ALEXIS MILO

Home Address:   265 College St Apt 7L   New Haven, CT 06510   Tel: (203) 777-9336   Fax: (203) 645-8312 Office Address:   Department of Economics   Yale University   Box 208268   New Haven, CT 06520-8268   Fax: (203) 432-5779 Birth Date: January 31, 1973 Citizenship: Mexican

Fields of Concentration

International Economics Macroeconomics Financial Economics

Desired Teaching:

International Economics Macroeconomics Financial Economics

Comprehensive Examinations Completed:

May 2000 (Oral) Macroeconomics, International Economics May 1999 (Written) Microeconomic and Macroeconomic Theory

Dissertation Title:

Essays on International Capital Mobility and Investment

Committee:

Professor William C. Brainard Professor George J. Hall Professor Stefan Krieger

Expected Completion Date:

May 2002

Degrees:

Ph.D., Yale University, expected May 2002 M.Phil., Yale University 2001 M.A., Yale University 2000 B.A. in Economics (with Honors), Instituto Tecnológico Autónomo de México (ITAM), Mexico City, 1998

Fellowships, Honors and Awards:

Sasakawa Fellowship, 2001 Yale University Dissertation Fellowship, 2001 Consejo Nacional de Ciencia y Tecnología (CONACYT) Scholarship, 1998-2002 Banco de México Scholarship for Graduate Studies, 1998-2001 Banco Nacional de México (BANAMEX), Honorary prize to the best undergraduate dissertation, 1998

Teaching Experience:

Teaching Assistant - Undergraduate Introductory Macroeconomics, Yale University, Fall 2000, Spring 2001 Visiting Lecturer of Financial Economics, ITAM, Summer 2000

Research Experience:

Research Assistant for Professor William Brainard, Yale University, 2001 This research consisted on assessing the effects on taxation and school financing of the Equal Educational Opportunity Act of 1997 (Act 60) in Vermont. Assistant to the Editors of the Brookings Papers on Economic Activity, Brookings Institution, Washington, D.C., 2000. Research Fellow, ITAM – Centro de Investigación Económica, Mexico, Summer 2000 Developed a dynamic estimation of the coefficient of risk aversion implicit in the U.S. stock market using non-linear estimation procedures and high frequency data. Summer Internship, Banco de México, Mexico, Summer 1999 Construction and estimation of a two-sector model to determine the current account for Mexico. Analyst, Banco de México – Research Department, Mexico, 1995-1998 Worked with Alejandro M. Werner (chief economist) on a variety of projects about monetary and exchange rate policy issues in Mexico.

Papers:

"Capital Mobility and Consumption-Smoothing in a Two-Sector Model: The Case of Mexico," September 2001 [job market paper] "Is Risk Aversion Constant in Financial Markets? Some Evidence," August 2001. "Fiscal Policy as a Signal," (in progress). "International Reserves Accumulation through Exchange Rate Options in Mexico," (with Alejandro M. Werner), Banco de Mexico Working Papers 9801, 1998. Reedited in Monetaria Vol. 21(4), October 1998. "The Impact of Income Distribution on Long-Run Growth," July 1998 (in spanish)

Presentations:

Economics Seminar Series, Centro de Investigación Económica - ITAM, August 18, 2000 Seminar Series of the Economic Studies Division, Research Department of Banco de México, August, 1999

Professional Affiliations:

Mexican Association of Law and Economics (AMDE)

References:

Professor William C. Brainard Department of Economics Yale University Box 208268 New Haven, CT 06520-8268 Tel: (203) 432-3585 Fax: (203) 432-5779 E-mail: william.brainard@yale.edu Professor Stefan Krieger Department of Economics Yale University Box 208281 New Haven, CT 06520-8281 Tel: (203) 432-6519 Fax: (203) 432-6167 E-mail: stefan.krieger@yale.edu Professor George J. Hall Department of Economics Yale University Box 208268 New Haven, CT 06520-8268 Tel: (203) 432-3566 Fax: (203) 432-5779 E-mail: george.hall@yale.edu

Dissertation Abstract:

This dissertation consists of three essays. The first essay extends the literature on the determination of the optimal current account by considering the existence of non-tradeable (internationally) goods. Most studies, following Sachs (1982), view the current account as a mechanism for smoothing aggregate consumption across time. The optimal current account is found as the balance implied by the consumption path that solves the intertemporal allocation problem for the representative agent. Discrepancies between the predicted and the actual current account balances are taken to be a rejection of the model, suggesting imperfect capital mobility and/or other market disturbances. However, previous works attribute to the current account an extremely high consumption-smoothing ability by assuming implicitly that all goods can be traded internationally (one-sector models). I show that previous studies miss an important point in the characterization of the current account’s behavior by failing to consider the presence of non-tradeable goods. For example, under one-sector analyses, an expansion of non-tradeable output would entail an opportunity to run future current account deficits, which is clearly an erroneous conclusion since these goods cannot be exported and used to finance external borrowing. A large share of non-tradeable goods is found in many economies, implying a reduced ability of the current account to smooth consumption in many cases. I relax the assumption that all goods are homogenous and explore the role of imperfect substitutability among tradeable and non-tradeable goods. I first examine the implications of the extreme opposite assumption that no substitution in either consumption or production is possible between tradeable and non-tradeable goods. This is done using a two-sector version of the Sachs’ model, with one sector producing non-tradeables. The two-sector model constructed is estimated and tested for the case of Mexico in the period 1980-2000 using the Campbell and Shiller (1987) econometric methodology. Mexico is an interesting case because its economy has experienced significant expansions of the non-tradeable share of output that would, in a one-sector model, appear to justify large current account deficits, imbalances that in fact led to financial distress. The consumption-smoothing current account implied by the two-sector model does a better job of explaining the capital account, and revealing those times at which they were indications of imbalances that were associated with crises. I conclude that there is no evidence of imperfect capital mobility for the case of Mexico under the two-sector model. This supports the view that excessive capital mobility was present prior to the Mexican 1994/1995 crisis. The two-sector approach presented is particularly applicable for the case of Mexico. However, it may be of more general interest given the importance of non-tradeables for other open economies. In the second essay, I construct a model of signaling to address how a government can induce favorable expectations about its commitment to follow responsible fiscal policies. The model considers the presence of stochastic productivity shocks that introduce business cycles to this economy. In this context, a responsible fiscal policy is defined as a non-procyclical behavior of the marginal tax rates, i.e. the authority is frugal and does not increase taxes when bad times hit and runs unpopular surpluses in times of plenty. According to this framework, those governments perceived as having a strong commitment not to increase marginal rates in face of tax base contractions (recessions), can reduce fiscal uncertainty and, thus, promote higher rates of investment. I construct a finite horizon model with imperfect information and concave government preferences. Using Bayesian inference, investors can forecast accurately the government’s unknown degree of commitment to follow responsible fiscal policies. The idea is that the observed correlation between output and fiscal variables contain valuable information about the government’s type. An important result is that a separating equilibrium arises only when bad times hit, providing a good opportunity for a responsible government to signal its high type, inducing favorable expectations about future policies. I also conclude that the stage of the business cycle should be incorporated in the information set used to assess the quality of the signals observed to determine the government type. Investors should be aware that there exists a range of low government types that do not increase taxes in good times but would be willing to do so if bad times hit. This essay is motivated by recent empirical evidence showing that developed countries are characterized by non-procyclical fiscal policies while developing countries have followed procyclical ones. I do not attempt to establish a direction of causality between fiscal responsibility and economic development, but to analyze how a specific country's record on its fiscal behavior is likely to affect long run investment decisions. Finally, the third essay builds on existing literature on conditional asset pricing by estimating the parameters of the utility function that allow the consumption-based Capital Asset Pricing Model (CCAPM) conditions to hold at different points in time. A common task in the literature on Financial Economics has been to explicitly parametrize the representative investor/consumer utility function using the information on risk premia implicit in the structure of asset returns. Previous estimations have found preference parameters that imply an extremely high degree of risk aversion, which seems incompatible with other empirical findings, i.e., the equity premium puzzle. Moreover, those parameters have been considered stable through time. This essay challenges the apparent stability of such a parameter vector. I present preliminary results based on adaptive forecasting techniques, suggesting that significantly different parameter values that allow the canonical capital asset-pricing model to hold are found at different points in time for the U.S. stock market. The study explores two alternative ways to understand such a time-varying parameter vector. First, the attitude toward risk in financial markets may be changing due to shifts in preferences induced by exogenous shocks or news. This would help to understand asset prices co-movement, not explained by fundamentals, as shifts in the parameters of the investors’ stochastic discount factor. A second possible interpretation, points toward the incompleteness of the asset-pricing model used, which fails to consider either more sophisticated utility functions or the possibility of uninsured idiosyncratic risks, market frictions, and limited participation in financial markets. Following the approach of considering a more complete utility function, my work in progress is to determine whether significant changes in the attitude toward risk disappear when the possibility of habit-formation, as studied in Campbell and Cochrane (1999), is allowed.