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Publications:
Urban Sprawl and Social Capital:
Evidence from Indonesian Cities. Joint with A. Gaduh, A. Rothenberg, Y. Wang. [pdf]
The Economic Journal, 133(654):
2110-2146 (see the online
article publication).
Abstract: We use detailed data from Indonesian cities to study how
variation in density within urban areas affects social capital. For
identification, we instrument density with soil characteristics, and
control for community averages of observed characteristics. Under plausible
assumptions, these controls address sorting on observables and
unobservables. We find that lower density increases trust in neighbours and
community participation. We also find that lower density is associated with
reduced interethnic tolerance, but this relationship is explained by
sorting. Heterogeneity analysis suggests that crime in dense areas
undermines community trust and participation, intensifying the negative
impact of density.
Attention and choices with
multiple states and actions: A laboratory experiment. Joint with C. Deck, and A.
Tutino. [pdf]
Journal of Economic Behavior
& Organization, 199, Issue July, 2022: 86-102 (see the online
article publication).
Abstract: We study how a rationally inattentive decision maker chooses
state-contingent actions under uncertainty in complex environments. We
explore a series of decision problems by varying the number of states as
well as incentive structures. We fully characterize the theoretical
solutions and compare them to choices made by subjects facing those
problems in a controlled laboratory experiment. Observed behavior is
broadly consistent with the theoretical model, with subjects responding to
changes in complexity and incentives by varying their level of attention.
Nevertheless, some interesting differences emerge from the experimental
data. In particular, we find only mixed support for the invariance under
compression property, that perceptual factors may be required to explain
some aspects of subject behavior, and that complexity can affect the ratio
of expected utility to information gains.
Economic Policy Uncertainty and
the Supply of Business Loans. Joint with S. Barraza. [pdf]
Journal of Banking and Finance,
121, Issue December, 2020: 105983 (see the online
article publication).
Abstract:
Using a Vector Autoregressive framework of analysis, we show that banks
contract their supply of business credit in response to an exogenous
increase in economic policy uncertainty. This contraction takes two main,
distinct forms. On the one hand, banks restrict their supply of spot funds,
which we document using flows of loans and term loan originations. On the
other hand, banks also curtail their provision of liquidity insurance,
reducing the amount of new credit lines and embedding in them a pricing
structure that reduces the probability of borrowers drawing down on the
lines. At the peak of the responses, we find that a one-standard-deviation
increase in EPU causes a contraction in the supply of business loans
between 3 and 5% on the extensive margin.
Business Loans and the
Transmission of Monetary Policy. Joint with S. Barraza and N. Zaniboni. [pdf]
Journal of Financial and Quantitative
Analysis, 54, Issue 2, 2019: 925-965 (see the online
article publication).
Abstract:
We study the transmission mechanism of monetary policy through business
loans and illustrate subtle aspects of its functioning that relate to
loans' contractual characteristics and borrower-lender types. We show that
the puzzling increase in business loans in response to monetary tightening,
documented before the Great Recession, is largely driven by drawdowns from
existing commitments at large banks. Spot loans also rise and take
considerable time to adjust. Banks, nonetheless, do curtail credit supply
by shortening maturities of new loans. Following the Great Recession, the
mechanism has worked differently, with loan responses to monetary
tightening displaying a significant downward shift.
Download the Online Supplementary Material
with additional results and tests, especially for the post-Great Recession
period.
Foreign Aid and Growth: A Sp
P-VAR Analysis Using Satellite Sub-National Data for Uganda. Joint with A. Horowitz and A.
Teixeira (supported by ARC grant). [pdf]
Journal of Development Economics,
Volume 134, Issue September, 2018, Pages 50-67 (see the online
article publication)
Abstract: We develop a measurement strategy for the
impact of foreign aid based on a regional spatial panel
vector-autoregressive model (Sp P-VAR). We illustrate the strategy using
Ugandan districts. Data for the regional units (ADM2) is assembled combining
satellite sources for socio-economic activity, geo-located aid
disbursements, and traditional household surveys. We find statistically
significant positive and persistent effects of aid shocks on nighttime
luminosity. Mapping nightlights to economic activity, the results suggest
that the economic magnitude of these effects is small, but significant --
with a multiplier between 4 and 5 in the long-run. The VAR addresses
endogeneity concerns associated with non-random aid assignment.
