Showing papers by "Francisco J. Buera published in 2014"

Partial differential equation models in macroeconomics.

Abstract: The purpose of this article is to get mathematicians interested in studying a number of partial differential equations (PDEs) that naturally arise in macroeconomics These PDEs come from models designed to study some of the most important questions in economics At the same time, they are highly interesting for mathematicians because their structure is often quite difficult We present a number of examples of such PDEs, discuss what is known about their properties, and list some open questions for future research

Anatomy of a Credit Crunch: From Capital to Labor Markets

Abstract: Why are financial crises associated with a sustained rise in unemployment? We develop a tractable model with frictions in both credit and labor markets to study the aggregate and micro-level implications of a credit crunch--i.e., a tightening of collateral constraints. When we simulate a credit crunch calibrated to match the observed decline in the ratio of debt to non-financial assets of the United States business sector following the 2007-8 crisis, our model generates a sharp decline in output--explained by a drop in aggregate total factor productivity and investment--and a protracted increase in unemployment. We then explore the micro-level impact by tracking the employment dynamics for firms of different sizes and ages. The credit crunch causes a much larger reduction in the net employment growth rate of small, young establishments relative to that of large, old producers, consistent with the recent empirical findings in the literature.

Liquidity Traps and Monetary Policy: Managing a Credit Crunch

Abstract: We study a model with heterogeneous producers that face collateral and cash in advance constraints. These two frictions give rise to a non-trivial financial market in a monetary economy. A tightening of the collateral constraint results in a credit-crunch generated recession. The model can suitable be used to study the effects on the main macroeconomic variables - and on welfare of each individual - of alternative monetary - and fiscal - policies following the credit crunch. The model reproduces several features of the recent financial crisis, like the persistent negative real interest rates, the prolonged period at the zero bound for the nominal interest rate, the collapse in investment and low inflation, in spite of the very large increases of liquidity adopted by the government. The policy implications are in sharp contrast with the prevalent view in most Central Banks, based on the New Keynesian explanation of the liquidity trap.

Macro-perspective on Asset Grants Programs: Occupational and Wealth Mobility

Abstract: We provide a simple quantitative general equilibrium model of occupational choice with credit market frictions to analyze the aggregate and distributional effects of asset transfer program

PDE Models in Macroeconomics

Abstract: The purpose of this article is to get mathematicians interested in studying a number of PDEs that naturally arise in macroeconomics. These PDEs come from models designed to study some of the most important questions in economics. At the same time they are highly interesting for mathematicians because their structure is often quite difficult. We present a number of examples of such PDEs, discuss what is known about their properties, and list some open questions for future research.

Anatomy of a Credit Crunch: From Capital to Labor Markets

Abstract: Why are financial crises associated with a sustained rise in unemployment? We develop a tractable model with frictions in both credit and labor markets to study the aggregate and micro-level implications of a credit crunch--i.e., a tightening of collateral constraints. When we simulate a credit crunch calibrated to match the observed decline in the ratio of debt to non-financial assets of the United States business sector following the 2007-8 crisis, our model generates a sharp decline in output--explained by a drop in aggregate total factor productivity and investment--and a protracted increase in unemployment. We then explore the micro-level impact by tracking the employment dynamics for firms of different sizes and ages. The credit crunch causes a much larger reduction in the net employment growth rate of small, young establishments relative to that of large, old producers, consistent with the recent empirical findings in the literature.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.