- “Lessons from the Great Financial Crisis in perspective,” in Y. Cassis and J.J. van Helten (Eds.) The Legacy of the Global Financial Crisis, Bloomsbury, (2021).
- “The Envelope Theorem, Euler and Bellman Equations, without Differentiability” (with Jan Werner), June 2021. Journal of Economic Theory, (2021),
We extend the standard Bellman’s theory of dynamic programming and the theory of recursive contracts with forward-looking constraints of Marcet and Marimon (2019) to encompass non-differentiability of the value function resulting from the presence of binding constraints or non-unique solutions. The envelope theorem provides the link between the Bellman equation and the Euler equations, but it may fail to do so if the value function is non-differentiable. We introduce an envelope selection condition which guarantees that solutions generated from the Bellman equation satisfy the Euler equations with or without forward-looking constraints.
- “Euro area fiscal policies and capacity in post-pandemic times” (with Adrien Wicht), European Parliament, Economic Governance Support Unit (at the request of the ECON Committee), PE 651.392 – June 2021.
The main legacy of the post-Covid-19-crisis euro area fiscal framework should be the development of a unique integrated fiscal policy and of a permanent and independent Fiscal Fund to implement it. To arrive at this conclusion, we analyse the challenges and build on current research on the optimal design of a fiscal fund. We characterise the fiscal policy, and the development of the Fund, together with the role and form that the Stability and Growth Pact can take in the new fiscal framework.
- “Breaking the Spell with Credit-Easing: Self-Confirming Credit Crises in Competitive Search Economies” (with Gaetano Gaballo), Journal of Monetary Economics, (2021), 119, 1 -20.
We develop a theory of self-confirming crises in which lenders charge high interest rates because they wrongly believe that lower rates would further increase their losses.
- “Commitment in Organisations and the Competition for Talent” (with Thomas Cooley and Vincenzo Quadrini), The Review of Economic Studies 87 (5), 2165–2204, October 2020.
We show that a change in organizational structure from partnerships to public companies—which weakens contractual commitment—can lead to higher investment in high return-and-risk activities, higher productivity (value added per employee) and greater income dispersion (inequality). These predictions are consistent with the observed evolution of the financial sector where the switch from partnerships to public companies has been especially important in the decades that preceded the 21st Century financial crisis.
We obtain a recursive formulation for a general class of optimization problems with forward-looking constraints which often arise in economic dynamic models, for example, in contracting problems with incentive constraints or in models of optimal policy.
- “Money is an Experience Good: Competition and Trust in the Private Provision of Money” (with Juan Pablo Nicolini and Pedro Teles), Journal of Monetary Economics, 2012.
We extend the envelope theorem, the Euler equation, and the Bellman equation to dynamic constrained optimization problems where binding constraints can give rise to nondifferentiable value functions and multiplicity of Lagrange multipliers.
- “Competition, Human Capital and Income Inequality with Limited Commitment” (with Vincenzo Quadrini) Journal of Economic Theory, May 2011.
We develop a dynamic, general equilibrium model with two-sided limited commitment to study how barriers to competition, such as restrictions to business start-up, affect the incentive to accumulate human capital. We show that a lack of contract enforceability amplifies the effect of barriers to competition on human capital accumulation.
- “Stable Sunspot Equilibria in a Cash-in-Advance Economy” (with G. Evans and S. Honkapohja) B.E. Journal of Macroeconomics (nominated for BEPress’s Arrow Prize for Senior Economists 2007 as the best paper by senior economists).
We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits.
- “Nominal Debt as a Burden to Monetary Policy” (with J. Diaz-Giménez, G. Giovannetti and P. Teles) Review of Economic Dynamics, 2008, 11, 3, 493-514.
We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt. In a model where nominal debt is the only source of time inconsistency, the Markov-perfect equilibrium policy implies the progressive depletion of the outstanding stock of debt, until the time inconsistency disappears. There is a resulting welfare loss if debt is nominal rather than indexed.
- “Strategic Delegation in Monetary Unions” (with V.V. Chari and L. Jones) The Manchester School, 2004.
In monetary unions, monetary policy is typically made by delegates of the member countries. This procedure raises the possibility of strategic delegation that countries may choose the types of delegates to influence outcomes in their favor. We show that without commitment in monetary policy, strategic delegation arises if and only if three conditions are met: shocks affecting individual countries are not perfectly correlated, risk-sharing across countries is imperfect, and the Phillips Curve is nonlinear.
- “Aggregate Consequences of Limited Contract Enforceability” (with Thomas Cooley and Vincenzo Quadrini) Journal of Political Economy, 2004 .
We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output.
- “Inside – Outside Money Competition” (with J.P.Nicolini and P.Teles) Journal of Monetary Economics, 50, November 2003.
We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates.
- “The Fiscal Theory of Money as an Unorthodox Financial Theory of the Firm”, Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, Palgrave, New York, 2001.