Wage rigidity and job creation

Recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations. We use worker-level datafrom the CPS to measure the sensitivity of wages of newly hired workers to changesin aggregate labor market conditions. The wage of new hires, unlike the aggregatewage, is volatile and responds almost one-to-one to changes in labor productivity.We conclude that there is little evidence for wage stickiness in the data. We alsoshow, however, that a little wage rigidity goes a long way in amplifying the responseof job creation to productivity shocks.

The credit ratings game

The spectacular failure of top-rated structured finance products has broughtrenewed attention to the conflicts of interest of Credit Rating Agencies (CRAs). We modelboth the CRA conflict of understating credit risk to attract more business, and the issuerconflict of purchasing only the most favorable ratings (issuer shopping), and examine theeffectiveness of a number of proposed regulatory solutions of CRAs. We find that CRAs aremore prone to inflate ratings when there is a larger fraction of naive investors in the marketwho take ratings at face value, or when CRA expected reputation costs are lower. To theextent that in booms the fraction of naive investors is higher, and the reputation risk forCRAs of getting caught understating credit risk is lower, our model predicts that CRAs aremore likely to understate credit risk in booms than in recessions. We also show that, due toissuer shopping, competition among CRAs in a duopoly is less efficient (conditional on thesame equilibrium CRA rating policy) than having a monopoly CRA, in terms of both totalex-ante surplus and investor surplus. Allowing tranching decreases total surplus further.We argue that regulatory intervention requiring upfront payments for rating services (beforeCRAs propose a rating to the issuer) combined with mandatory disclosure of any ratingproduced by CRAs can substantially mitigate the con.icts of interest of both CRAs andissuers.

Ratio maps and correspondence analysis

We compare two methods for visualising contingency tables and developa method called the ratio map which combines the good properties of both.The first is a biplot based on the logratio approach to compositional dataanalysis. This approach is founded on the principle of subcompositionalcoherence, which assures that results are invariant to considering subsetsof the composition. The second approach, correspondence analysis, isbased on the chi-square approach to contingency table analysis. Acornerstone of correspondence analysis is the principle of distributionalequivalence, which assures invariance in the results when rows or columnswith identical conditional proportions are merged. Both methods may bedescribed as singular value decompositions of appropriately transformedmatrices. Correspondence analysis includes a weighting of the rows andcolumns proportional to the margins of the table. If this idea of row andcolumn weights is introduced into the logratio biplot, we obtain a methodwhich obeys both principles of subcompositional coherence and distributionalequivalence.

The dynamics of US inflation: Can monetary policy explain the changes?

We investigate the relationship between monetary policy and inflation dynamics in theUS using a medium scale structural model. The specification is estimated with Bayesiantechniques and fits the data reasonably well. Policy shocks account for a part of the declinein inflation volatility; they have been less effective in triggering inflation responses overtime and qualitatively account for the rise and fall in the level of inflation. A number ofstructural parameter variations contribute to these patterns.

Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil

We report results from a randomized policy experiment designed to test whether increasedaudit risk deters rent extraction in local public procurement and service delivery in Brazil. Ourestimates suggest that temporarily increasing annual audit risk by about 20 percentage pointsreduced the proportion of irregular local procurement processes by about 17 percentage points.This reduction was driven entirely by irregularities involving mismanagement or corruption. Incontrast, we find no evidence that increased audit risk affected the quality of publicly providedpreventive and primary health care services -measured based on user satisfaction surveys- orcompliance with national regulations of the conditional cash transfer program "Bolsa Família".

Three essays in dynamic corporate finance

Summary Throughout my thesis, I elaborate on how real and financing frictions affect corporate decision making under uncertainty, and I explore how firms time their investment and financing decisions given such frictions. While the macroeconomics literature has focused on the impact of real frictions on investment decisions assuming all equity financed firms, the financial economics literature has mainly focused on the study of financing frictions. My thesis therefore assesses the join interaction of real and financing frictions in firms' dynamic investment and financing decisions. My work provides a rationale for the documented poor empirical performance of neoclassical investment models based on the joint effect of real and financing frictions on investment. A major observation relies in how the infrequency of corporate decisions may affect standard empirical tests. My thesis suggests that the book to market sorts commonly used in the empirical asset pricing literature have economic content, as they control for the lumpiness in firms' optimal investment policies. My work also elaborates on the effects of asymmetric information and strategic interaction on firms' investment and financing decisions. I study how firms time their decision to raise public equity when outside investors lack information about their future investment prospects. I derive areal-options model that predicts either cold or hot markets for new stock issues conditional on adverse selection, and I provide a rational approach to study jointly the market timing of corporate decisions and announcement effects in stock returns. My doctoral dissertation therefore contributes to our understanding of how under real and financing frictions may bias standard empirical tests, elaborates on how adverse selection may induce hot and cold markets in new issues' markets, and suggests how the underlying economic behaviour of firms may induce alternative patterns in stock prices.

