Working Papers

Finance-thy-Neighbor. Trade Credit Origins of Aggregate Fluctuations.

[ Online Appendix ],  August 2024, R&R at American Economic Journal: Macroeconomics 

This paper studies the smoothing and amplifying features of trade credit for the propagation of shocks in a multisector economy with working capital constraints. I derive aggregation results of sectoral shocks for inefficient economies when distortions are interdependent due to endogenous trade credit linkages and costs. A quantitative application to the US during the 2008-2009 Great Recession suggests that trade credit smooths financial shocks, while generating large spillovers relative to an economy with bank finance only. Sectors extending more trade credit than their volume of bank loans are systemically important.

Selected Work in Progress

Pathways to Persistence. (with Vasco Carvalho)

Working Paper Soon

In the context of dynamic equilibrium models, where the agents’ optimal actions depend on the lagged actions of their neighbors as defined by some underlying graph of connections, we argue that such linkages are an independent source of persistence of economic outcomes. At the macro-level, we provide a novel characterization of the corresponding aggregate univariate ARMA-process and its persistence in terms of the economy’s network topology. As a proof of concept, we illustrate quantitatively how the dynamics and persistence of aggregate U.S. Industrial Production growth depend on the network structure of sector-to-sector production linkages.

Networked Forecasts. Theory and Evidence. (with Vasco Carvalho)

This paper revisits the existence of efficiency gains from aggregation to forecast aggregate economic outcomes in the context network models. We first show that knowledge of the network can yield superior forecasts of aggregate outcomes whenever network connections are heterogeneous across agents.  In the second part, we provide an application of this networked perspective on forecasts in the context of U.S. Industrial Production (IP).  By conducting a forecast race, we show that forecasts of aggregate IP growth generated by a calibrated large-dimensional production network model (with zero free parameters) outperform those generated by popular econometric benchmarks.

On the Network Determinants of Inflation Persistence. (with Matthew Canzoneri and Behzad Diba)

Abstract

Dormant Papers

Financial Frictions and Regional Comovement in the US.

An extensive literature has documented the evolution of comovement of economic activity across countries over time. The importance of bilateral trade as a driver of business cycle synchronization has been highlighted repeatedly. However, the failure of quantitative models to capture the comovement observed in trade data has been dubbed the “trade-comovement puzzle”. Against the back-drop of the quantitative importance of trade credit – the BIS estimates that two thirds of world trade is supported by inter-firm credit – I investigate the ability of an international multisector general equilibrium model with both trade and financial linkages within and across regions to generate comovement patterns and magnitudes as observed in the data.