Download the Online Supplementary
Material with additional results, diagnostic tests and robustness
exercises.
Download the Technical Note describing
the construction of the dataset used in the paper and the replication
codes. Replication material will be available soon from the journal's
website.
A Flexible and Customizable
Method for Assessing Cognitive Abilities. Joint with C. Deck. [pdf]
Review of Behavioral Economics,
Volume 5, Issue 2, 2018, Pages 123-147 (see the online
article publication)
Abstract: This paper describes the properties of a set of
puzzles that are behaviorally similar to those of the common Raven
Progressive Matrix test. Our puzzles consist of a three-by-three grid of
images with the lower right element omitted. Each image is characterized by
six characteristics that can vary along several patterns. Lab experiments
demonstrate that the puzzles become more challenging as the number of
characteristics that change increases. Further, the ability to correctly
solve our puzzles is shown to be correlated with scores on the Raven
Progressive Matrix test and with performance in a beauty contest game. Due
to the manner in which our puzzles are constructed, there are a large
number of unique puzzles that can be generated for use in economics
experiments using software described in the paper. Thus our puzzles are
well suited for use as an alternative method to assess the cognitive
ability of respondents and for use as a real effort task with multiple
levels of cognitive difficulty.
Download the Interface to generate
the Puzzles as a stand-alone executable file. It requires the
pre-installation of MATLAB Compiler
Runtime 64-bit (for MATLAB version 2016a).
Download the interface.m script and the
supporting files for standard execution from the MATLAB console.
License Agreement: Our software can be licensed free of charge for academic
purposes. If you are not part of an academic institution, but want to use
this software for research purposes, please contact us at
andrea.civelli@gmail.com. When you report results of experiments conducted
with this software, the license requires that you mention its use in the
publication and cite the article published in Review of Behavioral Economics.
State Dependent Price Setting
Rules Under Implicit Thresholds: An Experiment. Joint with J. LeBlanc, C. Deck,
and K. Bregu. [pdf]
Journal of Economics Dynamics and
Control, Volume 68, 2016, Pages 17-44 (see the
online article publication)
Abstract:
How firms make their pricing decisions is a fundamental question of
macroeconomics. We use a laboratory experiment to examine individual
choices in a price updating task that provide insight into how well state
dependent models reflect behavior. We find that in general subjects behave
as if they recognize the importance of a state dependent pricing strategy,
but they are unable to ascertain this threshold with precision and they
also exhibit a substantial degree of time dependence. As a result, they
update prices too frequently, and perform statistically significantly fewer
real effort profit-generating tasks than theoretically optimal under full
state dependence, which results in statistically significantly lower
profits as well.
Download the Online
Supplementary Material with the full experimental details and additional
results.
Excess Returns, Average Returns,
and the Adjustment Mechanism of the External Position of a Country. [pdf]
Review of International
Economics, Volume 24, Issue 2, 2016, Pages 226-252 (see the online
article publication)
Abstract:
I provide a new decomposition of the external constraint of a country in
which, in addition to trade and valuation channel, adjustments in the
stochastic discount factor and the spread between average international
returns and risk-free rate can offset a current debt position. The
importance of these channels is empirically assessed using US data. A
primary contribution of the discount factor and secondary effects of excess
and average returns are found in the non-detrended analysis, confirming the
theoretical characterization of the valuation effects in previous
literature. By using detrended data instead, the role of excess returns
would be spuriously overestimated.
Download the Online Supplementary Material
with the additional results and the model simulation details.
Globalization and Inflation: A Threshold
Investigation.
