Working Papers

Abstract: We study and quantify the aggregate implications of the trade of firms in the presence of financial frictions. In the U.S., one out of four entrepreneurs purchased their business. In the cross-section, younger, smaller, and higher return to capital firms have the highest trading rates. To explain these findings, we propose a general equilibrium model of entrepreneurship with a frictional market for firms where gains from trade arise from credit constraints, incomplete markets, and preference shocks. Using firm-level data from several high-income countries, we document that post-trade firm dynamics are consistent with the trade of firms alleviating financial constraints, as predicted by the model. Our quantitative results for the U.S. suggest that firms' trade significantly improves capital allocation in the economy, accounting for 9.1% of entrepreneurial output and 2.2% of TFP. We argue that the trade of firms can play an even more important role in less financially developed economies.

Finance Over the Life Cycle of Firms  [Updated—February 2023]
  Winner of the 2022 ECB Young Economist Prize

Abstract: Using firm-level data from high- and middle-income European countries, I document significant differences in firms' access to finance over their life cycles and across countries. Younger firms have higher leverage, pay higher interest rate spreads, and receive more equity injections than older firms. Firms in middle-income countries borrow less, pay higher spreads, and rely more on equity injections than firms in high-income countries. Notably, the cross-country differences are more pronounced among younger firms. Motivated by this evidence, I develop and quantify a firm dynamics model to study the relation between firms' age, access to external financing, survival, and growth. The model features two key building blocks. First, firms face a detailed capital structure decision and can finance their operations using internal funds, defaultable long-term debt, and costly equity. Second, firms learn about their profitability over time and face age-specific volatility. The model, calibrated to micro data on leverage, spreads, and equity usage over firms' life cycles, predicts that financial frictions generate sizable losses in output per worker of 13% and 21% in high- and middle-income countries, respectively. The TFP losses are also significant, 6% and 9%, respectively, mainly reflecting that young firms exit prematurely as external financing costs are higher than the option value of learning.

Work In Progress

Equity Financing and the Transmission of Financial and Monetary Policy Shocks
  Awarded the 2023 ECB Lamfalussy Research Fellowship

Trade, Competition, and Innovation: Evidence from Europe and US
with Felix Corell, and John Finlay

How Illiquid Are Illiquid Assets?
with David Argente, Corina Boar, Elisa Giannone, and Donggyu Lee

Older Working Papers

Abstract: In this paper I use novel micro data underlying the Mexican CPI to establish stylized facts about prices in the Mexican economy. I then analyze the implications and consistency of the empirical results for the degree of monetary non-neutrality generated in both time and state-dependent pricing models. I find that the real effects of monetary shocks importantly depend on the type of nominal rigidity considered and on the treatment of sales in the statistics that are calibrated into the models.

Abstract: We document a negative relationship between the age of an item’s price -the duration of a price between price changes- and exchange rate pass-through. Using novel price micro data from the Mexican CPI, we find that exchange rate pass-through is higher when prices are younger (recently changed) than when prices are old. Specifically, exchange-rate pass-through is 50% smaller for six-month old prices compared to one-month old prices. We provide further evidence of the negative relationship between age and pass-through using an exogenous natural experiment. In January of 2014, there was an unexpected change in the value added tax for a variety of products in Mexico that forced many prices to change and thus become young. We find that exchange-rate pass-through is larger during the six months window after the VAT shock compared to the six months previous to the shock. The evidence documented in this paper supports models of price-setting behaviour with age dependence.

Abstract: As a consequence of the international environment, the currencies of many emerging market economies have experienced important depreciations in a context of high volatility in financial markets. The Mexican peso has not been the exception to the above situation. In this setting, the exchange rate pass-through into consumer prices deserves special attention as it allows us to evaluate the anchoring of inflation expectations. To address this issue, we use non-public micro data from the Mexican CPI to analyze the relation between exchange rate and price-setting in Mexico for the period between January 2011 and April 2016. Our estimates suggest that the exchange rate pass-through into consumer prices is low.