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My Research
interests are in the following areas
Below you can find the abstracts and the PDF files of the papers I have been working on.
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(Updated version: August
2013) |
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This paper discusses a series of Monte Carlo experiments designed to evaluate the empirical properties of heterogeneous-agent macroeconomic models in the presence of sampling variability. The calibration procedure leads to the welfare analysis being conducted with the wrong parameters. The ability of the calibrated model to correctly predict the long-run welfare changes induced by a set of policy experiments is assessed. The results show that, for the policy reforms with sizable welfare effects (i.e., more than 0.2%), the model always predict the right sign of the welfare effects. However, the welfare effects can be evaluated with the wrong sign, when they are small and when the sample size is fairly limited. Quantitatively, the maximum errors made in evaluating a policy change are very small for some reforms (in the order of 0.02 percentage points), but bigger for others (in the order of 0.6 p.p.). Finally, having access to better data, in terms of larger samples, does lead to substantial increases in the precision of the welfare effects estimates, though the rate of convergence can be slow. JEL Classification Codes: C15, C54, C68, D52. Keywords: Monte Carlo, Heterogeneous Agents, Incomplete Markets, Ex-ante Policy Evaluation, Welfare.
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(Updated version: January 2013) |
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This paper considers the macroeconomic implications of a set of empirical studies finding a high degree of dispersion in preference heterogeneity. It develops a model with risk aversion heterogeneity, uninsurable idiosyncratic income risk, and self-selection into risky jobs to quantify their effects on wealth inequality. The results show that, when estimating the risk aversion distribution with the appropriate PSID data on income lotteries, the model can match the observed degree of wealth inequality in the U.S., accounting for the wealth Gini index in several cases. The model replicates well many features of the wealth distribution, such as its quintiles. However, the share of wealth held by the top 1% is still substantially lower than in the data. Quantitatively, with fairly persistent income processes, the variance of the income shocks greatly matters in generating enough wealth inequality. It is also shown that models without risk aversion heterogeneity underestimate the size of precautionary savings by up to 14 percentage points, and that they account for up to a 55% increase of the complete markets capital stock. JEL Classification Codes: E21, D52, D58. Keywords: Wealth Inequality, Heterogeneous Agents, Incomplete Markets, Computable General Equilibrium. |
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This paper applies Canova JAE 1994 methodology to perform a thorough sensitivity analysis for the Aiyagari QJE 1994 economy. This is a calibrated GE model with incomplete markets and uninsurable income risk, designed to quantify the size of precautionary savings and the degree of wealth inequality. The results of this global robustness analysis are broadly consistent with Aiyagari’s findings. Even when considering priors for the parameters uncertainty which are highly dispersed, the size of the precautionary savings is modest: at most, they account for an 11% increase in the saving rate. However, the results show that the parameter representing the exogenous borrowing limit seems to lead to relatively large changes in measures of wealth inequality. The Gini index increases by 15 points when considering values of the borrowing limits that lead to empirically plausible shares of households with a negative net worth. The parameters that quantitatively have the largest effects on determining the wealth Gini index are the capital share, the borrowing limit, and the depreciation rate. The parameters affecting most significantly precautionary savings are the risk aversion and the standard deviation of the income shocks. JEL Classification Codes: E21, D52, D58. Keywords: Precautionary Savings, Calibration, Heterogeneous Agents, Incomplete Markets, Computable General Equilibrium, Monte Carlo. A revised version appears as Chapter n. 9 in Calibration Technology, Theories and Applications, I. Fujimoto and K. Nishimura (eds.), Nova Science Publishers, (2013).
This paper implements a simple Monte Carlo calibration approach to quantitatively study the Hansen and Imrohoroglu (1992) economy, a GE model with uninsurable employment risk, designed to assess the optimal replacement rate for a public Unemployment Insurance scheme. The results of this sensitivity analysis are consistent with the original findings, but with several caveats. One novel result in particular is that the sampling distribution of the optimal UI is bimodal. Depending on the calibrated parameters, the optimal UI is in one of two regions: a very generous scheme with high replacement rates, where insurance is mainly provided by the UI scheme, or one with low replacement rates, where insurance is mainly achieved through self-insurance. Even in the absence of moral hazard, it is never optimal to provide full insurance. Moreover, for many plausible parameters' configurations, the welfare maximizing replacement rate does not decrease with the level of MH. The qualitative patterns and quantitative findings are not altered substantially when considering an enlarged labor force, which includes the marginally attached workers. Finally, the parameters representing the hours worked, the leisure share in the households' consumption bundle, and the risk aversion have a first order impact on the average welfare. The determination of the optimal UI scheme depends heavily on them. This finding suggests that extra caution should be paid when calibrating these parameters in similar environments. JEL Classification Codes: E21, D52, D58. Keywords: Calibration methods, Unemployment Risk, Optimal Unemployment Insurance, Heterogeneous Agents, Incomplete Markets, Computable General Equilibrium, Monte Carlo. A more concise version was published in the Economics Letters, Vol. 117 (1), 2012, p. 28-31. |
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joint
with G. Fella, Queen Mary (Updated version: October
2013) |
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We study the insurance properties of mandated Severance Payments in an economy with costly labor mobility and incomplete markets. The framework allows for wage flexibility at the level of the individual firm-worker match: when faced with SP, firms modify the wage profile and entry wages fall to compensate the future severance pay. In turn, this change in wages affects welfare, because of the workers’ limited borrowing possibilities. Since the incentives to save are altered, the capital stock varies, and non-trivial General Equilibrium effects are also present. On the one hand, with SP agents are better insured and the precautionary motive of saving is reduced. On the other hand, the change in the wage profile reduces the savings of young individuals and tends to increase that of older ones. The model is solved numerically and calibrated to the US economy. For realistic SP schemes, average welfare effects are positive in steady state comparisons, and they are: 1) heterogeneous in the population, with both young and unemployed workers that can be considerably worse-off, 2) quantitatively important, namely in the order of 0.6-2.4% of consumption in the original steady-state. A correction of the welfare measures taking care of the potentially non structural parameters shows that the results are robust also along this dimension. JEL Classification Codes: E24, D52, D58, J65. Keywords: Unemployment Risk, Incomplete Markets, Computable General Equilibrium, Severance payments, Welfare, Heterogeneous Agents. |
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In Progress
My Two Cents on Other People’s Research
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