This paper develops a general framework to construct optimal policy reforms starting from a status quo set of policies. We show that if a policymaker can control how fiscal externalities are spent, then the welfare-weighted marginal value of public funds (WMVPF) is the relevant sufficient statistic for determining optimal policy reforms. If a policymaker cannot control how fiscal externalities are spent, then the welfare-weighted net social benefit (WNSB) is the relevant sufficient statistic. If a policymaker can control how a fraction of fiscal externalities are spent, then the relevant sufficient statistic is an “internal WMVPF” plus an “external correction” term. We provide a number of stylized examples to illustrate when in practice to use the WMVPF vs. the WNSB to determine optimal policy reforms.

This paper develops a flexible discrete-choice demand framework for aggregate data sets that extends Berry, Levinsohn, and Pakes (1995) and the Pure Characteristics Demand Model of Berry and Pakes (2007). I provide a simple, computationally tractable, asymptotically normal  a globally-convergent algorithm to recover utilities from observed demand and a Quasi-Bayes approach that minimizes simulation variance. The framework accommodates zero market shares, which are a challenge for alternative approaches. I show that zeros in demand generate an endogenously censored model, which leads to moment inequalities. As an application, I study moving costs US internal migration data.

Why do fire sales occur if many risks are hedgeable? We study a version of Brunnermeier and Sannikov (2014) in which all fundamental risks can be hedged frictionlessly. Our analysis shows that fire sales are inherently self-fulfilling. Fundamental shocks can never cause fire sales, and an efficient, safe equilibrium exists. On the other hand, there exists an equilibrium in which agents coordinate fire sales on non-fundamental shocks. A simple refinement based on vanishingly-small perceived fundamental risk eliminates the safe equilibrium and selects the fire sale equilibrium as the unique outcome.

We study the global dynamics of the fully stochastic nonlinear version of the New Keynesian model and analyze the efficacy of various policies as equilibrium selection tools in this context. First, we unveil a new class of equilibria, characterized by selffulfilled beliefs about output volatility in recessions, which no conventional Taylor rule can eliminate. An enriched monetary rule specifically targeting risk premia can restore determinacy but becomes infeasible in the presence of a lower bound to interest rates. Second, and in contrast to monetary policy, the fiscal theory of the price level (FTPL) kills all such self-fulfilling volatility. Our main result that FTPL  trims volatile equilibria holds in many contexts, including: under an interest rate peg or active Taylor rule, with any degree of price stickiness (including fully rigid prices), with various types of fiscal rules, and with long-term debt

We discover sentiment-driven equilibria in popular models of imperfect risk sharing. In these equilibria, sentiment dynamics behave like uncertainty shocks, in the sense that self-fulfilled beliefs about volatility drive aggregate fluctuations. Because such fluctuations can decouple from the wealth distribution, rational sentiment helps resolve two puzzles plaguing models emphasizing balance sheets: (i) financial crises emerge suddenly, featuring large volatility spikes and asset-price declines; (ii) assetprice booms, with below-average risk premia, predict busts and financial crises. Methodologically, our contribution is using stochastic stability theory to establish existence of sunspot equilibria.

Job displacement causes large and persistent earnings losses. We document that these losses exhibit a U shape over the life cycle: young and old workers experience greater drops than mid-career workers. We develop a simple search model with human capital accumulation and deterioration that rationalizes this pattern. Losing a job early in the career is particularly costly because it implies missing out on fast wage growth opportunities. For older workers, specific human capital and firms’ reluctance to hire explain most of the drop in earnings. Recessions affect the young disproportionately and exacerbate the U-shaped cost of job loss

In this paper, we argue that adjustments in non-wage compensation are empirically

relevant and have important implications for understanding the effects of labor

supply shocks. We examine the labor market impacts of internal migration in

Brazil through a shift-share approach, which combines weather-induced migration

with historical settlement patterns at each destination. Our findings indicate that

increasing migration inflows lead to a reduction in formal employment while

simultaneously increasing informality by a similar magnitude. Unlike previous

studies, we observe a significant negative impact on earnings within the formal

sector. Additionally, we provide evidence that the proportion of formal workers

receiving non-wage benefits declines, underscoring that substantial adjustments

take place in the formal sector, even in a context of high informality.We interpret our

results within a framework where formal and informal labor inputs are imperfect

substitutes and where non-wage benefits generate predictions that align closely

with our empirical findings

Do households value access to free health insurance when making labor supply decisions? We address

this question by exploiting the 2002 introduction of universal health insurance in Mexico (Seguro

Popular, SP), that broke the link between access to health care and job contract. Reduced-form estimates

show that SP increased informality among less educated families with children by 3.5%. We develop

and estimate a household search model that incorporates the value of formal sector amenities relative to

pre-reform alternatives, and the value of health insurance. Model estimates show that households value

SP by, at most, 1.33 per unit of net cost

How much employment can be generated by decreasing payroll taxes? We examine this question by exploring the staggered rollout of a large payroll tax reform in Brazil.

