Working Papers
The Origins of Aggregate Fluctuations in a Credit Network Economy, October 2016, Technical Appendix
I show that inter-firm lending plays an important role in business cycle fluctuations. I first build a network model of the economy in which trade in intermediate goods is financed by supplier credit. In the model, a financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms then transmit financial shocks across the economy, amplifying their effects on aggregate output. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. Counterfactual exercises suggest these credit network effects can be a powerful amplification mechanism. I estimate aggregate and idiosyncratic shocks to industries in the US and find that financial shocks are a prominent driver of observed cyclical fluctuations: more than two-thirds of the drop in industrial production during the Great Recession is accounted for by financial shocks. Furthermore, idiosyncratic financial shocks to a few key industries can explain a considerable portion of these effects. In contrast, while productivity shocks played a meaningful role before 2007, they had a decidedly negligible impact during the Great Recession.
Cross-Border Hiring and Unemployment in a Global Economy, October 2012
To better understand the relationship between international trade and unemployment, this paper develops a static general equilibrium model with labor market frictions and heterogeneous firms. The novelty is that firms can engage in cross-border hiring, by employing labor domestically or from abroad. There are two channels through which unemployment responds to trade liberalization: there is a rise in expected worker income which reduces unemployment, and an increase in wages which increases the unemployment rate. This paper outlines the conditions on the model parameters under which unemployment rises or falls after trade liberalization. This unique framework is tractable and demonstrates that models in the literature which ignore cross-border hiring likely underestimate the upward force of trade liberalization on unemployment.
Work in Progress
Credit Constraints and Job Creation: Evidence from Small Firms, July 2015
Small firms account for nearly two-thirds of net new jobs. I examine the effects of credit availability on job creation and destruction by small firms using the Survey of Small Business Finances. I first exploit a feature of standard trade credit contracts to identify firms which are liquidity-constrained. I then use the cross-sectional variation in bankruptcy exemption laws across states as an instrument for the supply of credit. I study the differential effects of credit supply on the hiring and firing behavior of constrained and unconstrained firms, and relate these effects to product characteristics and certain aspects of bank-firm relationships. Finally, I develop a model to explain these effects and assess their quantitative significance.
Information-Driven Credit Cycles, (with Giacomo Candian), July 2015