Civil conflict and human capital accumulation: The long-term effects of political violence in Perú

This paper provides empirical evidence of the persistent effect of exposure to political violence on humancapital accumulation. I exploit the variation in conflict location and birth cohorts to identify the longandshort-term effects of the civil war on educational attainment. Conditional on being exposed toviolence, the average person accumulates 0.31 less years of education as an adult. In the short-term,the effects are stronger than in the long-run; these results hold when comparing children within thesame household. Further, exposure to violence during early childhood leads to permanent losses. I alsoexplore the potential causal mechanisms.

Two-sided learning in New Keynesian models: Dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank(two-sided learning) in a New Keynesian framework in which both sides of the economyhave asymmetric and imperfect knowledge about the true data generating process. Weassume that all agents employ the data that they observe (which may be distinct fordifferent sets of agents) to form beliefs about unknown aspects of the true model ofthe economy, use their beliefs to decide on actions, and revise these beliefs througha statistical learning algorithm as new information becomes available. We study theshort-run dynamics of our model and derive its policy recommendations, particularlywith respect to central bank communications. We demonstrate that two-sided learningcan generate substantial increases in volatility and persistence, and alter the behaviorof the variables in the model in a significant way. Our simulations do not convergeto a symmetric rational expectations equilibrium and we highlight one source thatinvalidates the convergence results of Marcet and Sargent (1989). Finally, we identifya novel aspect of central bank communication in models of learning: communicationcan be harmful if the central bank's model is substantially mis-specified.

The network origins of aggregate fluctuations

This paper argues that in the presence of intersectoral input-output linkages, microeconomicidiosyncratic shocks may lead to aggregate fluctuations. In particular, itshows that, as the economy becomes more disaggregated, the rate at which aggregatevolatility decays is determined by the structure of the network capturing such linkages.Our main results provide a characterization of this relationship in terms of the importanceof different sectors as suppliers to their immediate customers as well as theirrole as indirect suppliers to chains of downstream sectors. Such higher-order interconnectionscapture the possibility of "cascade effects" whereby productivity shocks to asector propagate not only to its immediate downstream customers, but also indirectlyto the rest of the economy. Our results highlight that sizable aggregate volatility isobtained from sectoral idiosyncratic shocks only if there exists significant asymmetryin the roles that sectors play as suppliers to others, and that the "sparseness" of theinput-output matrix is unrelated to the nature of aggregate fluctuations.

When to carry eccentric products? Optimal retail assortment under consumer returns

To understand whether retailers should consider consumer returns when merchandising, we study howthe optimal assortment of a price-taking retailer is influenced by its return policy. The retailer selects itsassortment from an exogenous set of horizontally differentiated products. Consumers make purchase andkeep/return decisions in nested multinomial logit fashion. Our main finding is that the optimal assortmenthas a counterintuitive structure for relatively strict return policies: It is optimal to offer a mix of the mostpopular and most eccentric products when the refund amount is sufficiently low, which can be viewed asa form of risk sharing between the retailer and consumers. In contrast, if the refund is sufficiently high, orwhen returns are disallowed, optimal assortment is composed of only the most popular products (a commonfinding in the literature). We provide preliminary empirical evidence for one of the key drivers of our results:more eccentric products have higher probability of return conditional on purchase. In light of our analyticalfindings and managerial insights, we conclude that retailers should take their return policies into accountwhen merchandising.

On the impact of leverage constraints on asset prices and trading volume

Researchers have used stylized facts on asset prices and trading volumein stock markets (in particular, the mean reversion of asset returnsand the correlations between trading volume, price changes and pricelevels) to support theories where agents are not rational expected utilitymaximizers. This paper shows that this empirical evidence is in factconsistent with a standard infite horizon perfect information expectedutility economy where some agents face leverage constraints similar tothose found in todays financial markets. In addition, and in sharpcontrast to the theories above, we explain some qualitative differencesthat are observed in the price-volume relation on stock and on futuresmarkets. We consider a continuous-time economy where agents maximize theintegral of their discounted utility from consumption under both budgetand leverage con-straints. Building on the work by Vila and Zariphopoulou(1997), we find a closed form solution, up to a negative constant, for theequilibrium prices and demands in the region of the state space where theconstraint is non-binding. We show that, at the equilibrium, stock holdingsvolatility as well as its ratio to stock price volatility are increasingfunctions of the stock price and interpret this finding in terms of theprice-volume relation.