Joint with S. Ahmad. [pdf]
Journal of Macroeconomics, Volume
48, Issue June, 2016, Pages 283-304 (see the online
article publication)
Abstract:
We use a threshold methodology to investigate the importance
of non-linear effects in the analysis of the inflation globalization
hypothesis. Accounting for potential non-linearities in the Phillips Curve,
we show that trade openness is not rejected as a threshold variable for the
effects of domestic and foreign slack on inflation in many advanced
economies, and we find a switch of the output gap slopes from one regime to
the other that is consistent with the key predictions of the inflation
globalization hypothesis. For some countries the threshold Phillips Curve
model also leads to improvements in out-of-sample forecast over the linear
Phillips models, especially at longer horizons. Contrary to most of the
previous literature which ignores such non-linearities, our new approach
provides some interesting empirical evidence supportive of the effect
globalization has on a country's inflation dynamics.
A Signal of Altruistic Motivation
for Foreign Aid. Joint
with A. Horowitz and A. Teixeira [pdf]
The B.E. Journal of Economic
Analysis & Policy, Volume 16, Issue 4, 2016, Research Article (see the online
article publication)
Abstract:
We develop a stylized theoretical model showing that countercyclical
transfers from a wealthy donor to a poorer recipient generate a signal of
altruistic donor motivation. Applying the model to OECD foreign aid (ODA)
data we find the signal present in approximately one-sixth of a large set
of donor-recipient pairs. We then undertake two out-of-model exercises to
validate the signal: a logit regression of signal determinants and the
growth effects of ODA from signal-positive pairs are compared to non-signal
bearers. The logit indicates our signal meaningfully distinguishes
donor-recipient pairs by characteristics typically associated with
altruism. The growth exercise shows ODA from signal bearers displays
stronger reverse causation and more positive long-run effects. Beyond
foreign aid, our signal of altruistic motivation may be applicable to a
wide range of voluntary transfers.
Globalization and Inflation:
Evidence from a Time Varying VAR. Joint with F.
Bianchi. [pdf]
Review of Economic Dynamics,
Volume 18, Issue 2, 2015, Pages 406-433 (see the online
article publication)
Abstract:
According to the Globalization Hypothesis, global economic slack should
progressively replace the domestic output gap in driving inflation as
globalization increases. We investigate the empirical evidence in favor of
this prediction by using a Time-varying VAR. Two main results emerge from
the analysis: First, global slack is found to affect the dynamics of
inflation in many countries, yet its influence did not become stronger over
time. Second, a panel analysis that exploits the cross-section characteristics
of our dataset shows that globalization, measured in terms of trade and
financial openness, is positively related to the effects of global slack on
inflation. We conclude that integration in the global economy is in fact
important, but globalization has not yet induced changes in openness large
enough to justify significant brakes in inflation dynamics.
Download the Supplementary Material
document referred to in the paper.
Download the Technical Note describing the
dataset used in the paper and the corresponding Matlab codes. Replication
material is available from the journal's website at this web address.
Download the manuscript of Zaniboni (2008) in
the references.
Supply Side Inflation
Persistence. Joint
with N. Zaniboni. [pdf]
Economics Letters, Volume 125,
Issue 2, 2014, Pages 191-194 (see the online
article publication)
Abstract:
We explore the role of the cost channel in accounting for inflation
persistence in the New Keynesian model with Calvo pricing. Hump-shaped
responses of inflation to monetary shocks are obtained under purely nominal
rigidities.
Download the Online
Supplementary Material with the extended description of the model and
robustness analysis.
Non-Refereed
Publications:
Central Bank Digital Currency:
Rationales, Design Considerations, and Implementation Using the Algorand
Blockchain Technology. Joint with C. Georg, P. Grassano, and N. Ihsanullah.
The
Role of Distributed Ledger Technology in Banking, Edited by S. Leo and I.
Panetta, 2023, Cambridge University Press.
