Working Papers
with Chenchuan Shi (submitted) | 2025
Available as a CEPR Discussion Paper 18817
[View abstract]
In recent years, remote work surged across the globe. We develop a novel macroeconomic model in which firms employ some workers remotely, trading-off potential productivity losses against savings on costs. Quantifying the model using U.S. data suggests that the surge in remote work (i) was primarily driven by workers’ preferences, (ii) increased profitability and encouraged firm entry and (iii) shifted the firm distribution towards smaller businesses because they benefit relatively more from associated reductions in (fixed) costs. While increased entry sparks a boom, a larger share of small firms lowers aggregate productivity. Barriers to firm entry, therefore, emerge as a crucial margin determining the overall impact of the remote work revolution. Finally, we propose a novel identification strategy to estimate the firm-level effects of remote work, validating the model's key mechanisms and predictions.
with Micole de Vera, Sonia Felix and Sudipto Karmakar (submitted) | 2024
Previously circulated as "Serial Entrepreneurs and the Macroeconomy"
Available as a CEPR Discussion Paper 16449, and Bank of Portugal
Working Paper202113
[VoxEU column]
[View abstract]
Apple, Tesla and Under Armour are examples of "serial entrepreneur firms" - businesses of entrepreneurs who owned multiple companies. Using unique administrative data, we document that while serial entrepreneur firms are relatively rare, they (i) disproportionately contribute to aggregate job creation and productivity growth, (ii) shape aggregate business dynamism and (iii) are more likely to be high-growth ("gazelles"). This superior performance is largely driven by entrepreneurs' education, ability and lower indebtedness of their firms. Our findings have important implications for structural macroeconomic models which typically ignore serial entrepreneurship.
with Marek Ignaszak
Revision requested at the REVIEW OF ECONOMIC STUDIES | 2023
Available as a CEPR Discussion Paper 16205
[Appendix]
[VoxEU column]
[View abstract]
Business dynamism – the process of firm entry, growth and exit – lies at the heart of modern endogenous
growth models. While productivity differences have traditionally been seen as the main driving forces of
business dynamism, a growing body of evidence suggests that customer acquisition frictions are at least as
important. In light of this evidence, we propose a novel endogenous growth model in which innovating firms
must first acquire customers to sell their products. Estimating our model with aggregate and firm-level
data, we find that expansions of firms’ customer bases (market sizes) boost their incentives to innovate
and shift resources towards high-growth businesses (``gazelles''). Combined, these effects explain over
1/3 of aggregate growth and substantially change predictions about the efficacy of growth policies.
Finally, we document support for key model predictions using firm-level micro-data.
with Cristiana Bendetti-Fasil, Giammario Impulitti, Omar Licandro, Adam Spencer (submitted) | 2024
Available as a CEPR Discussion Paper 19385
[View abstract]
R&D is procyclical and a crucial driver of growth. Evidence indicates that innovation activity varies widely across firms. Is there heterogeneity in innovation cyclicality? Does innovation heterogeneity matter for business cycle propagation? We provide empirical evidence that more productive firms are less procyclical in innovation. We develop a model replicating this observation, with selection as the driver of heterogeneous innovation cyclicality. We then examine how heterogeneous innovation and growth influence business cycle propagation. Dynamics of firm entry and exit, coupled with heterogeneous cyclicality, significantly amplify TFP shock propagation. Business cycle fluctuations give substantial welfare losses, with firm heterogeneity contributing significantly.
with Zach Hayward and Matt Nolan | 2025
Available as a CEPR Discussion Paper 20068
[View abstract]
[BusinessThink Article]
Using micro-data, we show that 15%-35% of employment-to-unemployment transitions are done voluntarily. In many countries, the voluntarily unemployed are excluded from unemployment insurance. We analyze the implications of such policies. First, we estimate that the voluntarily unemployed do not experience a persistent drop in subsequent earnings, contrasting the earnings scars from involuntary unemployment. Second, we show that a structural model in which heterogeneous workers and firms search for efficient matches can account for these patterns. Excluding voluntarily unemployed from unemployment insurance reduces search incentives (for both workers and firms) and can substantially disrupt allocative efficiency at the aggregate level.
Publications in Refereed Journals
with Yusuf Mercan and
Benjamin Schoefer
AMERICAN ECONOMIC JOURNAL: MACROECONOMICS | 2024
An earlier version is available as a CEPR Discussion Paper 15500| 2022
[View abstract]
We propose a theory of unemployment fluctuations in which new hires and incumbent workers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a ten-fold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30–40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires’ wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance.
