Macro-JI Seminar - Florin Bilbiie and Vasco Carvalho

Abstract: Aggregate-Demand Amplification of Supply Disruptions: The Entry-Exit Multiplier, Florin Bilbiie joint with Marc Melitz

Due to its impact on nominal firm profits, price rigidity amplifies the response of entry and exit to adverse supply shocks, such as COVID-19. This “entry-exit multiplier” triggers substantial magnification of the welfare losses due to negative supply shocks—especially when wages are also rigid. This is in stark contrast to the benchmark New Keynesian model (NK), which predicts a positive output gap in response to that same shock under the same monetary policy. Endogenous entry-exit thus radically changes the consequences of nominal rigidities. In addition to the aggregatedemand amplification of supply disruptions, our model also reconciles the response of hours worked across the NK and RBC models. And unlike the standard NK model, our model can also be used to evaluate how monetary expansions can alleviate or even eliminate the negative output gap induced by supply disruptions.

Abstract: "National Accounts in a World of Naturally Occurring data: a Proof of Concept for Consumption" Vasco Carvalho joint with Buda, G., Hansen, S., Mora, J. V. R., Ortiz, Á., Rodrigo, T.

This paper provides a first proof of concept that naturally occurring transaction data, arising from the decentralized activity of millions of economic agents, can be harnessed to produce both traditional national accounts-like objects and novel representative economic statistics. We deploy comprehensive transaction-level data and its associated metadata arising from the universe of Spanish retail accounts of Banco Bilbao Vizcaya Argentaria (BBVA). We first organize the resulting 3 billion individual transactions by 1.8 million bank customers in a large and highly detailed representative consumption panel. Based on this, we then show that the aggregation of such data, once organized according to national accounting principles, can reproduce current official statistics on aggregate consumption in the national accounts with a high degree of precision. As a result of the richness of the transaction data, we additionally show that such data can produce novel, highly detailed distributional accounts for consumption which show larger consumption inequality than surveys suggest, particularly in the right tail. Finally, we use the panel nature of the data to offer a non-parametric analysis of individual consumption dynamics which feature a significant degree of mean reversion. Moreover, the distribution of consumption growth has thick tails.