Working Papers

Fireside Chats: Communication and Consumers’ Expectations in the Great Depression.

Federal Reserve Bank of Cleveland, Working Paper No. 20-30. Revise and resubmit at Review of Economics and Statistics

This paper shows how policy announcements can be used to manage expectations and have a role as a policy tool. Using regional variation in radio exposure, I evaluate the impact of President Franklin D. Roosevelt's 1935 Fireside Chat, in which he showcased the introduction of important social policies, establishing a new cycle of the New Deal. I document that cities with higher exposure to the announcement exhibited a significant increase in spending on durable goods. I provide evidence that this result is not driven by wealth or other potentially confounding variables. The estimated effect is consistent with changes in expectations toward the policies announced. This paper shows the power of communication as a policy tool in affecting economic activity.

Export-Led Decay: The Trade Channel in the Gold Standard Era (with Bernardo Candia) Federal Reserve Bank of Cleveland, Working Papers No. 21-11

Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through and find gains in competitiveness after a depreciation. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. They were negatively impacted when the UK abandoned the gold standard in 1931 and benefited when the US left the gold standard in April 1933. We show that the gold standard deepened the Great Depression, and abandoning it was a key driver of the economic recovery.


The Geographic Effects of Monetary Policy (with Juan Herreño) [Draft coming soon]

We study the differential regional effects of monetary policy exploiting geographical heterogeneity in income across cities in the United States. We find that prices and employment in poorer cities react more to monetary policy shocks. The results for prices hold for a wide range of narrow consumer expenditure categories. The results are consistent with New Keynesian models that allow for a differential share of hand-to-mouth consumers across regions, but not with models in which regions have different slopes of the Phillips curve. The drop in employment in poor cities is driven by a large decline of employment by Ricardian households.

The Price Pass-Through of Local Shocks and the Effectiveness of Fiscal Devaluations (with Juan Herreño)

The effectiveness of local fiscal policies in a monetary union depends on the reaction of prices. We estimate the pass-through of local sale taxes to prices to using data underlying the CPI. We estimate a higher pass-through of sale taxes on tradable goods relative to non-tradable goods. We use a New Keynesian model where regions trade and consume tradable and non-tradable goods to interpret the evidence. In the model, the pass-through of a sale tax depends on the extent of geographical competition for a good. We explore conditions under which fiscal policies are output and welfare-improving.

Robot Adoption, Automation, and Labor Markets in a Global Economy (with Tara Vishwanath and Roman D. Zarate) Preliminary Draft

There is a heated debate about the negative consequences of automation and rapid technological progress on jobs performed by human labor and its implications on the future of manufacturing. While different studies have analyzed the impact of automation in advanced economies, there is scarce evidence for developing ones. The question whether manufacturing is still a sensible and feasible development strategy is critical in creating global equitable and efficient markets. And, studies in low-middle income countries have only examined patterns of job polarization or the direct impact of technology adoption. We explore a new channel on how technology adoption in advanced economies may affect labor outcomes in developing ones: The displacement of traditional economic sectors by the adoption of computer-assisted technologies and robots in advanced countries. We start showing three facts: 1) there is a positive correlation between trade flows and robots; 2) robots adopted by advanced countries are in sectors with traditional comparative disadvantage; 3) preliminary results suggest a negative association between US robot adoption and net exports stemming from developing countries and a negative impact on labor outcomes.


In press: Bloomberg, WSJ, Economist

We assess whether central banks may use inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms’ expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households’ nor firms’ expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers can pierce this veil of inattention through new communication strategies. At this stage, there remain a number of implementation issues and open research questions that need to be addressed to enable central banks to use inflation expectations as a policy tool.

Using panel co-integration techniques and a comprehensive dataset covering the period 1980-2013, this paper finds a positive and significant correlation between national saving and domestic investment rates in Latin America and the Caribbean (LAC). The estimated correlation is approximately 0.39; i.e. , for every 1 percentage point of GDP increase in national saving, domestic investment increases by 0.39 percentage points on average. There are however, three nuances to the headline result: i) the estimated correlation has been declining over time; ii) the regional average hides a large degree of intra-regional heterogeneity; and iii) the estimated coefficient is largest amongst the biggest economies in the region. It is concluded that low national saving rates remain a binding constraint for capital accumulation in LAC.

This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is detailed over time and we relate the type of Sudden Stop to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are associated with larger falls in output than those where Sudden Starts in Gross Outflows dominate. The paper further discusses the mechanisms that might result in Sudden Stops in Gross Flows that are not Sudden Stops in Net Flows such that purchases and sales in financial assets or liabilities do not require a sharp current account adjustment. Still, it is found that Sudden Stops in Gross Inflows that do not provoke a sharp contraction in Net Flows may also be disruptive, particularly Sudden Stops that are driven by “other flows” - which include banking flows. The results suggest new avenues for research and future policy analysis.