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(Paper written with Emmanuel Farhi and Oleg Itskhoki)

We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation one, a uniform increase in import tariff and export subsidy, and two, a value-added tax increase and a uniform payroll tax reduction. When the devaluations are anticipated, these policies need to be supplemented with a consumption tax reduction and an income tax increase. These policies have zero impact on fiscal revenues. In certain cases equivalence requires, in addition, a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union.

(Paper written with Alessandra Cassar and Giovanna D’Adda)

We designed an experiment to identify the causal effects of institutional quality on norms of societal cooperation and to study the interaction of institutions and culture in sustaining economic exchange. The experiment consists of four parts: First, an initial trust game followed by 10 rounds of a market game in which agents can trade honestly, cheat or opt out of trading, in the absence of any contract enforcement systems. Subjects are then randomly allocated to one of two institutional treatments: either a partial enforcement system where only those who buy protection receive justice; or an impartial enforcement system, which administers fair settlements. Finally, subjects play another trust game, identical to the first. We obtain data from 346 subjects from Northern and Southern Italy and Kosovo. Our main result is that an impartial legal enforcement system has a positive causal effect on trust and trustworthiness, suggesting that moral norms of cooperative behavior can result as a by-product of impartial institutions. Cultural origin, initial trust and trustworthiness influence opportunistic behavior in markets, but only in the absence of impartial institutions, suggesting that trust can also act as a substitute for formal enforcement in the absence of the latter.

(Paper written with Victor Couture and Matthew Turner)

We investigate the determinants of driving speed in large US cities. We first estimate city level supply functions for speed in an econometric framework where both the supply and demand for driving are explicit. These estimations allow us to calculate a city level index of driving speed and to rank cities by driving speed. Our investigation of the determinants of speed provide the foundations for welfare analysis. Our results suggest that large gains in speed may be possible if slow cities can emulate fast cities and that the deadweight losses from congestion are large.