Miquel Faig

University of Toronto | U of T · Department of Economics

If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to working, so, by itself, it promotes job creation. If individuals are risk neutral, then there is a UI contribution scheme that eliminates any effect of UI on employment decisions. As with Ricardian Equivalence, this result should be useful to pinpo...

The monetary search model by Lagos and Wright (2005) is extended with imperfect information about nominal shocks as in Lucas (1972). An analytical solution exists with logarithmic preferences. In general, individuals hold precautionary balances. Calibrated to United States postwar data, the welfare cost of the monetary cycle is calculated to be sma...

In the Lagos-Wright model [R. Lagos, R. Wright, A unified framework for monetary theory and policy analysis, J. Polit. Economy 113 (2005) 463–484], the quasi-linear preferences assumption is not necessary to generate simple distributions of money holdings if individuals choose endogenously to go to the search market as buyers or as sellers. The non...

If collateral for bank loans is scarce and, if as a result, access to secured loans is restricted, the allocation of resources is inefficient. In anticipation of future borrowing constraints, individuals over-invest in collateralized types of capital, and consume and invest inefficiently low levels while they are borrowing constrained. The dual cou...

Competitive search was recently introduced in monetary economics by Rocheteau and Wright [Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium, Econometrica 73 (2005) 175–203]. We extend their work by eliminating the restriction that the fees market makers charge to enter a submarket must be either non-nega...

The low velocity of circulation of money implies that households hold more money than they normally spend. This behavior is explained if households face uncertain expenditure needs, so that they have a precautionary motive for holding money. We investigate this motive in a search model where households are subject to preference shocks. The model pr...

The monetary search model by Lagos and Wright (2005) is extended with imperfect information about nominal shocks à la Lucas (1972 and 1973). This framework is useful to estimate the welfare costs of expected and erratic inflation because it provides an avenue to identify the transactions affected by monetary shocks and how tolerant individuals are...

This is an empirical study of the determinants of stock holdings using data from the US Survey of Consumer Finances from 1992 to 2001. There is a great heterogeneity in the way households form their portfolios. Stock ownership is positively correlated with various measures of wealth, age, retirement savings, and having sought financial advice. It i...

We study the effects of inflation in a competitive search model where each buyer's utility is private information, and money is essential. The equilibrium is efficient at the Friedman rule, but inflation creates an inefficiency in the terms of trade. Buyers experience a preference shock after they are matched with a seller, and thus they have a pre...

Many have questioned the empirical relevance of the Calvo-Yun model. This paper adds a term structure to three widely studied macroeconomic models (Calvo-Yun, hybrid and Svensson). We back out from observations on the yield curve the underlying macroeconomic model that most closely matches the level, slope and curvature of the yield curve. With eac...

The theory of commerce advanced here captures prominent features of retail trade: large employment, congestion effects, anonymous posted prices, and quantity discounts. This theory is built around a directed search model where buyers’ preferences are private information. The analytical solution is easily inserted in a Neoclassical growth framework....

This paper provides a tractable search model with divisible money that encompasses the two frameworks currently used in the literature. Individuals belong to many villages. Inside a village, individuals know each other so financial contracts are feasible. Money is essential to facilitate trade across villages. When financial markets inside a villag...

We extend the concept of competitive search to an environment where, as is often common, sellers cannot observe the willingness to pay of their clients. This theoretical contribution is applied to model retail trade. We find that in equilibrium the ratio of buyers over sellers exceeds that of the first best allocation. However, a planner who faces...

This paper advances a tractable model with search theoretic foundations for money and Neoclas-sical production. The distinctive feature of the model relative to earlier work is that manufacturing and commerce are two separate activities. In manufacturing, goods are efficiently produced com-bining capital and labor. In commerce, goods are exchanged...

Personal projects, such as a private business or the purchase of a home, influence individuals' portfolio choice. We conduct a theoretical analysis of this influence when financial assets are required to provide liquidity to personal projects. Due to this liquidity consideration, individuals behave in a more risk-averse fashion when there is a larg...

This paper advances a highly tractable model with search theoretic foundations for money and neoclassical growth. In the model, manufacturing and commerce are distinct and separate activities. In manufacturing, goods are efficiently produced combining capital and labor. In commerce, goods are exchanged in bilateral meetings. The model is applied to...

In general equilibrium, irreversibility affects both the wealth of consumers and the return on assets. As long as the inter-temporal elasticity of substitution is realistically low, irreversibility not only prevents capital destruction, but it also induces capital creation. Furthermore, under certain conditions, irreversibility raises the risk prem...

This paper explores the effects of monetary shocks on the allocation of factors of production. We analyze these effects when money plays a role in improving the timing of the transactions undertaken by entrepreneurs. Such improvement is facilitated by money? important role in providing liquidity to entrepreneurs. Using a model in which production p...

