Juan M. Sánchez

Bio: Juan M. Sánchez is an academic researcher from Federal Reserve Bank of St. Louis. The author has contributed to research in topics: Debt & Recession. The author has an hindex of 21, co-authored 110 publications receiving 1512 citations. Previous affiliations of Juan M. Sánchez include University of Rochester & Federal Reserve System.

The Persistence of Financial Distress

Abstract: Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of heterogeneity in time preference but not otherwise.

Should Capital Flow from Rich to Poor Countries

Abstract: Are human and physical capital stocks allocated efficiently across countries? To answer this question, we need to differentiate misallocation from factor intensity differences. We use newly available estimates on factor shares from Monge-Naranjo, Santaeullia-Llopis, and Snchez (2019) to correctly measure the factor shares of physical and human capital for a large number of countries and periods. We find that the global efficiency losses of the misallocation of human capital are much more substantial than those of physical capital, amounting to 40 percent of the world?s output. Moreover, contrary to the findings of Monge-Naranjo, Santaeullia-Llopis, and Snchez (2019) for physical capital, the global misallocation of human capital does not seem to be subsiding. We argue that the proper measure of global misallocation requires considering the potential gains of reallocating both physical and human capital. In this case, the implied efficiency loses from misallocation are up to 60 percent of global output. Attaining those gains, contrary to the prominent Lucas paradox (Lucas, 1990), would often require physical capital to flow from poor to rich countries.

Unemployment Insurance in an Economy with a Hidden Labor Market

Abstract: This paper considers the problem of optimal unemployment insurance in a moral hazard framework. Unlike existing literature, unemployed workers can secretly participate in a hidden labor market; as a consequence, an endogenous lower bound for promised utility preventing \immiserization" arises. Moreover, the presence of a hidden labor market makes possible an extra deviation and therefore hardens the provision of incentives. Under linear cost of efiort, we show that the optimal contract prescribes no participation in the hidden labor market and a decreasing sequence of unemployment payments until the lower bound for promised utility is reached. At that moment, participation jumps and unemployment payments drop down to zero. For the case of non-linear efiort cost we calibrate the model to Spain. As in the linear cost of efiort, this exercise reproduces no participation and decreasing payments during the initial phase of unemployment. After around three years of unemployment, the contract prescribes a jump in participation and an abrupt decline in unemployment payments. To the best of our knowledge, this is the flrst paper justifying an abrupt drop in unemployment payments. In addition, the quantitative analysis suggests that in an environment in which agents difier in separation rate, the hidden labor market reinforces the beneflts from a type-dependent unemployment system.

Risk Sharing, Investment, and Incentives in the Neoclassical Growth Model

Abstract: We first study growth and risk sharing in a stochastic growth model with preference shocks and two risk-averse agents. In periods in which one of the agents needs extra consumption (insurance), it is socially optimal to reduce the consumption of the other agent (redistribution) and also to accumulate fewer resources for the future (disinvestment). The latter hurts growth while the former only affects the distribution of aggregate consumption. Then, to analyze if information matters, we study if the same allocation would be implementable under private information. We find that it depends on the state of the economy. The provision of insurance that is implemented by reducing capital accumulation deteriorates the prospects of all agents in the economy and thus helps to alleviate informational frictions. The size of redistribution versus disinvestment and the outlook of economic growth at the time of disinvestment affects the possibilities of implementing the best possible allocation when the preference shock is private information. Therefore, we conjecture that under private information the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.

Financial development and economic growth

Abstract: relationship. All subsequent studies confirmed it (see for example King and Levine, 1993, and the review in: Pagano, 1993). Goldsmith used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP. He also showed that in periods of rapid growth, financial depth grows faster than income. More details about measuring financial depth can be found in this paper. FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH Velimir Šonje

Finance and Development: A Tale of Two Sectors †

Abstract: Explaining levels of economic development hinges on explaining TFP dierences across coun- tries. In poor countries, total factor productivity (TFP) is particularly low in sectors producing tradable goods. We document that an important dierence between tradable and non-tradable sectors is their average establishment size: Tradable establishments operate at much larger scales. We develop a model co-determining aggregate TFP, sectoral TFP, and scales across industrial sectors. In our model, …nancial frictions disproportionately aect TFP in tradable sectors where production requires larger …xed costs. Our quantitative exercises show that …- nancial frictions explain a substantial part of the observed cross-country relationship between aggregate TFP, sectoral TFP, and output per worker.

Finance and Misallocation: Evidence from Plant-Level Data

Abstract: We use producer-level data to evaluate the role of financial frictions in determining total factor productivity (TFP). We study a model of establishment dynamics in which financial frictions reduce TFP through two channels. First, finance frictions distort entry and technology adoption decisions. Second, finance frictions generate dispersion in the returns to capital across existing producers and thus productivity losses from misallocation. Parameterizations of our model consistent with the data imply fairly small losses from misallocation, but potentially sizable losses from inefficiently low levels of entry and technology adoption. (JEL E32, E44, F41, G32, L60, O33, O47)