Rubén Domínguez- Díaz

Working Papers

The Macroeconomic Effects of Unemployment Insurance Extensions: A Policy Rule-Based Identification Approach [PDF]

We assess the macroeconomic effects of unemployment insurance (UI) extensions in the US through a novel identification scheme based on the design of the UI policy rule. Our approach exploits differences in the effects of demand shocks across US states with different responses in UI duration.  Our results indicate that UI extensions have a significant stabilization role.  We then show that a New Keynesian small-open-economy model with imperfect insurance against unemployment aligns with our empirical findings. Finally, we use the model to recover the implied UI multiplier, quantify the different transmission channels of UI extensions, and uncover their union-wide effects.

Precautionary Savings and Financial Frictions (Job Market Paper)  [PDF]  

Financial frictions not only impair lending, but also the expansion of the funding side of banks’ balance sheets. They restrict the supply of bank-issued demand deposits, which are the dominant liquid asset in households’ portfolios. Tight financial conditions, thus,  render economies less resilient to shocks that lead households to demand more liquid savings. I first show empirically that one such shock, a shock to household income uncertainty, leads to a deeper recession and a muted creation of liquid deposits when financial conditions are tight. Next, I rationalize this in a two-asset New Keynesian model with heterogeneous households and a leverage constraint in the banking system that constrains liquidity transformation. A binding leverage constraint impairs the intermediation of precautionary savings, dampens the rise of both bank credit and liquid deposits, and leaves the increased demand for liquidity unsatisfied. This, finally, leads to a marked fall in household consumption.

Hiring Stimulus and Precautionary Savings in a Liquidity Trap [PDF]

Employment stabilization, and hence firms' hiring, is fundamental for households' income and consumption. This means that stabilization policies targeted at firms spill over to the demand side of the economy. The current paper shows that the demand-side effects can render supply-side policies effective, even if conventional monetary policy is constrained. In a New Keynesian model with equilibrium unemployment and incomplete markets, the paper looks at a hiring subsidy that stimulates employment. Households' desire to accumulate precautionary savings falls, raising consumption and aggregate demand. Calibrating the model to the US, the ensuing increase in inflation renders the hiring stimulus effective precisely when the central bank cannot further support aggregate demand. Instead, absent idiosyncratic risk, and thus the expansionary demand-side effects, the hiring stimulus is crowded-out.

Green energy transition and vulnerability to external shocks [PDF]

We build an endogenous growth model with imported dirty energy, domestically produced clean energy, and carbon taxes to examine the macroeconomic effects of a green energy transition. Calibrating the model to Spain, we analyze the impact of carbon tax increases on long-term outcomes and the ability of the green transition to reduce the vulnerability of the economy to external energy price shocks. In the long run, we replicate standard results from the literature that imply that, while carbon taxes lead to modest long-term GDP losses, these are partially offset by endogenous improvements in energy efficiency and clean energy investment. Our main contribution is that we find that the green transition may bring significant short-run benefits: as the clean energy share rises from 26\% to 86\%, the economy’s vulnerability to international dirty energy price shocks declines sharply, reducing the GDP impact from -0.43\% to -0.08\%. We show that the decoupling of clean energy prices from dirty energy prices, driven by the carbon tax, plays a critical role in insulating the economy from external shocks.

Publications

Fiscal Stimulus and Productivity: simulating the NGEU program with an endogenous growth model [PDF] 

(Forthcoming, SERIEs)

This paper introduces an endogenous growth general equilibrium model of firm dynamics and innovative investment for the Spanish economy that allows a better understanding of the medium-term effects of economic policies and shocks. We calibrate the model using both aggregate and firm-level data. We then use the model to assess the macroeconomic consequences of the different components of the Next Generation EU (NGEU) program, including public investment, private capital transfers, and innovative investment transfers. According to our baseline simulation, the NGEU funds significantly foster economic activity, with annual GDP growth increasing between 0.08 and 0.13 percentage points over the period of NGEU funds disbursement. In particular, we find that one of the key drivers of these output gains is the endogenous response of productivity to the fiscal stimulus. Among the different policy instruments, we find that innovation transfers deliver the largest effects on aggregate output, only matched by highly efficient public investment.