Working Papers
Market Power and Innovation in the Intangible Economy
Revise and Resubmit - American Economic Review [VoxEU summary] Updated October 2021
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. The increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. I develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction.
The Hitchhiker's Guide to Markup Estimation
Preliminary Draft - July 2021 (with Basile Grassi and Giovanni Morzenti, Bocconi University)
How do estimates of firm-level markups that rely on production function estimations depend on common data limitations? With a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data, we study biases due to the use of revenue instead of quantity, and due to production function misspecification. Estimates from revenue mismeasure the level of markups, but do contain useful information about true markups. Conversely, misspecified production functions have little effect on the estimated average markup but reduce their information content. Finally, revenue and quantity markups display similar correlations with variables such as profitability and market share in our data.
Intangible Investment and the Persistent Effect of Financial Crises on Output
Revise and Resubmit - Economic Journal [VoxEU summary] Updated December 2019
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015.
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board).
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states.
The Multiplier of Education Expenditures
FEDS working paper, May 2020 (with Simona Hannon and Damjan Pfajfar, Federal Reserve Board).
This paper examines the short-run effects of federal education expenditures on local income. We exploit city-level variation in exposure to national changes in the $30-billion Federal Pell Grant Program, which is the largest program to help low-income students attend college in the U.S., to calculate fiscal multipliers of education expenditures. An increase in Pell grants by 1 percent of a city’s income raises local income by 2.4 percent over the next two years.
Revise and Resubmit - American Economic Review [VoxEU summary] Updated October 2021
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. The increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. I develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction.
- Coverage: ECB Vice-President's Speech, Financieel Dagblad, Dutch Parliament, Haskel's Speech (Bank of England MPC)
- Awards: Best Paper at OECD/EC innovation conference Concord 2019, Unicredit Job Market Paper in Macroeconomics Award 2020
The Hitchhiker's Guide to Markup Estimation
Preliminary Draft - July 2021 (with Basile Grassi and Giovanni Morzenti, Bocconi University)
How do estimates of firm-level markups that rely on production function estimations depend on common data limitations? With a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data, we study biases due to the use of revenue instead of quantity, and due to production function misspecification. Estimates from revenue mismeasure the level of markups, but do contain useful information about true markups. Conversely, misspecified production functions have little effect on the estimated average markup but reduce their information content. Finally, revenue and quantity markups display similar correlations with variables such as profitability and market share in our data.
Intangible Investment and the Persistent Effect of Financial Crises on Output
Revise and Resubmit - Economic Journal [VoxEU summary] Updated December 2019
This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015.
- Coverage: Mejudice, The Guardian, Wall Street Journal, Financial Times, ECB Vice-President's Remarks
- Awards: CERF Cambridge Best Student Finance Paper (2018), shortlisted for ECB's Young Economist Award (2017)
Policy Shocks and Wage Rigidities: Empirical Evidence from the Regional Effect of National Shocks
Cambridge INET working paper, April 2017 (with Damjan Pfajfar, Federal Reserve Board).
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state-level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states.
The Multiplier of Education Expenditures
FEDS working paper, May 2020 (with Simona Hannon and Damjan Pfajfar, Federal Reserve Board).
This paper examines the short-run effects of federal education expenditures on local income. We exploit city-level variation in exposure to national changes in the $30-billion Federal Pell Grant Program, which is the largest program to help low-income students attend college in the U.S., to calculate fiscal multipliers of education expenditures. An increase in Pell grants by 1 percent of a city’s income raises local income by 2.4 percent over the next two years.
Publications
When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases
European Economic Review [replication code], September 2021 (with Travis Berge and Damjan Pfajfar, Federal Reserve Board).
This paper compares the effect of fiscal spending on economic activity across four phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.
European Economic Review [replication code], September 2021 (with Travis Berge and Damjan Pfajfar, Federal Reserve Board).
This paper compares the effect of fiscal spending on economic activity across four phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.
Non-refereed/policy publications
Fiscal multipliers during a pandemic, Cambridge I-NET Special Feature, May 2020
Tijdens de coronacrisis hebben overheidsuitgaven veel effect op het nationaal product, ESB, May 2020
Immatriële productiefactoren kunnen groei van productiviteit afremmen, ESB, October 2019
Untouchable firms: market power, business dynamism, and productivity growth in the intangible economy, VoxEU, July 2019
De economische effecten van het Algemeen Verbindend Verklaren, ESB, September 2017 (with Rob Euwals)
Endogenous growth and the lack of recovery from the Global Crisis, VoxEU, July 2017 (with Coen Teulings)
What are the wage effects of collective bargaining extensions? CPB Bureau for Economic Policy Analysis, April 2016 (with Rob Euwals)
Tijdens de coronacrisis hebben overheidsuitgaven veel effect op het nationaal product, ESB, May 2020
Immatriële productiefactoren kunnen groei van productiviteit afremmen, ESB, October 2019
Untouchable firms: market power, business dynamism, and productivity growth in the intangible economy, VoxEU, July 2019
De economische effecten van het Algemeen Verbindend Verklaren, ESB, September 2017 (with Rob Euwals)
Endogenous growth and the lack of recovery from the Global Crisis, VoxEU, July 2017 (with Coen Teulings)
What are the wage effects of collective bargaining extensions? CPB Bureau for Economic Policy Analysis, April 2016 (with Rob Euwals)