revise & resubmit (2nd round), The Quarterly Journal of Economics
blog entry: focoeconomico
This paper studies the role of capital embodied technology in accounting for agricultural productivity differences across countries. We construct a novel dataset of agricultural equipment prices and make three contributions. First, we document substantial cross-country heterogeneity in the relative price of old-to-new equipment and a systematic increase in the price of new equipment with development. Second, we link these price differences to the path of capital embodied technology in a framework that features endogenous technology adoption via capital vintages of different qualities. Our framework recovers the growth rate of embodiment in an economy from the price-age elasticity of equipment, and the quality of the best equipment vintage operated from the price of new equipment. Third, we measure the stocks of quality-adjusted capital equipment in agriculture for a sample of 16 countries at different stages of development. We find that capital embodied technology accounts for 35% of the agricultural labor productivity growth, on average, and 27% of the differences in the level of productivity in the sample.
revise & resubmit, European Economic Review
In a two-sector economy, changes in intermediate input trade as reflected in cost share fluctuations are key to determine amplification properties of investment-specific and neutral shocks. I document that the cost shares of intermediate inputs produced by the equipment sector correlate positively with GDP, whereas those of inputs produced by the consumption sector correlate negatively with GDP. I extend the two sector model by Greenwood et.al. 2988 to allow for intermediate goods trade and show that the documented correlations can be used to discipline heterogeneous elasticities of substitution in intermediate inputs across sectors. I show that shock amplification -- that is, the effect of a sectorial shock on aggregate value added -- depends on the degree of heterogeneity in substitutability, and it is therefore independent of the elasticity when this is identical across sectors. For a calibrated economy to the US, I find that shock amplification is stronger than in a unitary elasticity economy.
(previously circulated as "Industry Dynamics, Investment and Business Cycles")
I study allocative efficiency in a stochastic general equilibrium economy where heterogeneous firms make dynamic decisions on entry, exit and technology; operate non-convex production technologies; and compete monopolistically. While previous literature associated factor misallocation to marginal product dispersion, I show that in general, it is not a sufficient statistic for production efficiency. The observed dispersion depends on equilibrium firm churning, firm's market power, and the degree of uncertainty firms face. I characterize the efficient allocation and its decentralization for a calibrated economy to the US manufacturing sector. Changes in entry, exit and technology upgrade explain most of the productivity gains under the optimal policy.
A randomized control trial in rural India to identify and quantify key frictions to the development of equipment rental markets, and the potential impact of these markets for farm mechanization, and through it, for labor reallocation and productivity.
"Occupational Exposure to Capital Embodied Technological Change" with E. Keller and D. Jaume Draft coming soon!
We construct quality-adjusted equipment stocks for 300 occupations over the last 40 years in the US, consistent with aggregate equipment series in NIPA. We build a novel measure of occupational exposure to technological change to assess the impact of capital-embodied technological change for job polarization and the skill-allocation of the labor force to different occupations. We show large heterogeneity in the impact of CETC across different equipment categories consistent with disparities in a) the intensity of usage of equipment and b) complementarity between capital and labor across occupations.
"Efficiency with Equilibrium Marginal Product Dispersion and Firm Selection"
To show that welfare gains of implementing simple policies* in a wide variety of economies that display input misallocation are summarized by a single statistic: the change in average revenue product and the number of operating units in the market.
* policies that do not require firm characteristics for implementation.
"Asymmetry, Complementarities and Federal Reserve Forecasts" December 2017 [paper]
with Riccardo DiCecio (St. Louis FED), Ivana Komunjer (Georgetown University), and Michael Owyang (St. Louis FED)
Journal of Money, Credit and Banking , December 2018
(previously circulated as "Federal Reserve Forecasts: Asymmetry and State-Dependence")
Forecasts are a central component of policymaking; the Federal Reserve's forecasts are published in a document called the Greenbook. Previous studies of the Greenbook's inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods; e.g., before and after the Volcker appointment. In these papers, forecasts are analyzed in isolation, assuming policymakers value them independently. We analyze the Greenbook forecasts in a framework in which the forecast errors for different variables are allowed to interact. We find that allowing the losses to interact makes the unemployment forecasts virtually symmetric,the output forecasts symmetric prior to the Volcker appointment, and the inflation forecasts symmetric after the onset of the Great Moderation.
"Who Quits Next? Firm Growth in Growing Economies" July 2017 [paper] [citation]
with Emircan Yurdagul (U. Carlos III)
Economic Inquiry, October 2018
In a two-sector economy, changes in intermediate input trade as reflected in cost share fluctuations are key to determine amplification properties of investment-specific and neutral shocks. I document that the cost shares of intermediate inputs produced by the equipment sector correlate positively with GDP, whereas those of inputs produced by the consumption sector correlate negatively with GDP. I extend the two sector model by Greenwood et al. (1988) to allow for intermediate goods trade and show that the documented correlations can be used to discipline heterogeneous elasticities of substitution in intermediate inputs across sectors. Heterogeneity in substitutability generates disparities in the amplification properties of investment-specific and neutral shocks vis-a-vis the common substitutability framework used in the multi-sector literature, as well as stronger shock amplification relative to a constant cost share economy.
Ottonelo, P. "Capital Unemployment, Financial Shocks and Investment Slumps". March 2015, Slides
Meza, F., Patrad, S. & Urrutia, C.," Credit, Sectoral Misallocation and Productivity Growth: A Disaggregated Analysis". March 2016, Slides
Senga, T. " A new look at Uncertainty Shocks: Imperfect Information and Misallocation". June 2016, Slides