Startups and Employment Following the COVID Pandemic: A Calculator
with Cristiana Benedetti Fasil and Vincent Sterk
ECONOMIC POLICY | 2022
An earlier version is available in COVID ECONOMICS, Issue 13 | 2020
European Commission Country reports
Online Calculator for: 23 European economies and the
US economy
Media coverage: BusinessThink,
ABC Radio,
The Australian
[VoxEU column]
[Press release]
[Replication files]
[View abstract]
Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns.
At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a
calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups,
and (iii) the survival rate of young firms. We apply our calculator to the U.S. and four European countries: France, Germany, Italy and Spain. We find
that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half
of the long-run losses is caused by fewer high-growth firms, ``gazelles'', starting up during the pandemic. Our results also suggest that the long-run
effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low degree of business dynamism.
The Macroeconomic Impact of Trump
with Benjamin Born,
Gernot Mueller and
Moritz Schularick
POLICY STUDIES | 2021
[VoxEU column]
[View abstract]
How much credit does Donald Trump deserve for the macroeconomic performance of the US economy? Growth and job creation have been robust during the first
2.5 years since he took office, but this does not prove that Trump made a difference. In this note we develop a counterfactual scenario for how the US
economy would have evolved without Trump---we let a matching algorithm determine which combination of other economies best resembles the pre-election
path of the US economy. We then compare the post-election performance of the US economy to this synthetic "doppelganger". For now there is little
evidence for a Trump effect.
Nature of Firm Growth
with Benjamin Pugsley and
Vincent Sterk
AMERICAN ECONOMIC REVIEW | 2021
[VoxEU column]
[Appendix]
[Download Autocovariances]
[View abstract]
About half of all startups fail within five years, and those that survive grow at vastly dierent speeds. Using Census microdata, we estimate that most of
these dierences are determined by ex-ante heterogeneity rather than persistent ex-post shocks. Embedding such heterogeneity in a firm dynamics model shows
that the presence of ex-ante heterogeneity (i) is a key determinant of the firm size distribution and firm dynamics, (ii) can strongly impact the macroeconomic
effects of firm-level frictions, and (iii) helps understand the recently documented decline in business dynamism by showing a disappearance of high-growth startups
(“gazelles”) since the mid-1980s.
Lost Generations of Firms and Aggregate Labor Market Dynamics
JOURNAL OF MONETARY ECONOMICS | 2020
[View abstract]
Can the unprecedented lack of startups during the U.S. Great Recession have persistently negative effects?
While fewer firms hiring workers can mechanically reduce employment for many years, this may be offset by
feedback effects on lower wages, slacker labor markets and higher profits. An estimated model of firm dynamics
and frictional labor markets suggests that such feedback effects are too weak to offset the direct impact of
fewer startups. Had firm entry remained constant during the Great Recession, output would have recovered 4–6
years earlier and unemployment would have been 0.5 percentage points lower even 10 years after the crisis.
Creative Destruction and Uncertainty
JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION | 2019
[View abstract]
Uncertainty rises in recessions. But does uncertainty cause downturns or vice versa? This paper argues that uncertainty fluctuates
endogenously in response to technology growth changes. In a firm dynamics model with endogenous technology adoption, faster
technology growth widens the dispersion of firm-level productivity shocks, a benchmark uncertainty measure. Moreover, faster
growth spurs a creative destruction process, generates a temporary downturn and renders uncertainty counter-cyclical. Estimates
from structural VARs on U.S. data confirm the model's predictions. On average, shocks to technology growth explain 1/4 of the
cyclical variation in uncertainty, and up to 2/3 around the "dot-com" bubble.
The Costs of Economic Nationalism: Evidence from the Brexit Experiment
with Benjamin Born,
Gernot Mueller and
Moritz Schularick
ECONOMIC JOURNAL | 2019
Media coverage: Financial Times,
The Independent,
Bloomberg
[VoxEU column]
[View abstract]
Economic nationalism is on the rise, but at what cost? We study this question using the unexpected outcome of the Brexit vote as a natural macroeconomic experiment.
Employing synthetic control methods, we first show that the Brexit vote has caused an output loss of about 2.4 percent by year-end 2018. An expectations-augmented
VAR reveals that these costs are to a large extent caused by a downward revision of growth expectations in response to the vote. Linking quasi-experimental identification
to structural time-series estimation allows us to not only quantify the aggregate costs but also to understand the channels through which expected economic disintegration
impacts the macroeconomy.
Reviving American Entrepreneurship? Tax Reform and Business Dynamism
with Vincent Sterk
JOURNAL OF MONETARY ECONOMICS | 2019
Carnegie-Rochester-NYU Conference Series on Public Policy
[View abstract]
The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous-
firms model, we investigate the long-run e
ects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially
offsetting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform
stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost
of the number of firms and of aggregate output, investment and employment.