This paper extends the income fluctuations problem to an economy with endogenous growth. Individuals, instead of owning a stream of endowments, accumulate capital with an investment irreversibility constraint and face uninsurable idiosyncratic risks to the return to capital. Money provides both a risk diversification and a liquidity role. Balanced...

Self-financed central banks, without capital and taxes, cannot pay the return on capital to both money and national debt. The gaps between the returns on capital and public securities are implicit taxes, which are shifted forward to commodities that people finance with these securities. Because taxes on investment are less efficient than taxes on c...

This paper advances a simple model that emphasizes the diversity of capital types, some of these types are long lived, while others are highly specific. This modeling of capital implies that irreversibility constraints may be strongly binding, thus generating sizable capital losses, even with moderate shocks and positive aggregate investment. The r...

We evaluate the effects of corporate taxation on firms' investment and financing choices. We focus on how the asymmetry of the corporate tax, imperfect loss carry-overs, endogenous financing with credit constraints, and different degrees of investment irreversibility affect both incremental investment and entry decisions. We find that, as long as c...

We evaluate the effects of corporate taxation on firms' investment and financing choices. We focus on how the asymmetry of the corporate tax, imperfect loss carry-overs, endogenous financing with credit constraints, and different degrees of investment irreversibility affect both incremental investment and entry decisions. We find that, as long as c...

This paper advances a model which can account for these five prominent facts of monetary economics. (i) Money is held in non trivial amounts even though it is a dominated asset. (ii) High rates of inflation lead to low rates of growth. (iii) Monetary injections momentarily depress the rate of interest. (iv) Hyper-inflations can be ended with a mini...

We evaluate the effects of corporate taxation on firms' investment and financing choices. We focus on how the asymmetry of the corporate tax, imperfect loss carry-overs, endogenous financing with credit constraints, and different degrees of investment irreversibility affect both incremental investment and entry decisions. We find that, as long as c...

This paper provides a tractable general equilibrium model that can accommodate shocks and irreversibility constraints both at the firm and at the aggregate level. Under realistic conditions, irreversibility not only prevents capital destruction, but it also promotes capital creation. Moreover, irreversibility depresses risk-free rates, especially i...

This paper provides a discrete-time framework for analyzing a firm's investment and financial choices under uncertainty. The investment decision is incremental and subject to a parameterized degree of irreversibility. Corporate taxes are asymmetric, but we allow imperfect carry-forward or carry-back of losses. Personal taxes are also levied. The pa...

Graphical tools describe the transitional dynamics of an economy with physical and human capital. The properties that emerge make the model an interesting benchmark for the study of both long-run growth and short-run fluctuation. First, the choice to invest in human capital implies a forward-looking determination of wages. Second, for realistic par...

Clever debt restructuring ensures that the optimal taxes on the purchase of consumption goods and on labor income are time consistent even if the government chooses public consumption and public investment. For this result, two types of debt are needed: claims on consumption goods (debt indexed by the gross-of-tax consumption prices) and claims on...

This study measures the impact of central planning in China on the efficiency of cotton yarn production. First, an analysis of plant panel data for the period 1922-1936 studies the cotton yarn technology. This technology is found to be Cobb-Douglas with constant returns and with a labor parameter of 0.45. Second, this information is used to analyze...

We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 fi...

The optimal tax on money is analyzed in a second-best framework where the government can only use distorting taxes to finance its expenditures and money functions as a medium of exchange. A set of the conditions that imply a zero tax on money when transactions are performed by intermediary firms is contrasted with the conditions one has been able t...

The reaction of money holders to the systematic seasonal changes in the level of transactions represents an interesting “experiment” for learning about the money demand function. An analysis of the seasonal fluctuations of the real quantity of money and several measures of transactions in the United States, Germany, the United Kingdom, and Canada r...

We show that immigrant managers are substantially more likely to hire immigrants than are native managers. The finding holds when comparing establishments in the same 5-digit industry and location, when comparing different establishments within the same firm, when analyzing establishments that change management over time, and when accounting for wi...

This paper presents a survey of the analytical literature on bank behavior in imperfect markets, focusing on the implications for monetary policy. While the literature on bank behavior under different competitive conditions is extensive, there are only a few models that incorporate the banking industry features into a macroeconomic and monetary pol...

If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to an employment relationship, so it promotes job creation. If individuals are risk neutral, UI is fairly priced, and the UI system prevents moral-hazard unemployed workers, the generosity of UI has no effect on unemployment. As with Ricardian Equival...

Code to replicate the results of the article.

This is a model of money, credit, and banking in a framework with competitive search in the goods's market. Sometimes, individuals interact with acquaintances, so Þnancial contracts, such as those found in banking, are viable. Other times, individuals interact with strangers with whom proving ones' identity is costly, so there is a role for cash. B...