Analysis of CD4+ and CD8+ T cells by defined MHC-peptide complexes

MHC class II-peptide multimers are important tools for the detection, enumeration and isolation of antigen-specific CD4+ Τ cells. However, their erratic and often poor performance impeded their broad application and thus in-depth analysis of key aspects of antigen-specific CD4+ Τ cell responses. In the first part of this thesis we demonstrate that a major cause for poor MHC class II tetramer staining performance is incomplete peptide loading on MHC molecules. We observed that peptide binding affinity for "empty" MHC class II molecules poorly correlates with peptide loading efficacy. Addition of a His-tag or desthiobiotin (DTB) at the peptide N-terminus allowed us to isolate "immunopure" MHC class II-peptide monomers by affinity chromatography; this significantly, often dramatically, improved tetramer staining of antigen-specific CD4+ Τ cells. Insertion of a photosensitive amino acid between the tag and the peptide, permitted removal of the tag from "immunopure" MHC class II-peptide complex by UV irradiation, and hence elimination of its potential interference with TCR and/or MHC binding. Moreover, to improve loading of self and tumor antigen- derived peptides onto "empty" MHC II molecules, we first loaded these with a photocleavable variant of the influenza A hemagglutinin peptide HA306-318 and subsequently exchanged it with a poorly loading peptide (e.g. NY-ESO-1119-143) upon photolysis of the conditional ligand. Finally, we established a novel type of MHC class II multimers built on reversible chelate formation between 2xHis-tagged MHC molecules and a fluorescent nitrilotriacetic acid (NTA)-containing scaffold. Staining of antigen-specific CD4+ Τ cells with "NTAmers" is fully reversible and allows gentle cell sorting. In the second part of the thesis we investigated the role of the CD8α transmembrane domain (TMD) for CD8 coreceptor function. The sequence of the CD8α TMD, but not the CD8β TMD, is highly conserved and homodimerizes efficiently. We replaced the CD8α TMD with the one of the interleukin-2 receptor a chain (CD8αTac) and thus ablated CD8α TMD interactions. We observed that ΤΙ Τ cell hybridomas expressing CD8αTacβ exhibited severely impaired intracellular calcium flux, IL-2 responses and Kd/PbCS(ABA) P255A tetramer binding. By means of fluorescence resonance energy transfer experiments (FRET) we established that CD8αTacβ associated with TCR:CD3 considerably less efficiently than CD8αβ, both in the presence and the absence of Kd/PbCS(ABA) complexes. Moreover, we observed that CD8αTacβ partitioned substantially less in lipid rafts, and related to this, associated less efficiently with p56Lck (Lck), a Src kinase that plays key roles in TCR proximal signaling. Our results support the view that the CD8α TMD promotes the formation of CD8αβP-CD8αβ dimers on cell surfaces. Because these contain two CD8β chains and that CD8β, unlike CD8α, mediates association of CD8 with TCR:CD3 as well as with lipid rafts and hence with Lck, we propose that the CD8αTMD plays an important and hitherto unrecognized role for CD8 coreceptor function, namely by promoting CD8αβ dimer formation. We discuss what implications this might have on TCR oligomerization and TCR signaling. - Les multimères de complexes MHC classe II-peptide sont des outils importants pour la détection, le dénombrement et l'isolation des cellules Τ CD4+ spécifiques pour un antigène d'intérêt. Cependant, leur performance erratique et souvent inadéquate a empêché leur utilisation généralisée, limitant ainsi l'analyse des aspects clés des réponses des lymphocytes Τ CD4+. Dans la première partie de cette thèse, nous montrons que la cause principale de la faible efficacité des multimères de complexes MHC classe II-peptide est le chargement incomplet des molécules MHC par des peptides. Nous montrons également que l'affinité du peptide pour la molécule MHC classe II "vide" n'est pas nécessairement liée au degré du chargement. Grâce à l'introduction d'une étiquette d'histidines (His-tag) ou d'une molécule de desthiobiotine à l'extrémité N-terminale du peptide, des monomères MHC classe II- peptide dits "immunopures" ont pu être isolés par chromatographic d'affinité. Ceci a permis d'améliorer significativement et souvent de façon spectaculaire, le marquage des cellules Τ CD4+ spécifiques pour un antigène d'intérêt. L'insertion d'un acide aminé photosensible entre l'étiquette et le peptide a permis la suppression de l'étiquette du complexe MHC classe- Il peptide "immunopure" par irradiation aux UV, éliminant ainsi de potentielles interférences de liaison au TCR et/ou au MHC. De plus, afin d'améliorer le chargement des molécules MHC classe II "vides" avec des peptides dérivés d'auto-antigènes ou d'antigènes tumoraux, nous avons tout d'abord chargé les molécules MHC "vides" avec un analogue peptidique photoclivable issu du peptide HA306-318 de l'hémagglutinine de la grippe de type A, puis, sous condition de photolyse, nous l'avons échangé avec de peptides à chargement faible (p.ex. NY-ESO-1119-143). Finalement, nous avons construit un nouveau type de multimère réversible, appelé "NTAmère", basé sur la formation chélatante reversible entre les molécules MHC-peptide étiquettés par 2xHis et un support fluorescent contenant des acides nitrilotriacetiques (NTA). Le marquage des cellules Τ CD4+ spécifiques pour un antigène d'intérêt avec les "NTAmères" est pleinement réversible et permet également un tri cellulaire plus doux. Dans la deuxième partie de cette thèse nous avons étudié le rôle du domaine transmembranaire (TMD) du CD8α pour la fonction coréceptrice du CD8. La séquence du TMD du CD8α, mais pas celle du TMD du CD8β, est hautement conservée et permet une homodimérisation efficace. Nous avons remplacé le TMD du CD8α avec celui de la chaîne α du récepteur à l'IL-2 (CD8αTac), éliminant ainsi les interactions du TMD du CD8α. Nous avons montré que les cellules des hybridomes Τ T1 exprimant le CD8αTacβ présentaient une atteinte sévère du flux du calcium intracellulaire, des réponses d'IL-2 et de la liaison des tétramères Kd/PbCS(ABA) P255A. Grâce aux expériences de transfert d'énergie entre molécules fluorescentes (FRET), nous avons montré que l'association du CD8αTacβ avec le TCR:CD3 est considérablement moins efficace qu'avec le CD8αβ, et ceci aussi bien en présence qu'en absence de complexes Kd/PbCS(ABA). De plus, nous avons observé que le CD8αTacβ se distribuait beaucoup moins bien dans les radeaux lipidiques, engendrant ainsi, une association moins efficace avec p56Lck (Lck), une kinase de la famille Src qui joue un rôle clé dans la signalisation proximale du TCR. Nos résultats soutiennent l'hypothèse que le TMD du CD8αβ favorise la formation des dimères de CD8αβ à la surface des cellules. Parce que ces derniers contiennent deux chaînes CD8β et que CD8β, contrairement à CD8α, favorise l'association du CD8 au TCR:CD3 aussi bien qu'aux radeaux lipidiques et par conséquent à Lck, nous proposons que le TMD du CD8α joue un rôle important, jusqu'alors inconnu, pour la fonction coreceptrice du CD8, en encourageant la formation des dimères CD8αβ. Nous discutons des implications possibles sur l'oligomerisation du TCR et la signalisation du TCR.

