Pablo Cuba-Borda

Department of Economics
University of Maryland
College Park, MD 20742

Graduate Program:

Undergraduate Program:


What Explains the Great Recession and the Slow Recovery? (Job Market Paper) [pdf]

This paper studies aggregate dynamics near the zero lower bound (ZLB) of nominal interest rates in a medium-scale New Keynesian model with capital. I solve a quantitatively realistic model of the U.S. economy with a ZLB constraint and use Sequential Monte Carlo methods to uncover the shocks that pushed the U.S. economy to the ZLB during the Great Recession. I investigate the interaction between shocks and frictions in generating the contraction of output, consumption and investment during 2008:Q3- 2013:Q4 and find that a combination of shocks to the marginal efficiency of investment and to households' discount factor generated the prolonged liquidity trap observed in this period. A comparison between these two sources suggests that investment shocks played a more important role during this period. Fiscal and monetary policy stimulus help explain why the U.S. did not fall into a deflationary spiral despite a binding zero bound.

Presented at: Federal Reserve Bank of Atlanta.

Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries. With Boragan Aruoba (UMD) and Frank Schorfheide (UPenn) [pdf]


We propose and solve a small-scale New-Keynesian model with Markov sunspot shocks that move the economy between a targeted-inflation regime and a deflation regime and fit it to data from the U.S. and Japan. For the U.S. we find that adverse demand shocks have moved the economy to the zero lower bound (ZLB) in 2009 and an expansive monetary policy has kept it there subsequently. In contrast, Japan has experienced a switch to the deflation regime in 1999 and remained there since then, except for a short period. The two scenarios have drastically different implications for macroeconomic policies. Fiscal multipliers are about 20% smaller in the deflationary regime, despite the economy remaining at the ZLB. While a commitment by the central bank to keep rates near the ZLB doubles the fiscal multipliers in the targeted-inflation regime (U.S.), it has no effect in the deflation regime (Japan).

Presented at: Boston College (by co-author) , Federal Reserve Bank of Chicago (by co-author) , WB-IMF seminar (by co-author), Eleventh Annual Fall DSGE Workshop (by co-author)

Liquidity, Asset Pledgeability and Business Cycles

Working paper

During recessions households accumulate part of their wealth in very liquid assets like money and saving and time deposit accounts. The financial crisis of 2007 was special in this dimensions with households holding about four times more liquid assets that in previous episodes. Using a model that incorporates the role for liquid assets I investigate the effect of shocks to liquidity to explain the dynamics between output, inflation and the demand for
liquid assets. I use a small-scale New Keynesian model estimated with Bayesian methods to show that liquidity frictions can amplify the effect of other sources of economic fluctuations, in particular the role of investment specific shocks. However shocks to the pledge-ability of capital have a very small contribution to aggregate fluctuations.

Presented at: 2013 Bolivian Conference in Development Economics.