Working Papers

Current Account and Trade Balance Dynamics in a Schumpeterian Small Open Economy with Domenico Ferraro and Pietro Peretto [Online Appendix] [Updated: June 2026]
This paper studies current-account and trade-balance dynamics in a small open economy with Schumpeterian innovation, firm entry, and finite-horizon households under two alternative views of the world, while maintaining an exogenous world interest rate. In the canonical intertemporal approach, where exports are treated as residual, net foreign assets and the trade balance are entirely demand-driven and insulated from innovation and growth dynamics. When exports are modeled as an autonomous source of demand, foreign assets become a forward-looking valuation variable jointly determined by export demand and the allocation of output among consumption, innovation, and firm entry. Through the valuation channel, external shocks, such as export-demand shocks and world interest rate shocks, affect firm size and, through Schumpeterian mechanisms, feed back into the economy’s net foreign asset position and trade balance.

Business Cycle, R&D, and Hysteresis: Searching for Asymmetries with Hedieh Shadmani, R&R at Applied Economics [Updated: May 2026]
In endogenous growth models where the research and development (R&D) level determines the growth rate of productivity, temporary changes in R&D cause permanent level effects, i.e. hysteresis. When positive and negative shocks move R&D symmetrically, an equally sized positive and negative shock produce R&D booms and busts that generate equal and opposite permanent level effects, so their long-run impacts cancel out. Asymmetries break this offsetting, allowing temporary shocks to influence long-run growth. Because private R&D is well known to be pro-cyclical, understanding whether these asymmetries exist is a necessary first step toward assessing how short-run fluctuations in R&D might translate into long-run growth effects. This paper tests for asymmetries in U.S. aggregate private R&D by applying a McKay-Reis duration and steepness analysis to characterize expansions and contractions in R&D, and endogenous threshold regressions to examine state-dependent pro-cyclicality. The main findings are duration asymmetries — longer expansions, although with low statistical significance —, and dependence on labor-market and financial conditions: R&D’s pro-cyclicality intensifies when unemployment is low or credit is abundant. These patterns highlight the importance of boom periods in shaping R&D dynamics and point to channels through which business cycle shocks could generate growth effects.