Using administrative matched employer-employee data, we find an increase of 5 percent on employment due to both firm growth and firm entry, no impact on wages and a significant increase in profits. Moreover, employment effects are driven by less concentrated labor markets, consistent with predictions from an oligopsony model.

This paper investigates the impacts of neighborhoods on the economic outcomes of adults. We exploit one of the world's largest housing lottery programs and administrative data linking lottery registration, formal employment, and access to social programs in Brazil. Receiving a house has positive impacts on housing quality and reduces household expenditures but has negative effects on beneficiaries' neighborhood characteristics. On average, the program has a  negative impact on the probability of being formally employed but no effects on the quality of jobs. Poorer individuals, however, experience better formal employment outcomes and lower welfare dependency. We find no differential impacts by distance to beneficiaries' previous homes or jobs. Leveraging a double-randomization design to allocate houses, we show that there are significant differences in effects across neighborhoods and we propose a framework to estimate the relative importance of potential underlying mechanisms. Network quality, amenities and crime play a very limited role, while labor market access explains 82-93% of the observed differences in neighborhood effects.

We investigate the effects of extreme weather events on voicing political opposition against authoritarian regimes. We use the Brazilian general elections of 1982 as a case study. At the time, Brazil was under a military dictatorship that promoted local and gubernatorial elections to validate its authoritarian power. This context provides a positive measure of protest coined shrimp vote. Moreover, during the elections, the country’s northeastern region was facing a long-lasting drought that started in 1979. Using data from meteorological ground stations to compute a measure of drought severity that takes rainfall and evaporation into account, we estimate the effects of the drought on the voting behavior of individuals in this region. Our findings suggest a negative causal effect of adverse weather shocks on the share of protest votes. Specifically, a one-standard-deviation from the historical average water deficit reduces the share of shrimp vote by 2.5%. We also test for heterogeneity among factors such as relief transfers, clientelism, social vulnerability, and economic vulnerability. We only find heterogeneous effects for economic vulnerability. Namely, municipalities whose economy depended less on weather-resistant crops featured stronger declines in protest in response to drought severity.

This paper studies a central bank’s optimal interest rate corridor choice in the presence of an endogenous interbank network. We first provide a characterization of the unique equilibrium of banks’ liquidity holdings for any network of credit lines. Then, we endogenize the network and show that every equilibrium network is a complete coreperiphery graph. Central banks face the following trade-off. A narrower corridor implies more precise targeting of the interbank rate. But, when accounting for banks’ endogenous linking decisions, a narrower corridor may lead to a sparser interbank network with higher aggregate liquidity holdings. This incurs an implic it cost, since these funds could be invested in the more productive illiquid asset instead. We solve for the optimal corridor width and provide a comparative statics analysis.

Central banks’ liabilities are still often excluded from debt sustainability analyses, despite the enormous expansions in central banks’ balance sheets that we have witnessed in recent years. In this paper, we construct a dataset that consolidates both general government and central bank balance sheets and argue that this metric allows for fairer comparisons across countries. The findings highlight the increasingly important role played by central banks in managing and altering the profile of the privately-held sovereign debt. In addition, they shed light into the impact of FX reserves accumulation and QE on reducing the debt maturity, which cannot be captered by traditional general government debt metric.

We propose and implement an index of macroeconomic vulnerability to foreign shocks based on a structural time-varying bayesianVARwith a block-exogeneity hypothesis for a given pair of a large economy and a small open economy. The index is based on the sum of the responses of the small open economy to shocks in the large economy over time, thus allowing us to disentangle and measure the source of the shock, impact variables and duration of impact. Our approach brings light not only to vulnerability across countries and over time, but it can be also be used to elucidate previously unanswered channels. We provide an application of this approach to a global banks framework, allowing us to measure some yet unmeasured theoretical mechanisms. Using a sample of developed and developing countries, we find that global banks do not increase the macroeconomic vulnerability of a country

Central-government politicians channel resources to sub-national entities for political gains. We show formally that the central politicians' allocation decision has two drivers: political alignment (between central and local politicians) and the level of local political accountability. However, drivers count one at a time: alignment matters before local elections, while local political accountability matters before central elections. We then perform a test of our model using Brazilian data, which corroborates our results. Furthermore, we show and explain why political accountability becomes a curse: better-educated districts receive fewer transfers in equilibrium.