AlVARO AgUIRRE
CV
FIELDS OF INTEREST: Heterogeneous Agents (Firms) Models, Political Macroeconomics; Growth and Development.
WORKING PAPERS:
- "Productivity, Investment and Wealth Dynamics under Financial Frictions,'' with Matías Tapia and Lucciano Villacorta.
Abstract: We develop an econometric framework to provide direct microeconomic evidence of the mechanisms underlying macroeconomic models of firm dynamics with financial frictions. Using administrative data, we non-parametrically estimate firm-level productivity and its effect on firms’ investment and saving decisions in a unified framework that explicitly allows for financial frictions. The productivity process is largely non-linear, with larger persistence for more productive firms. We uncover heterogeneous responses of investment and wealth accumulation to productivity shocks. Our estimates are consistent with the presence of both collateral-based and earning-based constraints and the existence of a self-financing channel emphasized in quantitative macro models.
- "Unequal Political Business Cycles: Inequality, Policy Uncertainty and the Macroeconomy.''
Abstract: This paper explores the existence of political cycles that are contingent on inequality. I claim that high inequality leads to high policy uncertainty during election years as pressures for redistribution increase at the same time that the wealthy become politically more powerful. This higher policy uncertainty harms the economy, resulting in a decline in GDP and the private components of aggregate demand. I explore empirically the presence of an unequal political business cycle (UPBC) using three different strategies. First, I implement a panel estimation in a group of 25 countries spanning four decades. Second, I use historical data for the US from 1947 to 2018 and 18 elections. In both cases I find evidence supporting the mechanism: GDP falls below its trend during an election only when inequality is sufficiently high. Similarly, elections are associated with a decline in the private components of aggregate demand and, for the US case, a spike in policy uncertainty, only when inequality is high. The third strategy runs estimations using microeconomic data from the PSID, which show that wealth-poor households decrease relatively more their expenditure rates during election years, evidence that is in line with elections impacting private consumption through policy uncertainty in times of high inequality. Finally I build a model of heterogeneous agents with a political structure that is used to explore the mechanisms behind the UPBC.
- Macro Implications of Inequality-driven Political Polarization
Abstract: This paper builds a model of heterogenous agents, incomplete markets and idiosyncratic shocks extended with a political mechanism that allows for realistic party competition. Higher inequality leads to more disperse policy preferences, to which parties respond endogenously distancing themselves from median voter preferences. The polarization of party proposals leads to greater uncertainty before elections, as well as greater policy switches after them, with significant macroeconomic effects. Results are in line with previous empirical evidence linking inequality, polarization and macroeconomic performance. The model is solved introducing political quasi-aggregation, and can be extended to analyze different economic policies and alternative political institutions.
- "Welfare Effects of Fiscal Procyclicality: Public Insurance with Heterogeneous Agents"
Abstract: This paper pursues a welfare analysis of fiscal policy, specifically public spending, in an economy with heterogenous agents and incomplete markets. The main quantitative exercise consists in measuring the gains of switching from the (procyclical) spending path of the typical developing country to an acyclical or countercyclical path. The model emphasizes the role of transfer payments from the government to households in alleviating the costs of idiosyncratic shocks. Since these correlate with aggregate shocks, the way fiscal policy is conducted along the business cycle has important welfare effects. I find that the costs of procyclicality are relatively large and very heterogeneous. While wealth-rich agents don't suffer from procyclicality, poor agents, being either unemployed or unskilled, lose the most. In terms of life-time consumption equivalents these agents may lose as much as 2\% from fiscal procyclicality, considering only the fraction of spending that is allocated as transfer payments.
Abstract: We develop an econometric framework to provide direct microeconomic evidence of the mechanisms underlying macroeconomic models of firm dynamics with financial frictions. Using administrative data, we non-parametrically estimate firm-level productivity and its effect on firms’ investment and saving decisions in a unified framework that explicitly allows for financial frictions. The productivity process is largely non-linear, with larger persistence for more productive firms. We uncover heterogeneous responses of investment and wealth accumulation to productivity shocks. Our estimates are consistent with the presence of both collateral-based and earning-based constraints and the existence of a self-financing channel emphasized in quantitative macro models.
- "Unequal Political Business Cycles: Inequality, Policy Uncertainty and the Macroeconomy.''
Abstract: This paper explores the existence of political cycles that are contingent on inequality. I claim that high inequality leads to high policy uncertainty during election years as pressures for redistribution increase at the same time that the wealthy become politically more powerful. This higher policy uncertainty harms the economy, resulting in a decline in GDP and the private components of aggregate demand. I explore empirically the presence of an unequal political business cycle (UPBC) using three different strategies. First, I implement a panel estimation in a group of 25 countries spanning four decades. Second, I use historical data for the US from 1947 to 2018 and 18 elections. In both cases I find evidence supporting the mechanism: GDP falls below its trend during an election only when inequality is sufficiently high. Similarly, elections are associated with a decline in the private components of aggregate demand and, for the US case, a spike in policy uncertainty, only when inequality is high. The third strategy runs estimations using microeconomic data from the PSID, which show that wealth-poor households decrease relatively more their expenditure rates during election years, evidence that is in line with elections impacting private consumption through policy uncertainty in times of high inequality. Finally I build a model of heterogeneous agents with a political structure that is used to explore the mechanisms behind the UPBC.
