"Capital Obsolescence and Agricultural Productivity" August 2017 [paper][online appendix]
with Elisa Keller (University of Exeter)
revision requested Quarterly Journal of Economics
Cross-country disparities in agricultural productivity are large and, on average, larger than those observed in other sectors of the economy. This paper examines the role of capital-embodied technology adoption in explaining these cross-country disparities. We construct a novel dataset of second-hand agricultural equipment (tractors) prices across countries. We then present a vintage capital model that links equipment prices to the quality and composition of the capital stock. In particular, a) the path of the best-quality equipment available in a country is linked to the cross-sectional disparities in the relative price of old to new equipment, and under balanced growth, b) the composition of the capital stock and level of quality are linked to cross-country differences in the price of a particular piece of equipment. Using the unique characteristics of our dataset, we document that countries with higher agricultural labor productivity have steeper age-price profiles for tractors of comparable characteristics. We map this observation into a measure of quality disparities in capital stocks across countries. Via accounting exercises we find that capital quality explains, on average, one-fourth of the agricultural productivity growth differences in a sample of high and middle income countries. Moreover, one-third of the disparities in the level of agricultural productivity can be accounted for by disparities in capital-embodied technology.
"Who Quits Next? Firm Growth in Growing Economies" July 2017 [paper]
with Emircan Yurdagul (U. Carlos III)
revision requested Economic Inquiry
This paper studies the link between firm investment decisions, market selection and economic growth, to shed light on the nature of the growth process. Using a large cross-country dataset, we document that countries with rapid growth have (i) a larger share of firms undergoing labor productivity growth, (ii) younger firms on average, (iii) a flatter age-employment profile, and (iv) no significant differences on the share of the firms increasing employment than countries growing slowly. We build a tractable general equilibrium model consistent with these facts. The model displays endogenous long run growth as the outcome of heterogeneous firms' investment under uncertainty. We show that cross country differences in the likelihood with which firms turn their investment into productivity growth explain two thirds of the cross country variation in aggregate growth rates. In addition, while employment patterns holds information about the relative success of some firms versus others, it is the age distribution of firms that is key to diagnosing prospects for economic growth. Finally, we show that the likelihood of productivity growth is strongly related to investor protection and corruption indexes, as well as the level of education of the labor force.
"Aggregate Fluctuations and the Industry Structure of the US Economy" December 2017 [paper][online appendix] submitted
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.
"Industry Dynamics, Investment and Uncertainty" September 2016 [paper][online appendix] New version coming soon
(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.
"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)
revised & resubmitted Journal of Money, Credit and Banking
(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.
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