Evaluating predictive densities of U.S. output growth and inflation in a large macroeconomic data set

We evaluate conditional predictive densities for U.S. output growth and inflationusing a number of commonly used forecasting models that rely on a large number ofmacroeconomic predictors. More specifically, we evaluate how well conditional predictive densities based on the commonly used normality assumption fit actual realizationsout-of-sample. Our focus on predictive densities acknowledges the possibility that, although some predictors can improve or deteriorate point forecasts, they might have theopposite effect on higher moments. We find that normality is rejected for most modelsin some dimension according to at least one of the tests we use. Interestingly, however,combinations of predictive densities appear to be correctly approximated by a normaldensity: the simple, equal average when predicting output growth and Bayesian modelaverage when predicting inflation.

Comparison of Energy Minimization Methods for 3-D Brain Tissue Classification

This paper presents 3-D brain tissue classificationschemes using three recent promising energy minimizationmethods for Markov random fields: graph cuts, loopybelief propagation and tree-reweighted message passing.The classification is performed using the well knownfinite Gaussian mixture Markov Random Field model.Results from the above methods are compared with widelyused iterative conditional modes algorithm. Theevaluation is performed on a dataset containing simulatedT1-weighted MR brain volumes with varying noise andintensity non-uniformities. The comparisons are performedin terms of energies as well as based on ground truthsegmentations, using various quantitative metrics.

The vanishing procyclicality of labor productivity

We document three changes in postwar US macroeconomic dynamics: (i) theprocyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wagehas risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model withlabor market frictions, variable effort, and endogenous wage rigidities to illustratethe mechanisms underlying our explanation. We show that the reduction in frictionsmay also have contributed to the observed decline in output volatility.