- Macro Implications of Inequality-driven Political Polarization
Abstract: This paper builds a model of heterogenous agents, incomplete markets and idiosyncratic shocks extended with a political mechanism that allows for realistic party competition. Higher inequality leads to more disperse policy preferences, to which parties respond endogenously distancing themselves from median voter preferences. The polarization of party proposals leads to greater uncertainty before elections, as well as greater policy switches after them, with significant macroeconomic effects. Results are in line with previous empirical evidence linking inequality, polarization and macroeconomic performance. The model is solved introducing political quasi-aggregation, and can be extended to analyze different economic policies and alternative political institutions.
- "Welfare Effects of Fiscal Procyclicality: Public Insurance with Heterogeneous Agents"
Abstract: This paper pursues a welfare analysis of fiscal policy, specifically public spending, in an economy with heterogenous agents and incomplete markets. The main quantitative exercise consists in measuring the gains of switching from the (procyclical) spending path of the typical developing country to an acyclical or countercyclical path. The model emphasizes the role of transfer payments from the government to households in alleviating the costs of idiosyncratic shocks. Since these correlate with aggregate shocks, the way fiscal policy is conducted along the business cycle has important welfare effects. I find that the costs of procyclicality are relatively large and very heterogeneous. While wealth-rich agents don't suffer from procyclicality, poor agents, being either unemployed or unskilled, lose the most. In terms of life-time consumption equivalents these agents may lose as much as 2\% from fiscal procyclicality, considering only the fraction of spending that is allocated as transfer payments.
PAPERS:
- "Rebellions, Technical Change, and the Early Development of Political Institutions in Latin America." Journal of Comparative Economics 47(1):65-89, 2019. [WP] (Previous version, 2014).
- "Contracting Institutions and Economic Growth." Review of Economic Dynamics 24:192-217, 2017. [WP]
- "The Risk of Civil Conflicts as a Determinant of Political Institutions." European Journal of Political Economy 42:36-59, 2016. [WP]
- "Fiscal Policy and Civil Conflict in Africa." Journal of African Economies 25(4):614-36, 2016. [WP]
- "Rebellions, Technical Change, and the Early Development of Political Institutions in Latin America." Journal of Comparative Economics 47(1):65-89, 2019. [WP] (Previous version, 2014).
- "Contracting Institutions and Economic Growth." Review of Economic Dynamics 24:192-217, 2017. [WP]
- "The Risk of Civil Conflicts as a Determinant of Political Institutions." European Journal of Political Economy 42:36-59, 2016. [WP]
- "Fiscal Policy and Civil Conflict in Africa." Journal of African Economies 25(4):614-36, 2016. [WP]
TEACHING:
[1] Heteroegenous Agents in Macroeconomics [Contents]:
+ Graduate (PhD) Inequality in Macroeconomics, UC Chile 2-2021, 2-2022, 2-2023, 1-2024 [Intro Slides].
+ Graduate (PhD) Macro Theory, UC Chile 2-2011, 2-2012, 2-2015, 2-2016, 2-2017, 2-2018.
+ Short Graduate Course, Centre for Applied Economics, University of Chile. May 2016-17.
+ Short Graduate Course, UC Perú May 2013, July 2014, Oct 2015, and Jul 2017.
[2] Political Economy
+ Advanced Undergraduate Course, UC Chile 2-2024.
[3] Growth and Development:
+ Graduate Course (MA) : UC Chile 2-2020 (Online) [Programa]
+ Short Undergraduate Course on Growth and Development, ESEN, El Salvador, July 2014 and 2015. [Contenidos]
[4] Intermediate Macro, UPenn, UC Chile and UChile, various semesters.
+ Graduate (PhD) Inequality in Macroeconomics, UC Chile 2-2021, 2-2022, 2-2023, 1-2024 [Intro Slides].
+ Graduate (PhD) Macro Theory, UC Chile 2-2011, 2-2012, 2-2015, 2-2016, 2-2017, 2-2018.
+ Short Graduate Course, Centre for Applied Economics, University of Chile. May 2016-17.
+ Short Graduate Course, UC Perú May 2013, July 2014, Oct 2015, and Jul 2017.
[2] Political Economy
+ Advanced Undergraduate Course, UC Chile 2-2024.
[3] Growth and Development:
+ Graduate Course (MA) : UC Chile 2-2020 (Online) [Programa]
+ Short Undergraduate Course on Growth and Development, ESEN, El Salvador, July 2014 and 2015. [Contenidos]
[4] Intermediate Macro, UPenn, UC Chile and UChile, various semesters.
OTHER WORK:
- Policy work on the impact of Covid-19 on firms (chapter 2), March 2023 (in spanish)
- Co-editor: Credibility of Emerging Markets, Foreign Investors’ Risk Perceptions, and Capital Flows, Volumen 29 (2023), Serie Banca Central.
- Policy work on public debt and financing costs, June 2022 (in spanish, with Jorge Lorca and Jorge Miranda).
- Co-editor: Monetary Policy and Financial Stability: Transmission Mechanisms and Policy Implications, Volume 26 (2019), Serie Banca Central.
- Nonacademic Presentation, “Crecimiento de Largo Plazo y Reformas Estructurales. Una Perspectiva Institucional para América Latina”. XXVII Ciclo de Jornadas Económicas, Bank of Guatemala, June 2018.
- A Review of Acemoglu and Robinson’s Why Nations Fail (in spanish).