Research

Does misallocation affect business cycles? This paper argues that when firm-level shocks influence aggregate outcomes, distortions to the firm-size distribution have direct implications for business cycle volatility. In particular, when distortions are positively correlated with productivity, they dampen aggregate fluctuations. Viewed through this lens, size-dependent policies, such as SME subsidies, function as automatic stabilizers when they favor small firms, and as amplifiers when they favor large ones. I develop a portable method to quantify these effects and calibrate it to the U.S. economy. The results suggest that distortions can play a substantial stabilizing role. Moreover, observed dispersion in marginal products may reflect an efficient allocation that internalizes firm-level risk. The analysis highlights a trade-off between production efficiency and macroeconomic stability, with optimal allocations tilting away from the most productive firms to reduce volatility arising from granular shocks. 

Land titling is expected to expand credit by making land pledgeable, but isolating this collateral channel empirically is difficult. We utilize English enclosures from 1750-1830 as a laboratory: privatization of "common waste" created newly mortgageable land, in contrast with "open-field" enclosures which largely reorganized already titled arable land. A stylized model with endogenous default predicts that an influx of newly pledgeable waste land lowers equilibrium collateral requirements, generating a local credit expansion but an increase in bankruptcies. Using a newly digitized universe of personal bankruptcies from the London Gazette, we find that the enclosure of common waste led to higher bankruptcies, particularly in industrial areas and during downturns. Bankruptcies are concentrated among industrial occupations with tight cash-flow cycles. In contrast, enclosures of open-field reduce bankruptcies. The results clarify a key collateral channel through which property reforms can deepen credit while increasing defaults. 

Entrepreneurship promotes wealth accumulation. However, Black households face significant barriers, operating fewer and smaller businesses compared to White households. We propose and evaluate a general equilibrium model of entrepreneurship choice and wealth accumulation in which Black households experience adverse distortions as entrepreneurs and workers, both affecting entrepreneurship choice. We discipline the model using U.S. microdata, and find that it matches well the observed racial wealth gap and the correlation between wealth and entrepreneurship. We find that distortions faced by Black entrepreneurs are the key factor for understanding the average racial wealth gap and play a significant role in determining the median gap. Our analysis also indicates that addressing racial disparities in the U.S. can substantially increase output.

Insuring households against unemployment risk is a cornerstone of modern economic policy. Many countries provide unemployment insurance partly by employment protection mandates, most commonly using termination notice mandates. Unlike unemployment insurance benefits, termination notices can stimulate search effort by the unemployed. I formalize this idea using a calibrated heterogeneous agents model, show how termination notice alters the incentives of firms and workers and study the insurance role of a termination notice in general equilibrium. I demonstrate how termination notice mandates and unemployment insurance benefits are complementary policies. Finally, I also compare between termination notice and severance pay.

Firing restrictions are in use throughout the developed world but their role in the transmission of macroeconomic shocks into the real economy is mostly unstudied. We illustrate the theoretical role of these policies as amplifiers of macroeconomic shocks via labor-misallocation-induced output losses following an adverse shock. We use our model to derive an aggregation result which features a labor misallocation term and conduct a simulation exercise which demonstrates how misallocation can drive total factor productivity (TFP) down during recessions. We then perform a quasi-natural experiment which utilizes global credit supply shocks to study this amplifying role using a panel of 21 OECD economies. We show that strict firing restrictions are associated with a weaker initial response of the labor market, which is followed by a stronger and more persistent decline in real output as well as a slower return of real activity to pre-shock levels. The stronger output decline can be mostly explained by a stronger fall in aggregate TFP, which supports our theoretical predictions.