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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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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 welfare changes induced by a set of policy experiments is assessed. The results show that, for the economy and the policy reforms under analysis, the model always predict the right sign of the welfare effects. Quantitatively, the maximum errors made in evaluating a policy change are very small for some reforms (in the order of 0.05 percentage points), but bigger for others (in the order of 0.5 pp). Finally, having access to better data, in terms of larger samples, does lead to sizable increases in the precision of the welfare effects estimates. JEL Classification Codes: C15, C54, C68, D52. Keywords: Monte Carlo, Heterogeneous Agents, Incomplete Markets, Ex-ante Policy Evaluation, Welfare.
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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 both uninsurable idiosyncratic income risk and risk aversion heterogeneity to quantify their effects on wealth inequality. The results show that with the available estimates of the risk aversion distribution from PSID data 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 several features of the wealth distribution. However, the share of wealth held by the top 1% is still substantially underestimated. It is also shown that models without risk aversion heterogeneity underestimate the size of precautionary savings, and that the results are robust to both different income process specifications and to self-selection into risky jobs. 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.
This paper implements a simple Bayesian approach to study quantitatively the Hansen and Imrohoroglu (1992) economy, a calibrated 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. A novel result is that the distribution of the optimal UI is bimodal. Depending on the calibrated parameters, the optimal UI is in one of two regimes. Either a very generous scheme with high replacement ratios, where insurance is mainly provided by the UI scheme, or one with low replacement ratios, 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. Considering an enlarged labor force, which includes the marginally attached workers as well, does not alter substantially the qualitative patterns and quantitative findings. Finally, the parameters representing the hours worked, the leisure share in the households’ consumption bundle, and the intertemporal elasticity of substitution have a first order impact on the average welfare, hence on the determination of the optimal UI scheme. 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. |
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joint
with G. Fella, Queen Mary and G. Violante, NYU |
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We study the equilibrium welfare effects of introducing mandated severance payments in a labor market with costly mobility, where self-insurance through a riskless asset is the only way to smooth fluctuations in labor income due to unemployment shocks. The framework allows for wage flexibility at the level of the individual firm-worker match. Wages vary with both tenure and productivity of the workers. When severance payments are introduced, the firm can potentially undo their effect by modifying the wage profile. Workers entry wages fall by the expected present value of the future payment. However, because of incomplete markets, workers are affected by the change in slope of the wage profile. Moreover, non trivial general equilibrium effects are also present, since the incentives to save are affected and the capital stock varies. On the one hand, with severance payments agents are better insured and the precautionary motive for savings is reduced. On the other hand, the change in the wage profile is likely to reduce the savings of young individuals and increase that of older ones. The model is solved numerically and calibrated to the US economy. We compare a welfare measure for the baseline economy, i.e. without severance payments, to those of a series of counterfactual economies where the severance payments are introduced at increasing levels. For reasonable values of the severance payments, welfare gains and costs in partial equilibrium seem to be: 1) heterogeneous in the population, with young and untenured workers being worse-off, 2) quantitatively in the order of 0.5-1% of consumption in the original steady-state. 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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