Job Market Paper
Abstract: In this paper, we use tools from network theory to trace the properties of the matching function to the structure of granular connections between applicants and firms. We link seemingly disparate parts of the literature and recover existing functional forms as special cases. Our overarching message is that structure counts. For rich structures, captured by non-random networks, the matching function depends on whole sets rather than just the sizes of the two sides of the market. For less rich—random network—structures it depends on the sizes of the two sides and a few structural parameters. Structures characterized by greater asymmetries reduce the matching function’s efficacy, while denser structures can have ambiguous effects on it. For the special case of the Erdös-Rényi network, we show that the way the network varies with the sizes of the two sides of the market determines if the matching function exhibits constant returns to scale, or even if it is of a specific functional form, such as CES.
Abstract: This paper puts forward a model of price setting based on three elements of Prospect Theory introduced by Kahneman and Tversky (1979) and refined by subsequent work: i) people evaluate different aspects of their choices separately (narrow bracketing); ii) people evaluate prospective outcomes relative to a reference point (reference dependence); iii) prospective losses loom larger than prospective gains (loss aversion). The model predicts a pricing rule that involves an inaction region. Firms underreact compared to the canonical neoclassical model when updating their prices upwards or downwards. The model replicates two empirical patterns of the microdata that standard menu cost models have difficulty accounting for: i) The distribution of price changes has both small and large price changes, and ii) the hazard function of price changes is downward sloping initially, that is, firms that have just recently changed their price have a higher probability of changing it again, while this probability becomes constant thereafter.
Abstract: This paper builds a consumption-saving model of anticipatory utility. In addition to consumption-derived utility, an agent experiences gains-loss utility from two sources: from anticipating future consumption, and from comparing their current level of consumption with past-formed anticipation levels. The agent chooses optimally both their consumption and anticipation levels. We highlight the model’s relevance for macroeconomics analyzing the behavior of two types of agents in three contexts: when income is certain, when income is risky, and when there are credit market imperfections. Agents with a limited planning horizon emerge as “impatient” – predisposed to borrow, while agents with an unlimited planning horizon emerge as “patient” – predisposed to save. Agents have an endogenous time-discount factor in all contexts. Our main results relate to agents’ precautionary savings.
Monetary Policy and Bank Intermediation: A Search and Matching Approach [Paper][Slides]
Abstract: The Great Recession rekindled interest in studying the financial intermediation process as part of monetary policy. This paper proposes a theory of bank lending using the tractable device of an aggregate matching function. Banks search for potential borrowers and firms search for funds, but not all searches are successful, thus loan applications and loan approvals are placed at the heart of the model. The paper illustrates how in such a framework a natural “analogy” between the loans and the labor markets emerges, which yields new insights into our understanding of the financial intermediation process and the effects of monetary policy. The main result is the presence of a “reversal interest rate” (Brunnermeier and Koby, 2018).