Unemployment and the Labor Share
with Sephorah Mangin
JOURNAL OF MONETARY ECONOMICS | 2018
[Appendix]
[View abstract]
The labor share fluctuates over the business cycle. To explain this behavior, we develop a novel model featuring direct competition between
heterogeneous firms to hire workers. This simultaneously endogenizes both average match productivity and the division of output between workers
and firms. In existing matches, wages partly reflect labor market conditions at the time of hiring. A positive TFP shock therefore reduces
the aggregate labor share, making it counter-cyclical. However, greater competition and lower unemployment increase labor's share among new firms.
As more firms enter, the aggregate labor share rises and eventually overshoots its initial level, as in the data.
The Growth Potential of Startups Over the Business Cycle
with Vincent Sterk
AMERICAN ECONOMIC REVIEW | 2017
[Appendix]
[View abstract]
This paper shows that employment in cohorts of U.S. fims is strongly influenced by aggregate conditions at the time of their entry.
Employment fluctuations of startups are pro-cyclical, they persist into later years and cohort-level employment variations are
largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model
reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation, by
affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large slow-moving
fluctuations in employment.
The Aggregate Matching Function and Job Search from Employment and Out of the Labor Force
REVIEW OF ECONOMIC DYNAMICS | 2016
[Appendix]
[Matlab code]
[View abstract]
The majority of new jobs in the U.S. is filled by workers coming from employment or from out of the labor force (inactivity).
Yet, because the number of job seekers in these groups is unobserved, they are often ignored in empirical labor market studies.
This paper, instead, uses latent-variable techniques to estimate the aggregate matching function - a relation between hires, vacant
jobs and job seekers - while considering searchers from unemployment, employment and inactivity. Importantly, the estimation allows
for the (match) efficiency with which these three groups of searchers find jobs to vary on average and over time. This paper finds
that almost half of the rise in U.S. unemployment during the Great Recession is explained by a drop in match efficiency of the unemployed.
This contrasts sharply with previous studies which found match efficiency to be quantitatively unimportant.
Inefficient Continuation Decisions, Job Creation Costs, and the Cost of Business Cycles
with Wouter den Haan
QUANTITATIVE ECONOMICS | 2014
[View abstract]
This paper develops a model according to which the costs of business cycles are nontrivial because they reduce the average level of output.
The reason is an interaction between job creation costs and an agency problem. The agency problem triggers separations during economic
downturns even though both the employer and the worker would be better off if the job was not discontinued, that is, affected jobs have strictly
positive surplus values. Similarly, booms make it possible for more jobs to overcome the agency problem. These e
ects do not offset each other,
because business cycles reduce the expected job duration for these jobs. With positive job creation costs, business cycles then reduce the creation
of valuable jobs and lower average activity levels. Considering a wide range of parameter values, we find estimates for the cost of business cycles
ranging from 2.03% to 12.7% of GDP.
Match Efficiency and Firms' Hiring Standards
JOURNAL OF MONETARY ECONOMICS | 2014
[Appendix]
[View abstract]
During the last recession, new hires were lower than would be predicted by a standard matching function and the observed ratio of searching workers and firms.
This paper first estimates U.S. match efficiency as an exogenous residual in the matching function using a simple search and matching model. It finds match
efficiency to be pro-cyclical and to account for about 1/4 of unemployment increases during the most severe recessions. Second, this paper proposes a model
with endogenous separations and firing costs that endogenizes match efficiency, which is driven by firms' hiring standards. The model can explain almost 1/2
of the variation in the initial estimate of match efficiency.
Institutional Conditions of Monetary Policy Conduct in the Czech Republic
PRAGUE ECONOMIC PAPERS | 2006
[View abstract]
This paper tries to assess the conditions under which the CNB operates. Using a basic framework suggested by Mishkin (2000), the aim is to find out whether the central bank is able
to conduct high-quality monetary policy. First, general principles that central banks should
follow to succeed in their pursuit of monetary goals are theoretically introduced. Then, these theoretical principles are looked at in the Czech context. Issues of the strictness and
suitability of concrete monetary policy of the CNB will not be dealt with, rather institutional
circumstances that potentially allow successful policy are at the centre of this paper. It is
concluded that the CNB is functioning in a moderately good environment, but still much
room for improvement does exist.
Other Publications
Is there a Jobs Vaccine?
with Vincent Sterk, Public Finance, 5 (44), 2021
EU start-up calculator: Impact of COVID-19 on aggregate employment.
