Department of Economics
New Haven, CT 06520
NBER Working Papers and Publications
|April 2018||Myopia and Anchoring|
with George-Marios Angeletos: w24545
We consider a stationary setting featuring forward-looking behavior, higher-order uncertainty, and learning. We obtain an observational equivalence result that recasts the aggregate dynamics of this setting as that of a representative-agent model featuring two distortions: myopia in the sense of extra discounting of the future; and anchoring of the current outcome to the past outcome, as in models featuring habit persistence, adjustment costs, or momentum. This builds a bridge to both the DSGE literature and an emerging literature on bounded rationality. We further show that the as-if distortions are larger when the general-equilibrium interaction is stronger; this property reflects the role of higher-order uncertainty and helps reduce the gap between macroeconomic and microeconomic estima...
|February 2017||The Anatomy of Sentiment-Driven Fluctuations|
with Sushant Acharya, Jess Benhabib: w23136
We characterize the entire set of linear equilibria of beauty contest games under general information structures. In particular, we focus on equilibria in which sentiments, that is self-fulfilling changes in beliefs that are orthogonal to fundamentals and exogenous noise, can drive aggregate fluctuations. We show that, under rational expectations, there exists a continuum of sentiment-driven equilibria that generate aggregate fluctuations. Without having to take a stance on the private information agents might possess, we provide a general characterization of necessary and sufficient conditions under which a change in sentiments can have prolonged effects on aggregate outcomes and when it can only have short-lived effects. In addition, we also provide a practical way to characterize thes...
|September 2013||Paradox of Thrift Recessions|
with José-Víctor Ríos-Rull: w19443
We build a variation of the neoclassical growth model in which both wealth shocks (in the sense of wealth destruction) and financial shocks to households generate recessions. The model features three mild departures from the standard model: (1) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (2) there is a mild form of labor market frictions (Nash bargaining wage setting with Mortensen-Pissarides labor markets); (3) goods markets for nontradables require active search from households wherein increases in consumption expenditures increase measured productivity. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shock...