Roc Armenter : Research

with Viktoria Hnatkovska.

The U.S. non-financial corporate sector became a net lender vis-a-vis the rest of the economy in the early 2000s. We document this fact in the aggregate and firm-level data. We then develop a structural dynamic model with investment to study the firms' financing decisions. Debt is fiscally advantageous but subject to a no-default borrowing constraint. Equity allows the firm to suspend distributions to shareholders when the cash flow is negative.

I show that the short-term nominal interest rate can anchor private-sector expectations into low inflation---more precisely, into the best equilibrium reputation can sustain. I introduce nominal asset markets in an infinite horizon version of the Barro-Gordon model. I then analyze the subset of sustainable policies compatible with any given asset price system at date t=0.

with Thomas Mertens.

Insurance schemes rely on legal action to deter fraudulent claims. We capture this aspect by introducing a random state verification technology in a dynamic economy with private information. With some probability, an agent's skill level becomes known, allowing to punish misreporting agents. We demonstrate how deferring consumption can ease the provision of incentives. As a result, the marginal benefit of investment can be below its marginal cost, which suggests subsidizing savings.

with Miklos Koren.

A number of stylized facts have been documented about the extensive margin of trade---how many products countries or firms send to how many destinations. We argue that several of these facts are driven by the sparse nature of trade data and fail to identify the relevant model of the extensive margin. Typically the number of observations---that is, total shipments---is low relative to the number of possible classifications---e.g., destinations and product codes.

with Miklos Koren.

Exporters are few---less than one-fifth among U.S. manufacturing firms---and are larger than non-exporting firms---about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). We find that the basic Melitz model cannot simultaneously match the size and share of exporters given the observed distribution of total sales. Instead exporters are expected to be between 90 and 100 times larger than non-exporters.

with Stefania Albanesi.

Most Ramsey models prescribe that capital taxes should be zero in the long run (Chamley 1986, Judd 1985). We propose a new argument for Chamley-Judd result that relies on the government's ability to reallocate distortions over time. Our argument translates into the following principle: if it is possible for the government to front-load all distortions, there will be no permanent intertemporal wedge. The principle is very general and applies to a very large class of Ramsey models.

With Martin Bodenstein.

The Barro-Gordon inflation bias has provided the most influential argument for fixed exchange rate regimes. However, with low inflation rates widespread, credibility concerns seem no longer relevant. Why give up independent monetary policy to contain an inflation bias that is already under control? We argue that credibility problems do not end with the inflation bias and they are a larger drawback for flexible exchange rates than usually thought.