Research

Abstract: I examine the importance of the quality margin as an insurance mechanism against aggregate shocks, and more specifically the heterogeneous behaviour across household’s income distribution. Using household scanner data for Germany, I analyse the extent to which households trade down in the quality goods. First, I document that, on average, lower income households tend to purchase lower quality goods. Furthermore, in the aftermath of an aggregate shock, lower income households exhibit a low propensity to trade down, presumably due to a limited capacity to do so. This is in contrast to the rest of households, who appear to trade further down in the quality of goods. To understand the general equilibrium implications of this shift in aggregate demand towards lower quality goods, I employ a shift-share research design. I find that an aggregate demand shift toward lower quality goods during a recession leads to relatively higher prices of low quality goods compared to the price of higher quality varieties. 

Abstract: We develop a test for household risk sharing that imposes minimal assumptions on the financial market structure and that accounts for consumption heterogeneity, allowing for both aggregate and idiosyncratic tradeable risks to be diversified. Using household-level scanner data from Euro area regions and United Kingdom, and developing matching model for financial market participation, we test the theoretical predictions in the data. We make three key contributions: first, establishing a theoretical framework connecting regional-level real exchange rate movements with consumption dynamics and risk; second, empirically testing these predictions; and third, exploring the role of limited participation in financial markets in aggregate fluctuations. The empirical results reveal that effective sharing of tradeable risk is primarily observed among financial market participants and across regions within the monetary union only.

Abstract: The British public’s vote in June 2016 to leave the European Union ushered in a period of heightened uncertainty about the future of the commercial relations between the UK and EU. We examine how British firms adapted to the uncertain commercial environment through establishing new EU subsidiaries and operations. We document three stylized facts. First, there was little change in the overall sectoral composition of parent firms establishing EU operating bases before and after the Brexit referendum. However, second, the share of British headquarters that established a subsidiary outside their primary sector of operation increased after June 2016. Third, the proportion of subsidiaries established by small British firms (e.g. firms with fewer than 15 employees)  increased substantially after the Brexit referendum vote. We also examine the intertemporal variation in the number of newly-established subsidiaries of British firms in the EU from 2016 to 2021 and find that more subsidiaries were established whenever uncertainty over the future commercial relationship between the UK and EU was higher. Finally,  a difference in differences analysis documents that British parent firms establishing a first subsidiary after the referendum vote had lower employment, turnover, profit, and productivity growth relative to British parent firms establishing a first subsidiary between 2012 and the first half of 2016.