Mathieu Taschereau-Dumouchel

  • Assistant Professor of Economics
  • Jain Faculty Fellow

Macroeconomics, Labor Economics, Networks

Working Papers

Cascades and Fluctuations in an Economy with an Endogenous Production Network

This paper proposes a simple theory of production in which the network of input-output linkages is endogenously determined by the decision of the firms to operate or not. Since producers benefit from having multiple suppliers, the economy features complementarities between the operating decisions of nearby firms. As a result, tightly connected clusters of producers emerge around productive firms. In addition, after a firm is hit by a severe shock, a cascade of shutdowns might spread from neighbor to neighbor as the network reorganizes itself. While well-connected firms are better able to withstand shocks, they trigger larger cascades upon shut down, a prediction confirmed by U.S. data. The theory also predicts how the shape of the network interacts with the business cycle. As in the data, periods of low economic activity feature less clustering among firms, and are associated with thinner tails for the degree distributions. Finally, allowing the network to reorganize itself in response to idiosyncratic shocks leads to substantially smaller variations in aggregate output, suggesting that endogenous changes in the shape of the production network have a significant impact on the aggregation of microeconomic shocks into macroeconomic fluctuations.

The Union Threat

This paper develops a search theory of labor unions in which the possibility of unionization distorts the behavior of nonunion firms. In the model, unions arise endogenously through a majority election. As unionized workers bargain collectively with the firm, unionization compresses the wage distribution and lowers profits. To prevent unionization, nonunion firms distort the skill composition of their workforce by over-hiring high-skill workers, who vote against the union, and under-hiring low-skill workers, who vote in its favor. Because of decreasing returns to labor, this change in hiring lowers output while reducing the range of wages paid. In the calibrated economy, removing the threat of unionization, by freezing the union status of firms, reduces unemployment and increases output and the variance of wages. Removing, in addition, all unions from the economy leads to a larger increase in wage inequality but does not further affect output and unemployment. These results suggest that the threat that unionization exerts on nonunion firms, more than the fact that some firms are actually unionized, is the main channel through which unions affect output and unemployment in the U.S. economy.

Aggregate Demand and the Dynamics of Unemployment

We introduce an aggregate demand externality into the Mortensen-Pissarides model of equilibrium unemployment. Because firms care about the demand for their products, an increase in unemployment lowers the incentives to post vacancies which further increases unemployment. This positive feedback creates a coordination problem among firms and leads to multiple equilibria. We show, however, that the multiplicity disappears when enough heterogeneity is introduced in the model. In this case, the unique equilibrium still exhibits interesting dynamic properties. In particular, the importance of the aggregate demand channel grows with the size and duration of shocks, and multiple stationary points in the dynamics of unemployment can exist. We calibrate the model to the U.S. economy and show that the mechanism generates additional volatility and persistence in labor market variables, in line with the data. In particular, the model can generate deep, long-lasting unemployment crises.​

Coordinating Business Cycles

We develop a quantitative theory of business cycles with coordination failures. Because of demand complementarities, firms seek to coordinate production and multiple equilibria arise. We use a global game approach to discipline equilibrium selection and show that the unique equilibrium exhibits two steady states. Coordination on high production may fail after a large transitory shock, pushing the economy in a quasi-permanent recession. Our calibrated model rationalizes various features of the Great Recession. Government spending, while generally harmful, can increase welfare when the economy is transitioning between steady states. Simple subsidies implement the efficient allocation.

Learning to Coordinate Over the Business Cycles

We study a class of dynamic global games where agents learn from both exogenous and endogenous sources of information. Because endogenous information sources (quantities, prices) aggregate private information in a non-linear fashion, the amount of information provided in each period varies with the outcome of the coordination game. We show that a particular type of information cascades arise in this context. The more similar are the actions taken by agents, the less informative are endogenous signals. As a result, the economy may display bubble-like behavior with exuberant periods of economic activity followed by brutal crashes; as well as slow recoveries from crises, as agents take time to learn the new fundamentals.

Optimal Redistributive Policy in a Labor Market with Search and Endogenous Participation

We study optimal redistributive policies in a frictional model of the labor market. Ex-ante heterogeneous agents choose how much to search in a labor market characterized by a matching technology. We first derive efficiency results and provide policies to decentralize the optimal allocation. We then solve the mechanism design problem of a government with redistributive motives and limited information about agents. A large emphasis is put on the general equilibrium effects of policies on wages and job creation. We show that the optimal policy can be implemented by a non-linear income tax on workers along with an unemployment insurance program. We calibrate our model to the US economy and characterize the welfare gains from the optimal policy and its effects on output, search, wages and unemployment distribution. Our findings suggest that optimal policies often feature a generous unemployment insurance along a negative income tax that efficiently raises the participation and employment of low-income earners.

Publications and Accepted Papers

Short-Run Pain, Long-Run Gain? Recessions and Technological Transformation

Recent empirical evidence suggests that skill-biased technological change accelerated during the Great Recession. We use a neoclassical growth framework to analyze how business cycle fluctuations interact with a long-run transition towards a skill-intensive technology. In the model, the adoption of new technologies by firms and the acquisition of new skills by workers are concentrated in downturns due to low opportunity costs. As a result, shocks lead to deeper recessions, but they also speed up adoption of the new technology. Our calibrated model matches both the long-run downward trend in routine employment and key features of the Great Recession.

Uncertainty Traps

We develop a theory of endogenous uncertainty and business cycles in which short-lived shocks can generate long-lasting recessions. In the model, higher uncertainty about fundamentals discourages investment. Since agents learn from the actions of others, information flows slowly in times of low activity and uncertainty remains high, further discouraging investment. The economy displays uncertainty traps: self-reinforcing episodes of high uncertainty and low activity. While the economy recovers quickly after small shocks, large temporary shocks may have long-lasting effects on the level of activity. The economy is subject to an information externality but uncertainty traps may remain in the efficient allocation. Embedding the mechanism in a standard business cycle framework, we find that endogenous uncertainty increases the persistence of large recessions and improves the performance of the model in accounting for the Great Recession.


Discount Rates and Employment Fluctuations

  • by Jaroslav Borovicka and Katarina Borovickova, June 2016, (slides)

A Model of the Reserve Asset

  • by Zhiguo He, Arvind Krishnamurthy and Konstantin Milbradt, January 2016, (slides)

Uncertainty, Wages, and the Business Cycle

  • by Matteo Cacciatore and Federico Ravenna, November 2015, (slides)

Who Do Unions Target? Unionization Over the Life-Cycle of U.S. Businesses

  • by Emin Dinlersoz, Jeremy Greenwood and Henry Hyatt, January 2015, (slides)

Default Risk and Aggregate Fluctuations in an Economy with Production Heterogeneity

  • by Aubhik Khan, Tatsuro Senga and Julia K. Thomas, June 2014, (slides)


ECON 3040 - Intermediate Macroeconomic Theory

  • Cornell Undergraduates, Spring 2018

ECON 6130 - Macroeconomics

  • Cornell PhD, Fall 2017

FNCE 613 - Macroeconomics and the Global Economic Environment

  • Wharton MBA, Spring 2016 and 2017

FNCE 924 - Macroeconomics

  • Wharton PhD, Spring 2012, 2013 and 2014

FNCE 101 - Monetary Economics and the Global Economy

  • Wharton Undergraduates, Spring 2013 and 2014