Working Papers

2024

1. Credit Limits and Consumption Behavior over the Life Cycle

   César Salinas

   May 2024

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   This paper studies the role of time-varying credit limits through the lens of a life cycle incomplete markets model calibrated for the U.S. Changes in credit card limits are explained by observable household characteristics and the estimated unobservable variation is quite large. The quantitative exercise shows that even though young households are more indebted in an economy with stochastic borrowing limits, aggregate consumption is not greatly affected by transitory or persistent shocks of this type. However, in the presence of these shocks, households lose the ability to self-insure against other uninsurable idiosyncratic shocks, e.g., labor income shocks. A disaggregated analysis shows that the loss of self-insurance capacity is mainly explained by the effects that stochastic borrowing limits have on the wealth distribution, the precautionary savings channel households have to face unexpected risks.

2. Informality and Wealth Distribution: An Heterogeneous Agent Model

   Hamilton Galindo ,  Alan Ledesma ,  César Salinas , and 1 more author

   (submitted), Feb 2024

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   We postulate a continuous-time heterogeneous agent model that incorporates four key characteristics of informality: high informality size, interest rate premium, exemption from taxes, and greater risk aversion of informal agents. We use this framework to study the implications of informality for wealth and consumption distribution. Our results align with empirical research, showing that a substantial informal sector reduces overall median wealth and consumption levels while increasing their dispersion. We also identify differentiated contributions to this result from each of the four features of informality. Greater informality size and higher risk aversion among informal agents raise wealth dispersion, while a higher interest rate premium among informal agents lessens this statistic. Informal tax evasion, on the other hand, has only minor impacts on these results. This model can be extended to provide insights for designing economic policies in emerging and developing countries.

2022

1. The Impact of the Uncertainty in Bank Lending Standards

   César Salinas

   Apr 2022

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   This paper examines the macroeconomic consequences of credit uncertainty using a structural vector autoregression model with stochastic volatility (SVAR-SV). This specification has the advantage of identifying the time-varying variance of credit supply shocks using standard identification schemes. Credit supply conditions in the U.S. is captured by the banks’ reports on how credit standards for approving loans have change over time (Bank Lending Standards). The analysis shows that the volatility of macro and financial variables rises in response to an increase in the variance of credit shocks. Moreover, both the credit level and volatility shocks explain more than 10 percent of the FEV of real GDP.

2021

1. Epidemics and Informality in Developing Countries

   César Salinas

   Sep 2021

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   I study the role of informal markets to explain economic and demographic variables during a pandemic. I extend the so-called SIR-macro model with demand and supply effects to study how the size of the informal sector impacts the ability of developing countries to respond to the COVID-19 epidemic. I calibrate the extended SIR-model with formal and informal sectors for a typical developing country and assume that lockdown policies are useful to control the health crisis but these are less effective in economies with large informal markets. As a result, infection and death rates do not decrease as much as formal economies, and since informal activities are not counted in the calculation of the GDP, this exacerbates the size of the recession. To generate results similar to those of an economy with only formal markets, the economy with informal markets must implement more severe containment policies.

2015

1. Foreign Capital and Economic Growth in Emerging Markets: are Foreign Aid and Foreign Direct Investment Substitutes?

   Micaela Chuquilín ,  César Salinas ,  and  Diego Winkelried

   Dec 2015

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   This paper studies the short-rum and long-run effects of foreign aid and foreign direct investment on economic growth in emerging markets. Upon applying the so-called Pooled Mean Group estimator to an unbalanced panel for 94 countries over the period 1960-2012, we find a positive and significant long-run relationship between these two types of foreign capital and growth. We then enquire which type of foreign flow is more effective to stimulate economic growth, and find that both effects are not statistically different in various dynamic specifications and robustness checks. This finding may account for a possible substitutability relationship between foreign aid and foreign direct investment in the long-run. An implication is that what matter for growth in emerging markets is the aggregate amount of foreign capital, rather than its composition.