An assignment model with match specific productivity

In this article I develop a dynamic assignment model where matches are subjected to persistent idiosyncratic shocks. The model nests two independent models commonly used in the matching literature that have highlighted different aspects of the data. On one hand, there is ex ante heterogeneity as in traditional assignment models, so the equilibrium distribution of the match surplus between partners depends on the distributions of both types of agent characteristics in the economy (Roy (1951), Tinbergen (1951) and Koopmans and Beckmann (1957)). On the other hand, the model incorporates the fact that match outcomes are subjected to match–specific shocks, which may eventually lead to match termination (Jovanovic (1979)). I use the model to study the CEO - firm matching problem, an issue that has taken a lot of attention in recent work. (See for instance, Gabaix and Landier (2008) and Tervio (2008))

Ignorance, Fixed Costs, and the Stock Market Participation Puzzle

While the existence of fixed costs in entering asset markets is the leading rationalization of the "participation puzzle" -the fact that most households do not hold stocks, despite the diversification gains and the significant risk-premium involved-, most motivations of these fixed costs are as incompatible with conventional portfolio theory as the non participation itself. Nevertheless, we believe that these motivations are empirically correct, and thus we are forced to explore alternatives to conventional portfolio theory. We find in Choquet expected utility theory a tool that is better equipped to deal with more complex forms of ignorance than expected utility is. Within such model, we are able to express the idea that staying out of the market may be a rational response to the own ignorance. Within a Probit model for the 2001 Survey of Consumer Finances, we show suggestive evidence in its favornon additive beliefs, ambiguity, ignorance, asset market participation.

Ignorance, Fixed Costs, and the Stock-Market Participation Puzzle

While the existence of fixed costs in entering asset markets is the leading rationalization of the “participation puzzle” —the fact that most households do not hold stocks, despite the diversification gains and the significant risk-premium involved—, most motivations of these fixed costs are as incompatible with conventional portfolio theory as the non participation itself. Nevertheless, we believe that these motivations are empirically correct, and thus we are forced to explore alternatives to conventional portfolio theory. We find in Choquet expected utility theory a tool that is better equipped to deal with more complex forms of ignorance than expected utility is. Within such model, we are able to express the idea that staying out of the market may be a rational response to the own ignorance. Within a Probit model for the 2001 Survey of Consumer Finances, we show suggestive evidence in its favor.Non additive beliefs, ambiguity, ignorance, asset market participation

Labor Market Dyncamics in Chile: the Role of Terms of Trade Shocks

In this paper we explore the channels through which the terms of trade affect labor market variables in an emerging economy such as Chile. In doing so, we analyze the cyclical properties of labor market variables and use a structural vector autoregressive model to analyze the empirical responses of variables such as unemployment rate, job finding rate, sectoral employment and sectoral average labor productivity to terms of trade shocks in the case of Chile, which come from two main sources: the mining and the non-mining sector. We then develop a multi-sector model with search frictions that generates fluctuations in the unemployment rate. Using a calibrated version of this model for Chile, we analyze the ability of the model to replicate the observed responses of labor market variables to terms of trade shocks. We find that the model can predict quantitatively the effects of labor market variables to non-mining terms of trade shocks. Although the model is able to obtain responses to mining price changes qualitatively similar to what is estimated in the data, it falls short to the estimated magnitude of reduction in unemployment that follows a rise in mining prices. The presence of very high wage rigidity can help to generate a sharper fall in unemployment after a mining terms of trade rise. Finally, the model remarks a more intense sectoral labor reallocation in response to terms of trade shocks than the amount estimated in the data.

A Stochastic Assignment Model

In this article I study a dynamic stochastic extension of the “differential rents” model of Sattinger (1979) that generates endogenous mismatch in equilibrium. I depart from the standard assignment literature in assuming that agents’ characteristics may change over time and that re-matching is feasible but costly. I show that, when agent characteristics are stochastic, rigidities that prevent partners from re-matching may change the matching outcome, even if the level of output continues to satisfy monotone differences in type. I construct and prove the existence of an equilibrium characterized by (i) a positive assortative matching between agents that decide to re-match and (ii) bands of inaction for existing matches.

Dinámica Laboral en Chile

In this article we use data from the National Employment Survey conducted by Chile’s National Statistics Institute (INE) to analyze the dynamic behavior of the Chilean labor market during the years 1993 to 2009. We study both the size and the cyclical behavior of flows among three different labor market states: employment, unemployment, and out of labor force. We also evaluate the contribution of those flows to the variance of the unemployment rate.

Dinámica de Precios en Chile: Evidencia con datos de Supermercados

In this paper we use a new weekly database of scanner-level prices for the Chilean economy to characterize the price-setting behavior in the supermarket industry. This period corresponds to an episode of relatively high inflation marked by a boom and a subsequent bust (from July 2007 to July 2009). Results show that prices have an average duration slightly greater than two weeks and that price changes are more frequent in Chilean supermarket than in those of other countries. Besides, changes are smaller in absolute value and price change distributions are roughly symmetric. We also find a positive and robust correlation between the absolute size of price changes and price duration. In addition, an inflation variance decomposition exercise shows that price variability is mainly explained by price change variability. Altogether, this evidence points toward a time-dependent pricing behavior in Chilean supermarkets.

Acerca del Nivel Adecuado de las Reservas Internacionales

Under a flexible exchange rate regime international reserves contribute to reducing the risk of a financial crisis, and allow the monetary authority to exceptionally intervene in the exchange market. However, holding reserves is costly. In this paper, we analyze several issues concerning the adequate level of Chilean international reserves. In the first place, we compare the level of Chile’s international reserves with those of different sets of countries using various indicators. We then analyze empirically some of the benefits and costs of holding reserves. Our results show that Chile’s international reserves are high when measured with respect to GDP or M2, but they are in line with those of countries of similar characteristics when measured as a fraction of short-term residual debt. On the other hand, given the low risk of the Chilean economy, marginal changes in reserves have a very low impact on both the probability of a financial crisis and the sovereign spread of the country. Finally, as the sovereign spread has decreased over the last years, so too has the cost of reserves. In fact, by the end of 2002, and despite having a high reserves-to-GDP ratio, the cost of reserves as a fraction of GDP was considerably lower than the cost of other emerging economies.

Nominal Term Structure and Term Premia. Evidence from Chile

The downward trend exhibited in Chile’s nominal term structure since 2003 has been a common pattern shared by other developed and developing economies. To understand the behavior of the nominal yield curve in Chile, we rely on an affine dynamic term structure model (DTMS) which allows to decompose the term structure into the expected short-term premium (related to the monetary policy expectation) and a term premia. We show that most of the fall of long-term interest rates as well as its dynamics are related to the term premia rather than the expected short-term interest rate. With this, we report that the term premia is driven primarily by nominal uncertainty, i.e. the uncertainty for expected inflation and the US term premia