Research

(with Rodolfo Rigato) [revised version coming soon] [IMF WP version]

Abstract.  Physical capital takes time to build. Yet, the measurement of time to build and of its response to firm behavior remain scant. We fill this gap using project-level data from India. We first document new facts about time to build. Industry heterogeneity accounts for 30% of its variation; and time to build increases on average by 0.18% for each 1% increase in project cost. We exploit quasi-experimental variation in credit supply to document that firms have control over time to build. When credit dries up, the conditional probability of completing a project over the following quarter rises by 6%, consistent with firms accelerating project development. In turn, new project starts fall by 7.5%. To rationalize our findings, we introduce a model of endogenous time to build. A credit crunch increases firm appetite for immediate cash flows relative to delayed cash flows. Firms then accelerate existing, closer to completion projects and postpone unbegun projects. Such a mechanism is borne out in the data: projects proxied to be more mature are sped up the most. We quantify endogenous time to build by calibrating our model to match our causal estimates, and the joint distribution of project-level costs and gestation lags. Moving from exogenous to endogenous time to build amplifies the response of investment to shocks, increasing investment volatility by up to 30%. Endogenous gestation lags are policy relevant. Monetary policy is more potent when the distribution of projects along their gestation cycle skews towards mature projects. Fiscal policy, in turn, can flexibly reshuffle investment expenditures over time with tax credits.

Presentations.  Johns Hopkins SAIS (scheduled), IMF-ER Summer Conference, SED Annual Meetings 2025, Western Finance Association Annual Meetings, IMF Macro-Finance Research Conference, IMF Research Department, STEG-CEPR, Sociedade Brasileira de Econometria*, SED Winter Meetings 2024, Boston College, European Central Bank*, NBER Summer Institute, IMF, Federal Reserve Bank of San Francisco, Federal Reserve Board, Cornerstone, McCombs School of Business of The University of Texas at Austin, Toulouse School of Economics, CREI-UPF, The Wharton School of the University of Pennsylvania, Analysis Group

(with Rodolfo Rigato) [submitted]

Online Appendix

Abstract.  We show that precautionary savings are too sensitive to consumption risk in standard heterogeneous agent (HA) models. First, we estimate the response of savings to variation in unemployment insurance (UI), a key cushion for consumption risk from job loss. We find small, statistically non-significant effects. Second, we show that such estimates reject HA models with standard time preferences; but that introducing present-biased households suffices to bridge model and data. Empirically discipling precautionary savings is policy-relevant, weakening the role of UI as an automatic stabilizer and discretionary stabilization tool: an estimated HANK model predicts a 45% smaller fiscal multiplier of temporary UI extensions; and a 40% weaker effect of UI in reducing aggregate consumption volatility.

Presentations.  SED Annual Meetings 2025*, Banco Central do Brasil*, IMF, University of California, Los Angeles*, Federal Reserve Bank of San Francisco*, FGV- EESP*, Insper*, PUC-Rio*, Bank of Canada*, European Central Bank*

(with Michael Blank)

Abstract.  How do firms shape the transmission of macroeconomic shocks and policy? Financial accelerator theories emphasize the role of firm-level financing frictions in amplifying the macroeconomic impact of aggregate shocks. While this literature generally focuses on capital investment, we consider how the effects of monetary shocks are amplified through links between financing frictions and labor demand. Under financial acceleration, firms reduce labor demand as financing constraints become more severe in response to adverse shocks, lowering labor income, and thereby aggregate demand. We empirically test this channel with a “micro-to-macro” approach based off the universe of US public firms. We first show that firms that ex ante appear to be relatively financially constrained contract employment more after a monetary tightening. We then assess the aggregate implications of this employment channel through a regional design. We construct measures of a given county’s exposure to public firms with differential financial constraints, and document that more exposed counties exhibit stronger employment declines following contractionary monetary shocks. Preliminary evidence suggests that within-county spillovers of constrained firms to the regional labor market are concentrated in non-tradable establishments, suggesting that interactions between aggregate demand and financial amplification through employment are operative.