Scenario for Austria, Belgium, Germany, Hungary, Italy and Spain
with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020
EU start-up calculator: Impact of COVID-19 on aggregate employment.
Scenario for Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden.
with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020
EU start-up calculator: Impact of COVID-19 on aggregate employment.
Scenario for Bulgaria, Croatia, Czech Republic, Luxembourg, Netherlands, Poland, Romania, Slovakia and Slovenia.
with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020
Startups and Young Firms in the Economy
in New Entrepreneurial Growth Agenda, Section 3, Kauffman Foundation, February 2016
Analysis of the Investment Cycle
Statistika, 6, 2006 (in Czech)
Monitoring and Analysis of the Business Cycle
with Slavoj Czesany and Lenka Machackova, Czech Statistical Office, 2006 (in Czech)
The Labor Market
in Analysis of Contexts of Macroeconomic Development of the Czech Republic in 2005, Czech Statistical Office, 2006 (in Czech)
Monitoring and Analysis of the Investment Cycle
Czech Statistical Office, 2006 (in Czech)
Gross Fixed Capital Formation
in Analysis of Contexts of Macroeconomic Development of the Czech Republic in 2005, Czech Statistical Office, 2006 (in Czech)
Discussions
Fragmentation of Production and the Wage Distribution
by Elisa Rubbo, 2023, RBA Workshop in Quantitative Macroeconomics
Endogenous Production Networks under Supply Chain Uncertainty
by Kopytov, Mishra, Nimark and Taschereau-Dumouchel, 2023, Conference on Networks in Economics, UNSW
Competition, Markups, and Inflation: Evidence from Australian Firm-Level Data
by Champion, Edmond and Hambur, Reserve Bank of Australia
Turbulent Business Cycles
by Dong, Liu and Wang, 2022, 9th ABFER Annual Conference
Measuring Labor-Force Participation and The Incidence and Duration of Unemployment
by Ahn, Hamilton, 2021, 4th IZA Labor Statistics Workshop
COVID-19 is also a Reallocation Shock
by Barrero, Bloom, Davis 2020, 51st Annual MMF Conference
Small Business Training to Improve Management Practices in Developing Countries:
Re-assessing the evidence for "training doesn’t work"
by McKenzie, 2020, Management Practices, OxRep, UK
Towards a Dynamic, Stochastic, Disequilibrium Theory
by Guzman and Stiglitz, 2019 Towards Better Macroeconomic Theory and Policy-Making, OxRep, UK
Competition and Inequality
by Colciago and Mechelli, 2019 Income and Wealth Inequality in the 21st Century, DNB, Netherlands
Employemnt and the Collateral Channel of Monetary Policy
by Bahaj, Foulis, Pinter, Surico, 2019 5th Research Forum on Macro-Finance, Bank of England, UK
Monetary Policy, Corporate Finance and Investment
by Cloyne, Ferreira, Froemel, Surico, 2019 50th Konstanz Seminar on Monetary Theory and Monetary Policy, Germany
Existence and Uniqueness of Recursive Equilibria with Aggregate and Idiosyncratic Risk
by Proehl, 2019, Global Macro Workshop, CERGE-EI, Czech Republic
Inequality, Business Cycles, and Monetary-Fiscal Policy
by Bhandari, Evans, Golosov, Sargent, 2019 Money Macro Workshop, ECB, Germany
The Optimal Amount of Attention to Capital Income Risk
by Yin, 2018 T H E Workshop, Hohenheim, Germany
The Employment Effects of Corporate Tax Shocks: New Evidence and Some Theory
by Colciago, Lewis and Matyska, 2017 Cologne, Germany
Default Risk and Aggregate Fluctuations in an Economy with Production Heterogeneity
by Khan, Senga, Thomas, 2017, 48th Konstanz Seminar, Germany
Understanding the 30 year Decline in Business Dynamism: A General Equilibrium Approach
by Karahan, Pugsley, Sahin, 2015, New Developments in Business Cycle Analysis, Montreal, Canada
Surprise, Surprise - Measuring Firm-level Investment Innovations
by Bachmann, Elstner, Hristov, 2014, The European Crisis-Causes and Consequences, University of Bonn
Labor Market Reform and the Cost of Business Cycles
by Krebs, Scheffel, 2014, Summer Symposium in International Macroeconomics, Tarragona, Spain
Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects
by Hagedorn, Karahan, Manovskii, Mitman, 2013, Cologne Macro Workshop
Loss Aversion and the Assymetric Transmission of Monetary Policy
by Gaffeo, Petrella, Pfajfar, Santoro, 2012, Cologne Macro Workshop
Work in Progress
Macroeconomic Impact of the Remote Work Revolution 
