PhD Candidate, Department of Economics

Contact Information

Department of Economics

Northwestern University
2211 Campus Drive
Evanston, IL 60208

Phone: 847-730-7182

jguerreiro@u.northwestern.edu

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Education

Ph.D., Economics, Northwestern University, 2023 [Expected]
MA, Economics, Northwestern University, 2018
M.Sc. Economics, Major in Finance and Banking, Católica Lisbon SBE, 2016
Undergraduate in Economics, Católica Lisbon SBE, 2014

Primary Fields of Specialization

Macroeconomics

Curriculum Vitae

Download Vita (PDF)

Job Market Paper

Belief Disagreement and Business Cycles [download paper].

This paper studies how belief disagreement across households affects aggregate demand. I develop a model in which households are heterogeneously exposed to business cycles and show that the impact of disagreement can be summarized by a simple statistic-correlated disagreement- which summarizes the correlation between beliefs and individual exposure. I endogenize disagreement via heterogeneous attention, which implies that attention increases with exposure, so correlated disagreement is positive. Then, I show that disagreement amplifies general-equilibrium effects and acts as a propagation mechanism amplifying business cycles. I also provide evidence of this positive correlation using survey data on expectations. To quantify the implications of disagreement, I extend the analysis to a Heterogeneous-Agent New Keynesian model featuring multiple sources of heterogeneity. I show that belief disagreement can substantially amplify business-cycle fluctuations. Finally, I show that targeting spending to the most cyclical sectors can significantly increase the spending multiplier.

 

Working Papers

1. Fiscal Policy at the ZLB without Rational Expectations [download paper] (with Riccardo Bianchi-Vimercati and Martin Eichenbaum). February 2022.

This paper addresses the question: how sensitive is the power of fiscal policy at the ZLB to the assumption of rational expectations? We do so through the lens of a standard NK model in which people are level-k thinkers. Our analysis weakens the case for using government spending to stabilize the economy when the ZLB binds. The less sophisticated people are, the smaller the government-spending multiplier is. Our analysis strengthens the case for using tax policy to stabilize output when the ZLB is binding. The power of tax policy to stabilize the economy during the ZLB period is essentially undiminished when agents do not have rational expectations. Finally, we show that the way in which tax policy is communicated is critical to its effectiveness

2. Unemployment Insurance in Macroeconomic Stabilization with Imperfect Expectations (with Bence Bardóczy). Draft coming soon.

We study the power of state-dependent unemployment insurance (UI) to stabilize short-run fluctuations, allowing for arbitrary deviations from full information and rational expectations. Expectations are critical because higher UI generosity raises consumption, partly, by lowering precautionary savings. If UI generosity is indexed to the unemployment rate, households must forecast the unemployment rate to anticipate the policy stance. We estimate unemployment expectations in response to identified aggregate shocks. We quantify the consequences of these imperfect expectations through the lens of a Heterogeneous Agent New Keynesian model. First, we work directly with the estimated forecast errors. Our methodological contribution is to use the non-parametric history of forecast errors and forecast revisions to solve dynamic decisions of optimizing agents. By doing so, we sidestep the need to choose a particular model of belief formation (e.g., cognitive discounting or sticky expectations). The estimated model implies that imperfect anticipation substantially affects the stimulative power of UI extensions. Second, we compare alternative ways of implementing UI policies. To run counterfactuals, we estimate a structural model of belief formation. We show that a combination of noisy information and diagnostic expectations fits the data best among a large set of popular alternatives. A UI extension that is announced directly is more stimulative in the very short run than one that is indexed to the unemployment rate.

Work in Progress

1. Disagreement as an Aggregate Demand Shock.

Belief disagreement about future income is negatively correlated with economic activity, i.e., unconditionally, the cross-sectional dispersion in expectations is high during recessions. However, I show that the causal impact of economic shocks on disagreement is symmetric around zero, i.e., both positive and negative shocks lead to increases in disagreement. Furthermore, changes to disagreement occur even absent changes in perceived/subjective uncertainty. To reconcile these facts, I argue theoretically that rising disagreement can act as a negative aggregate-demand shock. This mechanism implies that disagreement affects economic activity negatively. The main argument works via the effect of heterogeneous expectations on consumption and savings decisions in the presence of borrowing constraints. Then, I show that this model implies that disagreement is an asymmetric propagation mechanism that amplifies recessions and dampens expansions. Turning to policy, I show that this mechanism may also dampen the impact of monetary stimulus policy, while unconventional fiscal policy can still be very effective.

2. The Labor Mobility Slowdown: Origins and Macro Implications.

Geographical labor mobility has been a crucial margin of adjustment of the US labor market in response to local shocks. However, migration rates have been steadily declining since the 1990s. Consistent with the literature, I show that this decline is robust across various socioeconomic groups and is not driven by composition changes, and it is strongly associated with the observed decline in employment dynamism. Furthermore, I provide novel evidence that the response of migration to local economic shocks has substantially decreased during the same period. I develop a model with heterogeneous workers and locations and argue that rising worker-job specialization can account for these changes. These findings have implications for coordinating stabilization policy in a large monetary union like the US.

3. Introspection, Extrospection and Expectations: A Note on Learning in Macroeconomic Models (with Riccardo Bianchi-Vimercati and Martin Eichenbaum).

We analyze a framework that combines two of the most widely used models of belief formation: level-k thinking and adaptive learning. We use this framework to discuss the similarities and differences between these two approaches. We start by deriving conditions under which the beliefs obtained through a number of rounds of deductive level-k reasoning are the same as those inferred from observing the same number of data points. Then, we show how the combination of these two models fixes specific shortcomings of each approach in terms of the dynamics of expectations and anticipation effects.

Publications

1. Should Robots be Taxed? [download paper] (with Sergio Rebelo and Pedro Teles). Review of Economic Studies, 2022.

We develop a quantitative model of technical progress in automation and endogenous skill choice. We find that it is optimal to tax robots while the current generations of routine workers are active in the labor force. Once these workers retire, optimal robot taxes are zero.

[Older version with Ramsey Policy [link]. Media: Marketwatch, Kellogg Insight, Fast Company, Jornal de Negócios (Portuguese), and our column at Voxeu.]

2. What is the Optimal Immigration Policy? Migration, Jobs and Welfare [download paper] (with Sergio Rebelo and Pedro Teles). Journal of Monetary Economics, Carnegie-Rochester-NYU Conference Series, 2020.

We study how optimal immigration policy interacts with the welfare system. When the welfare system for immigrants and natives can be designed independently, free immigration is optimal. Instead, when they must be treated alike, it may be optimal to ban low-skill immigration and have free immigration for high-skill workers. We calibrate our model and perform optimal policy exercises for the U.S.

[Media: Our column at Voxeu.]

Older working Papers

The Role of Consumption Taxes Under Incomplete Factor Taxation [download paper], June 2016.

References

Prof. Martin Eichenbaum (Committee Co-Chair)
Prof. Sergio Rebelo (Committee Co-Chair)
Prof. Matthew Rognlie
Prof. George-Marios Angeletos