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Job Market Paper

Large Devaluations, Heterogeneous Consumption Adjustments, and Macroeconomic Implications (JMP)

This paper studies massive drops in consumption across households during large devaluations associated with Sudden Stops. Using cross-country comparison and the Mexican 1994-peso crisis as a case study provides evidence that, unexpectedly, non-tradable consumption decreased considerably, as much as tradable. Then, employing micro-data, we show that non-tradable consumption falls more for higher-income households that also concentrate expenditure on non-tradable. Moreover, expenditure share in tradable is lower for higher-income households, reflecting the presence of non-linear Engel curves. Next, based on this empirical evidence, we build an open economy framework incorporating heterogeneous households and non-homothetic CES preferences to study macroeconomic aggregate response during large devaluations. We show that the propagation across economic sectors of shocks through household consumption decisions is asymmetric, depressing the production more when it starts from the tradable than the non-tradable sector. Finally, we provide evidence with a sufficient statistic of amplification in consumption decline produced by the interaction between heterogeneous expenditure and MPCs.

Grants and award: Lewis L. Clarke Data Purchase and Data Collection Award; Lewis L. Clark Conference Presentation Award; Fellowship FED of Atlanta. 

Work in Progress

Firms’ Price Setting and Market Power During Episodes of High Inflation (With Luis Felipe Cespedes and Patricio Toro).

This paper studies the role of market power in firms’ price setting during episodes of high inflation by focusing on the role of firm markups. Using firm-level data for 31 OECD countries between 2000 and 2022, we document that the last episode of high inflation post-pandemic was different from previous episodes since firms presented higher markups, which did not happen in the previous ones. Then, we move to understand the role of demand in increasing markups recently. We find that properly instrumenting demand significantly decreased the role of demand in generating higher markups during the post-pandemic inflation episode. Finally, market power was determinant in increasing markups post-pandemic, mainly through large firms in critical sectors such as transportation and storage and countries with less strict antitrust regulation, although it does not explain the entire spike.

Award: Central Bank of Chile fellowship.

Slides upon request.

Welfare Effects of Foreign Shocks: A Granular Instrumental Variable Approach (With Bernardo Candia and Youyou Xu).

Draft upon request.

Closing the Connectivity Gap between the Rich and Poor: Online Governance Reform for Internet Market Failures (With Bernardo Candia and Jelena Laketic).

Grants: Clausen Center for International Business & Policy Grant, UC Berkeley, 2023; and Graduate Student Research Fellowship, LEAP at Berkeley Law, 2023.

Optimal Monetary Policy in a Small Open Economy with Input-Output Linkages (With Akira Ishide and Sihwan Yang).


Exchange rate pass-through, monetary policy, and real exchange rates: Iceland and the 2008 crisis (With Sebastian Edwards). Open Economies Review, Vol. 33 (2), pp. 197-230, 2022. NBER working paper. In media: VoxEU, UCLA Anderson Review.

Pre-doctoral Articles:

Accumulation of reserves in emerging and developing countries: mercantilism versus insurance (With José De Gregorio). Review of World Economics,  Vol. 155, pp. 819-857, 2019. Working Paper.

International banking and cross-border effects of regulation: Lessons from Chile (With Alejandro Jara). International Journal of Central Banking, Vol. 13 No. S1, pp. 95-127, 2017. Working Paper.

Other Pre-doctoral Research:

The demand for cash: Stylized facts and substitution by electronic means of payment (With Alejandro Jara). CEPAL Review, Number 135, pp. 129-157, 2021.

International exposure of Chilean banking system: characteristics and risk (With Alejandro Jara and Faruk Miguel). Journal Economía Chilena (The Chilean Economy), Nota de Investigación Económica, Central Bank of Chile, Vol. 20 Number 3, 2017.

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