UC San Diego

This dissertation examines how cross-sectional methods can be used to study the transmission of macroeconomic shocks, combining methodological contributions with applications to fiscal policy, financial intermediation, and business cycle dynamics. In Chapter 1, I study cross-sectional designs that exploit heterogeneous exposure to aggregate shocks for estimating partial-equilibrium elasticities in macroeconomics. I show that these designs can fail to identify partial-equilibrium elasticities when exposure to the shock of interest is correlated with exposure to aggregate variables that move in general-equilibrium. I develop a test for this identification failure and propose a new decomposition method that leverages both cross-sectional and time-series variation to address it. Applying the method to estimate US cross-sectional fiscal multipliers, I find that accounting for heterogeneous exposure to monetary policy reduces the estimated two-year multiplier from 1.5 to 1. In Chapter 2, we study how asset repatriations can deepen financial systems, using Argentina’s 2016 Tax Amnesty as a case study. The program generated a large inflow of foreign-currency deposits into banks, allowing us to study the transmission of a currency-specific liquidity shock. Exploiting variation in banks’ exposure to this inflow and firms’ exposure to banks, we find positive effects on firms’ financial and real outcomes. We discipline a small open economy model with heterogeneous banks and firms using our reduced-form elasticities and use it to quantify aggregate effects and the roles of currency composition and openness in transmission. In Chapter 3, we use regional heterogeneity across U.S. states to study why some national recessions are followed by stronger recoveries than others. Leveraging heterogeneous exposure to the national business cycle across U.S. States, we estimate the trajectory of more exposed U.S. States relative to less exposed ones. For the 1990-1, 2001, and 2007-9 recessions we estimate that more exposed States experienced a stronger boom-bust cycle and for the other recessions we estimate a deeper V-shaped recession in more exposed States. Our estimates support theories that these recessions are caused by different shocks. In a quantitative model matched to our cross-sectional estimates, boom-bust cycles persistently depress the natural rate of interest r* in the recovery.