Family Labor Supply and Aggregate Saving

I study the impact of idiosyncratic risk on savings and employment in a small open economy populated by two-member families. Families incur a fixed cost of participation when both members are employed. Because of market incompleteness and information asymmetries, this cost coupled with labor market frictions can generate multiple equilibria. In particular, there might be one equilibrium with high employment and low saving and another one with low employment and high saving. The model predicts that aggregate saving and employment rates are negatively correlated across countries. I present empirical evidence that supports the general equilibrium prediction of the modelSaving ; Employment ; Family labor supply ; Multiple equilibria

Testing Full Consumption Insurance in the Frequency Domain

Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. In this paper I test the implications of full consumption insurance using band spectrum regression methods. I argue that moving to the frequency domain provides a possible solution to many difficulties tied to tests of perfect risk sharing. In particular, it provides a unifying framework to test consumption smoothing, both over time and across states of nature. Full consumption insurance is soundly rejected at business cycle frequencies.Consumption insurance ; Idiosyncratic risk ; Frequency domain

Family labor supply, precautionary behavior, aggregate saving and employment

I study the impact of idiosyncratic earnings uncertainty on aggregate saving and employment in an economy populated by families consisting of two members. Families incur a fixed cost of participation when both members are employed. I argue that, because of market incompleteness and private information, the presence of this fixed cost can generate multiplicity of equilibrium. In particular there might be one equilibrium with high (female) employment and low savings and another one with low employment and high savings. The model suggests that aggregate saving and employment rates should be negatively correlated across countries. Finally, I present empirical evidence that supports both the partial and the general equilibrium predictions of the model.Aggregate saving; Employment; Family labor supply; Multiplicity

Trade and synchronization in a multi-country economy

Substantial evidence suggests that countries with stronger trade linkages have more synchro- nized business cycles. The standard international business cycle framework cannot replicate this finding, uncovering the trade-comovement puzzle. We show that under certain macro-level conditions but irrespective of the micro-level assumptions concerning trade the puzzle arises because trade fails to substantially increase the correlation between each country's import penetration ratio and the trade partner's technology shock. Within a large class of trade models, there are three channels through which bilateral trade may increase business cycle synchronization. Specifically, increased bilateral trade may (i) raise the correlation between each country's tech- nology shocks, (ii) raise the correlation between each country's share of expenditure on domestic goods, and (iii) raise the response of the domestic import penetration ratio to foreign technology shocks. Empirical evidence strongly supports the first and second channels. We show that the trade-comovement puzzle can be resolved if productivity shocks are more correlated between country-pairs that trade more

Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics

We analyze the welfare cost of inflation in a model with cash-in-advance constraints and an endogenous distribution of establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the United States economy and the long-run equilibrium properties are compared at low and high inflation. We find that, when the period over which the cash-in-advance constraint is binding is one quarter, an annual inflation rate of 10 percent leads to a decrease in the steady-state average productivity of roughly 0.5 percent compared to the optimum's steady-state. This decrease in productivity is not innocuous: it leads to a doubling of the welfare cost of inflation.firm dynamics, productivity, inflation, welfare

Testing full consumption insurance in the frequency domain

Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. In this paper I test the implications of full consumption insurance using band spectrum regression methods. I argue that moving to the frequency domain provides a possible solution to many difficulties tied to tests of perfect risk sharing. In particular, it provides a unifying framework to test consumption smoothing, both over time and across states of nature. Full consumption insurance is soundly rejected at business cycle frequencies

Family labor supply and aggregate saving

I study the impact of idiosyncratic risk on savings and employment in a small open economy populated by two-member families. Families incur a fixed cost of participation when both members are employed. Because of market incompleteness and information asymmetries, this cost coupled with labor market frictions can generate multiple equilibria. In particular, there might be one equilibrium with high employment and low saving and another one with low employment and high saving. The model predicts that aggregate saving and employment rates are negatively correlated across countries. I present empirical evidence that supports the general equilibrium prediction of the model