearman and Pearson correlations and their regression counterparts theoretically and in extensive Monte Carlo simulations. Empirical applications to migration and growth across US states, the augmented Solow growth model, and momentum and reversal effects in individual stock returns confi?rm that Gaussian rank procedures are insensitive to outliers.

  • [2005]

    Jan R. Magnus, Henk G. J. Pijls, Enrique Sentana

    The Jacobian of the Exponential Function


    We derive closed-form expressions for the Jacobian of the matrix exponential function for both diagonalizable and defective matrices. The results are applied to two cases of interest in macroeconometrics: a continuous-time macro model and the parametrization of rotation matrices governing impulse response functions in structural vector autoregressions.

  • [2006]

    Caterina Mendicino, Kalin Nikolov, Juan Rubio-Ramirez, Javier Suarez, Dominik Supera

    Twin Default Crises


    We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited upside but significant downside risk. The asymmetric distribution of these returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of twin default crises - simultaneous rises in firm and bank defaults associated with sizeable negative effects on economic activity. As a result, our model implies higher optimal capital requirements than common specifications of bank asset returns, which neglect or underestimate the impact of borrower default on bank solvency.

  • [2007]

    Nezih Guner, Javier López-Segovia, Roberto Ramos

    Reforming the Individual Income Tax in Spain


    We study how much revenue can be generated by more progressive personal income taxes in Spain. We build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. An increase (decrease) in labor income taxes for individuals who earn more (less) than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an e ective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The additional revenue from labor income taxes is only 0.82% higher, while the total tax revenue declines by 1.55%. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The new tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than e41,699) raises the total taxes by 2.81%.

  • [2008]

    Claudio Ferraz, Federico Finan, Monica Martinez-Bravo

    Political Power, Elite Control, and Long-Run Development: Evidence from Brazil


    This paper analyzes how changes in the concentration of political power affect long-run development. We study Brazil’s military dictatorship whose rise to power dramatically altered the distribution of power of local political elites. We document that municipalities that were more politically concentrated prior to the dictatorship in the 1960s are relatively richer in 2000, despite being poorer initially. Our evidence suggests that this reversal of fortune was the result of the military’s policies aimed at undermining the power of traditional elites. These policies increased political competition locally, which ultimately led to better governance, more provision of public goods, and higher income levels.

  • [2009]

    Vanessa Alviarez, Keith Head, Thierry Mayer

    Global Giants and Local Stars: How Changes in Brand Ownership Affect Competition


    We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4–7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU.

  • [2010]

    Susanto Basu, Luigi Pascali, Fabio Schiantarelli, Luis Serven

    Productivity and the Welfare of Nations


    We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.

  • [2011]

    Matilde Bombardini, Keith Head, Maria D. Tito, Ruoying Wang

    How the Breadth and Depth of Import Relationships Affect the Performance of Canadian Manufactures

  • [2012]

    Jerôme Adda, Yarine Fawaz

    The Health Toll of Import Competition


    This paper assesses the effect of import competition on the labor market and health outcomes of US workers. We first show that import shocks affect employment and income, but only in areas where jobs are more intense in routine tasks. Exploiting over 40 million individual observations on health and mortality, we find that import had a detrimental effect on physical and mental health that is concentrated in those areas and exhibits strong persistence. It decreased health care utilisation and increased hospitalisation for a large set of conditions, more difficult to treat. The mortality hazard of workers in manufacturing increased by up to 6 percent per billion dollar import increase.

  • [2013]

    Gilles Duranton, Diego Puga

    Urban Growth and its Aggreate Implications


    We develop an urban growth model where human capital spillovers foster entrepreneurship and learning in heterogenous cities. Incumbent residents limit city expansion through planning regulations so that commuting and housing costs do not outweigh productivity gains. The model builds on strong microfoundations, matches key regularities at the city and economywide levels, and generates novel predictions for which we provide evidence. It can be quantified relying on few parameters, provides a basis to estimate the main ones, and remains transparent regarding its mechanisms. We examine various counterfactuals to assess quantitatively the effect of cities on economic growth and aggregate income.

