Abstract
This paper examines the effects of news shocks on borrowing and investment behavior, which arise from news of positive or negative TFP outlooks. Specifically, a positive TFP News shock signals a higher future TFP. This higher future TFP translates to higher future income and incentivizes agents to increase their consumption and investment in capital. As future income is not realized yet, agents undergo more borrowing today and cause the economy to be more vulnerable to adverse shocks. The price of capital enters the collateral constraint of the model and gives rise to a pecuniary externality that causes the economy to be susceptible to a sudden stop event. To achieve optimal policy outcomes, a tax on capital in normal times and a subsidy on capital in bad times are suggested. Also, news shocks call for a more substantial rate of optimal policy intervention. The model of this paper allows for a more explicit analysis of TFP News shock through the investment channel.
Abstract
There is evidence in the literature for different technologies utilized across countries with different levels of financial development. So, this paper studies the technological adoption channel based on a menu of technologies with varying adoption costs: unproductive, intermediate, and productive. Studying relevant questions on the effects of financial frictions on technological adoption and aggregate macroeconomic variables. Quantitative results show the model replicating features shown in the collated micro-level data set and that financial friction plays a considerable role through the technological adoption channel. More importantly, the addition of the intermediate technology provides higher levels of aggregate consumption, output, and TFP.
Work in Progress
- On the Welfare Losses from Unequal Financing Opportunities (with Agustin Samano)
- Financial Frictions, R&D and Growth (with Diego Anzoategui)
- Optimal Interventions in Small Open Production Economy with Endogenous Crises: The Case for Tradable Revenue Policy