faculty
Professors Eeckhout and Galí awarded ERC Advanced Grants
Two BSE Affiliated Professors, Jan Eeckhout and Jordi Galí, have been selected as recipients of Advanced Grants from the European Research Council.
The ERC awards "Advanced Grants" to exceptional established research leaders so that they can pursue ground-breaking, high-risk projects that open new directions in their research fields. As BSE Director Teresa García-Milà said earlier this year, "The ERC Grants are extremely important and beneficial for the BSE research community. They help to position the School at the forefront of scientific research in Europe. Such grants create the conditions needed to further develop frontier research and to attract highly qualified researchers to the community."
Project proposals are evaluated by selected international peer reviewers, and scientific excellence is the sole criterion. This year the program received over 2,000 applications and awarded 284 grants to senior research leaders in 18 different European countries.
This is the second ERC Advanced Grant for Prof. Galí and the first for Prof. Eeckhout, who was previously a recipient of the ERC Starting Grant, a parallel ERC initiative that supports the work of excellent researchers who are establishing their research careers. Including this year's latest results, a total of 13 ERC grants have been awarded to 11 BSE Affiliated Professors since the beginning of the program.
Affiliated Professors Jan Eeckhout and Jordi Galí will each receive a five-year ERC Advanced Grant.
Labor Market Risk And Skill Diversity: Implications For Efficiency, Policy, and Estimation
Jan Eeckhout (UPF and BSE), principal investigator
Labor market risk and skill diversity are central features of the labor market. Arguably, employment risk is one of the biggest sources of uncertainty most individuals face in their life time. Likewise, exploiting the synergies and complementarities between differentially skilled workers is amongst the greatest challenges to firms’ hiring decisions. The objective of this research proposal is to analyze the efficiency properties of risk and skill diversity, and as a consequence, evaluate the role for policy. In order to establish the implications of risk and diversity, I elaborate on concrete applications and on estimation in different labor market settings.
In the presence of Labor Market Risk, I address the question how asset holdings exacerbate wage inequality. Workers are exposed to the risk of unemployment, and workers with few assets will trade off the lower riskiness of a job against lower wages. Different asset holdings translate into different wages, thus amplifying inequality due to assets with wage inequality. When workers are heterogeneous in skills, the tradeoff between risk and earnings varies both by skill and assets. The proposed analysis of unemployment risk can solve for an equilibrium model that incorporates the distribution of assets, while at the same time allowing for heterogeneity in skills. This permits us to trace out an iso-wage locus that can be tested empirically. There is no doubt that fully understanding the asset-skill tradeoff is of primary importance for labor market policy. I then study a different angle of labor market risk, namely risk that is due to matching stochastic types, which introduces ex post mismatch. Ex ante, agents match based on the distribution of possible realizations of ex post types. This model is conducive to identification of complementarities between workers and the value of risk sharing.
Skill Diversity and the optimal allocation of differentially skilled workers across firms of different productivity is central to labor market efficiency. Motivated by the recent availability of better labor market data, we study the role of large firms. The productivity of firms crucially depends on the right composition of those differentially skilled workers. Firms spend considerable resources in finding the right composition of their workforce. The aim of this research is to embed the optimal worker composition within firms into standard macro environments to study technological change (skill-biased versus quantity-biased technological change) and unemployment, information aggregation and spatial diversity of skills. I show how this allows us to identify complementarities between differently skilled workers in large firms, which has important implications for efficiency and policy.
Monetary Policy and Asset Price Bubbles
Jordi Galí (CREI, UPF and BSE), principal investigator
The proposed research project seeks to further our understanding on two important questions for the design of monetary policy:
- What are the effects of monetary policy interventions on asset price bubbles?
- How should monetary policy be conducted in the presence of asset price bubbles?
The first part of the project will focus on the development of a theoretical framework that can be used to analyze rigorously the implications of alternative monetary policy rules in the presence of asset price bubbles, and to characterize the optimal monetary policy. In particular, I plan to use such a framework to assess the merits of a “leaning against the wind” strategy, which calls for a systematic rise in interest rates in response to the development of a bubble.
The second part of the project will seek to produce evidence, both empirical and experimental, regarding the effects of monetary policy on asset price bubbles. The empirical evidence will seek to identify and estimate the sign and response of asset price bubbles to interest rate changes, exploiting the potential differences in the joint behaviour of interest rates and asset prices during “bubbly” episodes, in comparison to “normal” times. In addition, I plan to conduct some lab experiments in order to shed some light on the link between monetary policy and bubbles. Participants will trade two assets, a one-period riskless asset and a long-lived stock, in an environment consistent with the existence of asset price bubbles in equilibrium. Monetary policy interventions will take the form of changes in the short-term interest rate, engineered by the experimenter. The experiments will allow us to evaluate some of the predictions of the theoretical models regarding the impact of monetary policy on the dynamics of bubbles, as well as the effectiveness of “leaning against the wind” policies.
BSE Affiliated ERC Grant Recipients and Projects
 | Fernando Broner Starting Grant, "International Capital Flows and Emerging Markets" |
 | Vasco Carvalho Starting Grant, "Production Networks in Macroeconomics" |
 | Jan Eeckhout Starting Grant, "Labor market factors influencing job selection and salary" Advanced Grant, "Labor Market Risk and Skill Diversity: Implications for Efficiency, Policy, and Estimation" |
 | Jordi Galí Advanced Grant, "Labor Markets, Economic Fluctuations and Monetary Policy" Advanced Grant, "Monetary Policy and Asset Price Bubbles" |
 | Gino Gancia Starting Grant, "Globalization, Optimal Policies and Growth" |
 | Nicola Gennaioli Starting Grant, "Institutions and Globalization" |
 | Nezih Guner Starting Grant, "Changing Families: Causes, Consequences and Challenges for Public Policy" |
 | Albert Marcet Advanced Grant, "Asset Prices and Macro Policy when Agents Learn." |
 | Marta Reynal Starting Grant, "Causes, consequences, and prevention mechanisms of social conflicts" |
 | Jaume Ventura Advanced Grant, "Asset Bubbles and Economic Policy" |
 | Joachim Voth Advanced Grant, "Asset returns in times of political and social turmoil" |