My research

My research interests broadly fall into three categories: (1) Macroeconomic theory, with a focus on the links between growth, the business cycle and the distribution of income; (2) economic development, with a focus on structural heterogeneity; and (3) international economics, with a focus on large and persistent global imbalances. These categories are connected theoretically, in terms of the focus on macroeconomic issues, as well as methodologically, in the application of simulation models. I'll add here some brief notes on two of these themes.

Global this, global that

Were global imbalances a factor in the Great Recession? We do know that a combination of factors (specifically, de-regulation) led to a global lending frenzy in the buildup towards it. Wall Street recycled the world's surpluses to US households via subprime loans, and to Eastern Europe as well as the Southern Eurozone, via German, French and Austrian banks. In the process, bankers and shadow bankers everywhere also lent to each other, to lever up. Quite classically, when the asset side of their balance sheets deteriorated, or they couldn't roll over their liabilities, or both, banks faced a maturity, a currency or a maturity and a currency mismatch. In this view, external imbalances are an important feature of the crisis, even if certainly not the sole driver. Basically, since neither the US's private nor Greece's public sector are willing or able to take on further debt, reduction of imbalances must as well be a feature of a sustainable recovery. The JPO 2009 paper was a first stab at the issue of global imbalances in a three country context. My focus was on China and the US, and the EU in between. ILO discussion paper 203 considers the issue in a seventeen country/region framework. Both papers highlight the difficulty of adjustment of external imbalances with either price or expenditure shifts. Transfer theory offers a way to look at both of these in combination, and I am currently working on that, together with Prabheesh KP. A related question is whether multi--country "global" models are quite fundamentally different than "small open economy" models. That, however, fits as well below:

Wage-led, profit-led?

Does redistribution spur growth? There is a small bit of agreement: Yes, it does. There is a lot of disagreement, however, on whether it is redistribution towards labor or capital that does. Broadly, authors with a Marxian/Classical tint emphasize the impact profitability has on investment and growth, whereas authors with a Keynesian tint emphasize the impact (consumption) demand has on investment and growth. There's agreement that more open economies tend to be more strongly profit-led; my MECA 2011 paper adds to that. It seems that static frameworks favor wage-led results, dynamic frameworks profit-led results. Overall, complications abound: Are we talking about the long-run, or the short-run; are we talking about a cyclical model or not; and are we talking about debt & finance or only the real economy? My own take is that, in the end, the consumption demand constraint must be binding. However, the cyclical demand-distribution pattern (in the US) is consistent only with a profit-led system. How can that puzzle be disentangled? This New School working paper (with Daniele Tavani and Laura Barbosa de Carvalho) looks at the issue in a two country "global" model. The reason is rather intuitive. A country that is wage led in autarky might be profit-led as a small open economy, but can turn wage led again if the demand effects on the rest of the world are taken into account. The paper derives analytical results based on simplifying assumptions, and uses simulations to back up the key point: Deepening globalization increases the pressure on countries to suppress labor, to the detriment of global growth.