  • [2014]

    Victor Aguirregabiria, Jiaying Gu, Yao Luo, Pedro Mira

    A Dynamic Structural Model of Virus Diffusion and Network Production: A First Report


    This paper presents a dynamic structural model to evaluate economic and public health effects of the difusion of COVID-19, as well as the impact of factual and counterfactual public policies. Our framework combines a SIR epidemiological model of virus difusion with a structural game of network production and social interactions. The economy comprises three types of geographic locations: homes, workplaces, and consumption places. Each individual has her own set of locations where she develops her life. The combination of these sets for all the individuals determines the economy's production and social network. Every day, individuals choose to work and consume either outside (with physical interaction with other people) or remotely (from home, without physical interactions). Working (and consuming) outside is more productive and generates stronger complementarities (positive externality). However, in the presence of a virus, working outside facilitates infection and the diffusion of the virus (negative externality). Individuals are forward-looking. We characterize an equilibrium of the dynamic network game and present an algorithm for its computation. We describe the estimation of the parameters of the model combining several sources of data on COVID-19 in Ontario, Canada: daily epidemiological data; hourly electricity consumption data; and daily cell phone data on individuals' mobility. We use the model to evaluate the health and economic impact of several counterfactual public policies: subsidies for working at home; testing policies; herd immunity; and changes in the network structure. These policies generate substantial differences in the propagation of the virus and its economic impact.

  • [2015]

    Gilles Duranton, Diego Puga

    The Economics of Urban Density


    Urban density boosts productivity and innovation, improves access to goods and services, reduces typical travel distances, encourages energy-efficient construction and transport, and facilitates sharing scarce amenities. However, density is also synonymous with crowding, makes living and moving in cities more costly, and concentrates exposure to pollution and disease. We explore the appropriate measurement of density and describe how it is both a cause and a consequence of the evolution of cities. We then discuss whether and how policy should target density and why the trade-off between its pros and cons is unhappily resolved by market and political forces.

  • [2016]

    Jan R. Magnus, Enrique Sentana

    Zero-Diagonality as a Linear Structure


    A linear structure is a family of matrices that satisfy a given set of linear restrictions, such as symmetry or diagonality. We add to the literature on linear structures by studying the family of matrices where all diagonal elements are zero, and discuss two econometric examples where these results can be fruitfully applied.

  • [2017]

    David Martinez-Miera, Rafael Repullo

    Interest Rates, Market Power, and Financial Stability


    This paper shows the relevance of market power to assess the effects of safe interest rates on financial intermediaries' risk-taking decisions. We consider an economy where (i) intermediaries have market power in granting loans, (ii) intermediaries monitor borrowers which lowers their probability of default, and (iii) monitoring is costly and unobservable which creates a moral hazard problem with uninsured depositors. We show that lower safe rates lead to lower intermediation margins and higher risk-taking when intermediaries have low market power, but the result reverses for high market power. We examine the robustness of this result to introducing non-monitored market finance, heterogeneity in monitoring costs, and entry and exit of intermediaries. We also consider the effect of replacing uninsured by insured deposits, market power in raising deposits, and funding with both deposits and capital.

  • [2018]

    Javier García-Brazales

    Caste in Class: Evidence from Peers and Teachers


    Differences in academic achievement across Indian castes are both large and persistent. I make use of rich individual data to explore how class caste composition affects academic progress as well as the mechanisms in place. Benefiting from exogenous assignment of students to classes and teachers, I find that a one-percentage point increase in the proportion of low-caste class- mates leads to a fall of around 2% of a standard deviation in the mathematics score and to much smaller effects in English. This phenomenon is mediated through lower effort exerted by the students, which itself emanates from the students' worsened perception about the extent to which their teachers value them. This non-cognitive channel, which has not been previously identified in the peer effects literature, suggests that the use of a fairly malleable input such as more open and receptive teachers among low-caste students would be an appropriate policy response.

  • [2019]

    Sebastián Fanelli, Ludwig Straub

    A Theory of Foreign Exchange Interventions


    We study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry-trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (a) the optimal policy leans against the wind, stabilizing the exchange rate; (b) it involves smooth spreads but allows exchange rates to jump; (c) it partly relies on “forward guidance”, with non-zero interventions even after the shock has subsided; (d) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.

