Abstract: How does uncertainty in high-order beliefs influence firms’ hiring decisions? I consider a static, general equilibrium model with demand spillovers and dispersed information where ambiguity-averse firms lack confidence in the joint distribution of their signals. This lack of confidence, together with positive demand externalities, induces an asymmetric treatment of information. When observing good news, firms act as if others don’t share the same positive outlook; when observing bad news, they act as if theirs is the common view in the economy. I show that ambiguity induces a downward-shifted and concave hiring response to signals which leads to (i) lower aggregate employment growth that is (ii) more dispersed and (iii) more left-skewed in the cross-section. Using a measure of ambiguity based on analyst forecast dispersion, I exploit cross-industry differences in ambiguity and find evidence supporting these predictions and model-implied comovement patterns. A calibrated model successfully matches targeted and untargeted moments and delivers concave hiring rules consistent with estimates in the literature.
"Portfolio Choice under Ambiguity Aversion and Strategic Complementarity." (updated March 2022)
Abstract: This paper studies portfolio choice when, (i) investors are ambiguity averse and (ii) there are strategic complementarities. A two-period portfolio choice model is presented where investors are ambiguity averse and value consumption relative to other agents’ consumption. Agents face ambiguity over the returns of an uncertain asset. It is shown that (i) ambiguity leads to multiple equilibria where there would be uniqueness otherwise. (ii) From an ambiguity neutral perspective, the set of equilibria contains ‘as-if’ optimistic beliefs as well as pessimistic beliefs. (iii) The degree of potential optimism and pessimism is increasing in the degree of ambiguity. An application to the study of the the mispricing of recently public firms’ (IPOs) stocks shows the potential of the model to reinterpret conflicting evidence.
"Robust Optimal Macroprudential Policy." Journal of International Economics, 2023 (link - wp version - codes)
(with Giselle Montamat and Francisco Roch)
Abstract: We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). In this setup, the decentralized equilibrium may differ from the social planner’s equilibrium both because of the pecuniary externalities associated with the collateral constraint and because of the paternalistic imposition of the planner’s beliefs when designing policy. When robust agents have doubts about the model, they create endogenous worst-case beliefs by assigning a high probability to low-utility events. The ratio of worst-case beliefs of the planner over the household’s captures the degree of paternalism. We show that this novel channel could render the directions of welfare gains from a policy intervention ambiguous. However, our quantitative results suggest that doubts about the model need to be large in order to make a “laissez-faire regime” better than an intervention regime.
"The volatility of world trade in the 21st century: Whose fault is it anyway?" The World Economy, 2019 (link)
(with Daniel Lederman, Samuel Pienknagura, and Diego Rojas)
Abstract: This paper explores the drivers of the volatility of international trade. It decomposes trade growth into six components that have gained attention in the literature and studies their contribution to overall volatility. It yields three main findings. First, trade volatility in the 1990–2015 period is mostly explained by a common factor, changes in the gravity‐related characteristics of a country's trading partners and country‐specific factors. Product composition and the identity of trading partners appear to be less important in explaining volatility. Second, the pre‐2009 decline in volatility and the post‐2009 increase in volatility appear to be driven by different factors. The former is mostly explained by a decline in the variance of country‐specific factors; the latter appears to be driven by an increase in the volatility of common factors. Third, diversification is a likely force behind the steady decline in the volatility stemming from country‐specific factors, especially in developing countries.
"Altered Destinies: The Long-Term Effects of Rising Prices and Food Insecurity in the Middle East and North Africa." World Bank, Washington, DC, 2023
(with Roberta Gatti, Daniel Lederman, Asif Islam, Bo Pieter Johannes Andree, Hoda Assem, Rana Lotfi, and Mennatallah Emam Mousa (link)
"Leaning Against the Wind : Fiscal Policy in Latin America and the Caribbean in a Historical Perspective." World Bank, Washington, DC, 2017
(with Daniel Lederman and Carlos Vegh)( link)
"The Big Switch in Latin America: Restoring Growth Through Trade." World Bank, Washington, DC, 2016.
(with Augusto De la Torre, Alain Ize, Daniel Lederman, and Martin Sasson) (link)