Time：09:00am - 10:30am, Oct. 16th, 2020

Speaker：Joel David

(Senior Economist, Federal Reserve Bank of Chicago)

Platform：Tencent Meeting

Link：https://meeting.tencent.com/s/Ipe2L6gBYZ3f

ID: 868 6778 9526

 

Abstract:

We study the role of firm-level risk premia in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their exposure to aggregate risk – i.e., degree of cyclicality – which leads to a firm-specific risk premium that in part determines resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation where the dynamics of total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP – in the face of aggregate uncertainty, resources shift towards less cyclical firms, which endogenously reduces the volatility of TFP, but also reduces its level by inducing dispersion in firm-level marginal products. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. We show, both theoretically and quantitatively, that allocational considerations strengthen incentives for “leaning against the wind” – optimal fiscal/monetary policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from firm-level risk.

 

Speaker:

 

Dr. Joel David is a senior economist on the macroeconomics team in the economic research department at the Federal Reserve Bank of Chicago. Before joining the Chicago Fed in June 2019, Dr. David served as an assistant professor of economics at the University of Southern California. His research focuses on firm dynamics and resource allocations, investment and financial markets. His work has been published in several academic journals including the American Economic Review, Quarterly Journal of Economics and Journal of Monetary Economics. He received a B.A. in economics from the George Washington University and a Ph.D. in economics from UCLA.