2017

17-01. Joyee Deb and Yuhta Ishii , Reputation Building under Uncertain Monitoring

Abstract : We study a canonical model of reputation between a long-run player and a sequence of short-run opponents, in which the long-run player is privately informed about an uncertain state that determines the monitoring structure in the reputation game. The long-run player plays a stage-game repeatedly against a sequence of short-run opponents. We present necessary and sufficient conditions (on the monitoring structure and the type space) to obtain reputation building in this setting. Specifically, in contrast to the previous literature, with only stationary commitment types, reputation building is generally not possible and highly sensitive to the inclusion of other commitment types. However, with the inclusion of appropriate dynamic commitment types, reputation building can again be sustained while maintaining robustness to the inclusion of other arbitrary types.


17-02. Gustavo Leyva and Carlos Urrutia , Informality, Labor Regulation, and the Business Cycle

Abstract : We analyze the joint impact of employment protection and informality on macroeconomic volatility and the propagation of shocks in emerging economies. For this, we propose a small open economy business cycle model with frictional labor markets, employment protection and an informal sector, modeled as self-employment. The model is calibrated to the Mexican economy, in particular to business cycle moments for employment and informality obtained from our own calculations with the ENOE survey. We show that interest shocks, which affect specifically job creation in the formal sector, are key to obtain a counter-cyclical informality rate. In our model, confronted with similar shocks, the economy without an informal sector features higher macroeconomic volatility. However, an economy with low levels of employment protection would experience larger volatility in employment but smaller TFP and output fluctuations.


17-03. Sangeeta Pratap, Carlos Urrutia and Felipe Meza , Credit Conditions, Dynamic Distortions, and Capital Accumulation in Mexican Manufacturing

Abstract : The objective of this paper is to document a transmission channel from credit conditions to capital accumulation at a disaggregated level. We use a simple multi-sector model of production and investment to identify investment wedges (i.e., deviations from the optimality condition implied by a stochastic Euler equation). Using a panel of observations at the 4-digit level from the Mexican manufacturing industry, we measure the corresponding dynamic distortions in capital accumulation. Our counterfactual experiments show that the behavior of capital distortions is important to account for changes in the aggregate capital stock over time. We then analyze the sources of these distortions, working with one important candidate: bank credit. We show in a simple model of investment with Önancial frictions that more availability and cheaper access to credit reduce capital distortions. We Önd some statistical support for this mechanism in the data.