Abstract: In this article, we briefly share with the reader our thoughts
about the definition of the problems that a Central Bank Digital Currency
(CBDC) tries to address, the design principles of a CBDC that arose from
various conversations with Central Banks, national and supranational
authorities, market participants and academics in various jurisdictions, a
potential solution based on Algorand technology. Most of the content herein
is borrowed from and covered in greater depth in our complete CBDC White
Paper, along with updated additions from our recent participation to
various pilots, studies and informed conversations on the topics.
Working
Papers/White Papers and Work in Progress:
Measuring Economic Growth with A
Fully Identified Three-Signal Model. Joint with A. Gaduh and S. Yousuf. [pdf] Currently Revise&Resubmit at
ReStat
Abstract: We augment Henderson, Storeygard, and Weil (2012)'s two-signal model
of true income growth with a third signal to overcome its
underidentification problem. The additional moment conditions from the
third signal help fully identify all model parameters without ad-hoc
calibrations of the GDP's signal-to-noise ratio. We characterize the
necessary properties of the third signal. Using the model, we recover the optimal
weight of the GDP in the composite economic growth estimates, which varies
with the quality of the national statistics and the geographic level of
analysis. The model improves on existing methodologies that use signals to
measure true income.
Worth the Risk? The Performance
of Banks Reliant on CLO Funding. Joint with S. Barraza. [pdf]
Abstract: We propose an empirical strategy based
on a shift-share approach to identify bank-level institutional funding
shocks in the collateralized loan obligations (CLO) market. We apply our
methodology to study the effects of CLO funding on bank riskiness. We find
that bank riskiness decreases for two quarters in response to a positive
shock to CLO funding. Banks increase the origination of institutional
loans, while retaining lower amounts of loans on their balance sheets. This
reduces exposure to credit risk. At the same time, banks use resources more
efficiently, as the generation of non-interest income and the overall
income generation process strengthen. The performance of the retained loans
also marginally improves, further strengthening banks' financial positions.
Cryptocurrencies,
Stocks, and Economic Policy Uncertainty. Joint with L. Jackson. [pdf]
Abstract: We study the interactions between cryptocurrencies, stock
markets, and economic policy uncertainty (EPU) by means of a
Factor-Augmented Vector Autoregressive (FAVAR) framework. We rely on two
market factors to model the comovements of returns within cryptocurrencies
and stock markets. We document a greater heterogeneity across
cryptocurrencies than stocks, with a fragmentation of the market by
functional characteristics of the projects. We then use a structural
analysis to explore cross-market spillover effects and how EPU affects the
two markets. We find that stock returns positively respond to crypto
shocks, but not vice versa. We also find that the effect of EPU on crytpo
returns depends on the originating region of the policy uncertainty, with cryptocurrencies
providing a safe haven against the Chinese, but not the U.S., EPU.
Unconventional
Monetary Policy and Labor Demand. Joint with A. Liu. [pdf]
Abstract: We
estimate the effects of unconventional monetary policy on firms’ labor
demand. Using two policy discontinuities of the Secondary Market Corporate
Credit Facility (SMCCF), we show the SMCCF increased vacancies by 42% for
fallen angels, and was associated with a 23% and 19% increase for BBB and A
firms. Every $1 million purchase implies a 7.1%, 3.9%, and 2.7% increase,
respectively, implying approximately $5,000 purchase per additional
vacancy. Eligible firms experienced increases in borrowing, expenditure,
and market value without being liquid constrained, consistent with the
SMCCF
providing liquidity to the firms.
Issuing Central Bank Digital
Currencies on Algorand: 2022 Report. Joint with C. Georg, P. Grassano, and
N. Ihsanullah. [pdf]
Abstract: Central Banks around the globe are researching, developing, and
even deploying digital currencies that have the power to foster economic
growth and prosperity for citizens while preserving monetary value and
maintaining flexible governance. Compared to other digital
currency proposals, the CBDC design proposed by Algorand in this
report is simpler and more economical to implement and manage for central
banks at scale. Building on their 2021 research report, experts from across
the Algorand ecosystem have come together again to share their latest findings
on CBDCs and educate public leaders facing the reality of blockchain.