  • [2020]

    Stefan Avdjiev, Bryan Hardy, Sebnem Kalemli-Özcan, Luis Servén

    Gross Capital Flows by Banks, Corporates and Sovereigns


    We construct a new quarterly data set of international capital flows broken down by sector: banks, corporates and sovereigns. Using our novel data set, we establish severalkey facts that demonstrate the importance of distinguishing in- and outflows by the domestic sectoral identity. We find that public sector flows may serve as a countervailing force to private sector flows, especially in emerging markets (EMs), as these flows respond differently not only to country-specific fundamentals but also to global shocks. The high inflow-outflow correlation observed in total capital flow data is driven by within-sector flows, especially those of AE banks. In general, inflows and outflows of AEs and inflows to EMs are primarily AE banks’ transactions, and, as a consequence, respond similarly to capital flow drivers. By contrast, EM outflows respond differently to global shocks and changes in fundamentals, leading to lower inflow-outflows correlations for EMs.

  • [2021]

    Rafael Repullo

    The Reversal Interest Rate. A Critical Review


    This paper reviews the analysis in Brunnermeier and Koby (2018), showing that lower monetary policy rates can only lead to lower bank lending if there is a binding capital constraint and the bank is a net investor in debt securities, a condition typically satisfied by high deposit banks. It next notes that BK’s capital constraint features the future value of the bank’s capital, not the current value as in standard regulation. Then, it sets up an alternative model with a standard capital requirement in which profitability matters because bank capital is endogenously provided by shareholders, showing that in this model there is no reversal rate.

  • [2022]

    Andrés Gago

    Confrontation Costs in Negotiations: Bargaining Under the Veil of a Screen


    In negotiations the objectives of parties are generally in conflict. Facing this conflict can trigger negative emotions, such as nervousness, embarrassment and awkwardness, which I refer as confrontation costs. In this paper, I use a lab experiment to explore whether these costs exist and if so what their implications are. First, I show that a significant proportion of participants avoid bargaining even when it delivers higher payoffs. I find that the avoidance rate is 50% higher in face-to-face negotiations than in electronic negotiations. Second, after shutting down alternative channels, I find that the higher avoidance rate in person can be attributed to higher confrontation costs. Together, these two things make e-negotiations welfare-improving in my design, casting doubts on the general belief that face-to-face communication increases efficiency by fostering transactions. Finally, consistent with previous literature, I observe that women haggle less than men, and I find that confrontation costs can also account for this fact.

  • [2023]

    Gabriele Fiorentini, Enrique Sentana

    Discrete Mixtures of Normals Pseudo Maximum Likelihood Estimators of Structural Vector Autoregressions


    Likelihood inference in structural vector autoregressions with independent non-Gaussian shocks leads to parametric identification and efficient estimation at the risk of inconsistencies under distributional misspecification. We prove that autoregressive coefficients and (scaled) impact multipliers remain consistent, but the drifts and standard deviations of the shocks are generally inconsistent. Nevertheless, we show consistency when the non-Gaussian log-likelihood is a discrete scale mixture of normals in the symmetric case, or an unrestricted finite mixture more generally. Our simulation exercises compare the efficiency of these estimators to other consistent proposals. Finally, our empirical application looks at dynamic linkages between three popular volatility indices.

  • [2024]

    Andrés Gago

    Reprocity and Uncertainty: When Do People Forgive?


    A sizable proportion of individuals act reciprocally. They punish and reward depending on the (un)kindness of those with whom they interact. In this paper, I explore whether individuals still reciprocate intentions when others lack full control over the consequences of their actions. By means of a dictator game with punishment opportunities, I show that unkind intentions are enough to trigger punishments, irrespectively of the outcome. By contrast, accidents are forgiven. To isolate how uncertainty over the result of an action affects the assessment of intentions, I control for other possible departures from self-profit maximization, such as distributional concerns or efficiency maximization. I find that the former also plays a role in respondents’ behavior.

  • [2025]

    Rafael Repullo

    The Deposits Channel of Monetary Policy. A Critical Review


    Drechsler, Savov, and Schnabl (2017) claim that increases in the monetary policy rate lead to reductions in bank deposits, which account for the negative effect on bank lending. This paper reviews their theoretical analysis, showing that the relationship between the policy rate and the equilibrium amount of deposits is in fact U-shaped. Then, it constructs an alternative model, based on a simple microfoundation for the households' demand for deposits, where an increase in the policy rate always increases the equilibrium amount of deposits. These results question the theoretical underpinnings of the "deposits channel" of monetary policy transmission.


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