Alessandro T. Villa

Households choose whether to work or become entrepreneurs, privately knowing their productivity in both occupations.

With @nicoloceneri, Pino, and Nicolas, we use lotteries to cast this multidimensional screening problem as an LP, solved using Gurobi + constraint generation.

How do a handful of strategic, forward-looking producers shape capital accumulation and prices?

Happy to share that our paper with Fabio Bertolotti (@EconFaber) and Andrea Lanteri (@drewkoke) is now online at the Journal of Monetary Economics!

doi.org/10.1016/j.jmon…

Very happy to share that our paper “Mind the Gap: The Market Price of Financial (In)Flexibility” has been accepted for publication in the Journal of Finance!
Joint work with @FilippoIppolito, Claudio Tebaldi, and @steri_roberto.

We develop a model of firm dynamics in which firms make dynamic investment and borrowing choices and face endogenous default. The key mechanism is financial inflexibility: because adjusting debt is costly, firms can remain above or below their target leverage for extended periods.

Combining the model with the data, we show that the weak empirical link between leverage and equity risk premia can be explained by leverage gaps: what matters is not simply how much debt a firm has, but also how far its leverage is from target.

Advances in artificial intelligence appear to be driving faster productivity growth, which has important implications for how central banks set interest rates. Together with Gadi Barlevy, @JonasDMFisher, and Will Pennington, we use a theoretical framework to show that if productivity gains are anticipated, monetary policy may need to tighten to prevent overheating, while unanticipated gains could justify lowering rates. Ultimately, the response of monetary policy depends on whether productivity growth is expected or comes as a surprise, highlighting the nuanced relationship between technological progress and monetary policy.

chicagofed.org/publications/c…

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New paper! We argue that, in the presence of a progressive tax system, a shift from inflationary financing to debt financing leads to debt accumulation by top earners — the saving glut of the rich.
With @Francesco_Bia, @nicoloceneri & @LeonardoMelosi
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