Notably, this report includes a new section focused on the benefits of
Central Bank digital currency in the digital age.
Determinants of Urban Sprawl: Evidence
from Indonesia. Joint
with A. Gaduh. [pdf]
Abstract: In many developing countries,
rapid urbanization often led to an urban expansion pattern that exhibit the
sprawling patterns observed in developed country. However, we know little
about the determinants of urban sprawl in developing countries. We study the
determinants of urban sprawls in Indonesia between 2000 and 2010. We
combine a new spatial dataset on urban built-ups in East Asia produced by
the World Bank with Indonesia's village census and other
satellite data on climate, geographic characteristics, and agricultural
yields. We study the role of geographic and climatic factors, as well as
socio-economic variables and amenities in determining the pattern of urban
expansion and sprawling. Interestingly, we find significant differences in
the determinants of sprawl between regions at different stages of economic
development within Indonesia.
The
effects of Institutional Loans on Corporate Decisions. Joint with S. Barraza and A. Di
Giuli.
Bond
Markets and Insurances. Joint with J. Wang.
Older
Project:
Rationally Inattentive Consumer:
An Experiment. Joint
with J. LeBlanc, C. Deck, and A. Tutino. [pdf]
Abstract: This paper presents a laboratory experiment that directly
tests the theoretical predictions of consumption choices under rational
inattention. Subjects are asked to select consumption when income is
random. They can optimally decide to reduce uncertainty about income by
acquiring signals about it. The informativeness of the signals directly
relates to the cognitive effort required to process the information. We
find that subjects' behavior is largely in line with the predictions of the
theory: 1) Subjects optimally make stochastic consumption choices; 2) They
respond to incentives and changes in the economic environment by varying
their attention and consumption; 3) They respond asymmetrically to positive
and negative shocks to income, with negative shocks triggering stronger and
faster reactions than positive shocks.
International Real Business
Cycles, Portfolio Diversification and Valuation Effects [pdf]
Abstract:
This paper presents an international real business cycle model with
endogenously determined portfolio allocations under incomplete markets. It
jointly studies the properties of the portfolio side of the economy, which
includes the valuation effects, asset returns and portfolio allocations,
along with the more typical international macro variables. The model
generates a substantial portfolio home bias because, for small values of
the elasticity of substitution between domestic and foreign goods, home
assets provide a good hedge against movements of international prices,
which make home physical capital lose value in response to productivity
shocks. The model generates also an adequate amount of assets' valuations,
but does not resolve the Backus-Smith puzzle for standard
parameterizations.
A Dynamic Panel Threshold
Analysis of the Inflation Globalization Hypothesis. Joint with S. Ahmad. [pdf]
Abstract: Previous studies on the inflation globalization
hypothesis have examined this question primarily at the individual-country
level. However, a panel approach seems quite appropriate as globalization
measures, such as trade openness, often exhibit considerable
cross-sectional variation. We investigate the relationship between
inflation and globalization, under an open-economy Phillips Curve
framework, for a panel of OECD countries with the dynamic panel GMM
methodology developed in Arellano and Bond (1991). Using this framework, we
find strong evidence in favor of including global factors, represented by
the foreign output gap, in the domestic inflation process. We further
augment the dynamic panel model with a threshold component (Hansen, 1999),
and so are able to identify regions of stronger responsiveness of inflation
to global factors. Based on our non-linear analysis, we show that trade
openness acts as a threshold variable for the effects of domestic and
foreign slack on inflation. Importantly, the switch in the output gap
slopes from one regime to the other is consistent with the key predictions
of the inflation globalization hypothesis, so that in more open economies
the foreign output gap replaces the domestic output gap as the key
determinant in the domestic inflation process.
Financial Crisis and the Supply
of Corporate Credit: Effects of a Run on Modern Banking. Joint with S. Barraza, W. Lee,
T. Yeager.
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