Esteban Verdugo

The Expectations of Hand-to-Mouth (JMP)

with Mathieu Pedemonte

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Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience

with Mathieu Pedemonte and Hiroshi Toma

Conditionally Accepted, The Economic Journal

We show that inflation expectations are heterogeneous and depend on past individual experiences. We propose a diagnostic expectations-augmented Kalman filter to represent consumers' heterogeneous inflation expectations-formation process, where heterogeneity comes from an anchoring-to-the-past mechanism. We estimate the diagnosticity parameter that governs the inflation expectations-formation process and show that the model can replicate systematic differences in inflation expectations across cohorts in the US. We introduce this mechanism into a New Keynesian model and find that heterogeneous expectations anchor aggregate responses to the agents' memory, making shocks more persistent. Central banks should be more active to prevent agents from remembering current shocks far into the future.

Trade Credit and Collateral Market Valuation

Using firm-level time-series data from the US, I study the relationship between firms' collateral value and their trade credit linkages. Exploiting local variations in real estate prices as shocks to the collateral value of firms holding real estate, I find that a rise in the collateral market value relative to the capital level of firms increases their share of total costs financed via trade credit. These firms also increase the share of total sales made on a trade credit basis. As a net effect, the rise in the relative valuation of their physical assets makes firms net lenders from a trade credit perspective. This result is consistent with debt-related results showing that short-term borrowings of these firms rise with the relative market value of their collateral, including short-term bank credit. These effects are stronger in firms more likely to be financially constrained. They can be interpreted as evidence of the existence of borrowing constraints associated with firms' collateral value in a trade credit context, highlighting the relevance of collateral value in easing ex-ante financing and mitigating credit market frictions.

Graduate Student Instructor, University of Michigan - Michigan, US

Lecturer, Universidad Tecnica Federico Santa Maria - Santiago, Chile

Teaching Assistant, Universidad de Chile - Santiago, Chile