Rafael S. Gonçalves

2025

1. The Macroeconomic and Welfare Benefits of Building Resilience in Disaster-Prone Developing Countries

   Yehenew Endegnanew, Rafael Gonçalves, Samuel Mann, and 2 more authors

   Jan 2025

   Abstract URL

   Natural disasters often have high economic costs, setting back years of investment in developing countries. This paper develops a multi-sector DSGE model to study the macroeconomic and welfare implications of financing resilience-building using different fiscal instruments. The model includes developing countries’ macroeconomic and distributional features, such as a large unproductive rural sector, an incomplete credit market, and an informal sector. The results indicate that investing in resilience capital in a disaster-prone country improves welfare despite its high economic cost, but the financial instrument used to mobilize revenue matters.

2. Inattention, Inflation, and Networks

   Rafael Gonçalves, and Ina Hajdini

   Mar 2025

   Torres Prize for Best Third-Year Paper. Draft available upon request.

   Abstract

   We study the determinants and macroeconomic implications of heterogeneity in firms’ inflation expectations, focusing on the role of industry differences. We develop a rational inattention model of price-setting firms within a production network. In equilibrium, firms’ inflation expectations are determined by (i) their attention to industry-specific marginal costs, (ii) the degree of comovement between marginal costs and aggregate inflation, and (iii) the realized marginal cost. Moreover, inattention compounds downstream in the production network. At the macroeconomic level, heterogeneous attention alters the aggregate effects of monetary policy and productivity shocks, hinging on the correlation between attention levels and responsiveness of marginal costs to those shocks. Empirically, we use a comprehensive dataset of US firms’ inflation expectations and combine it with industry-level information to test the theory. We find supportive evidence that industry characteristics, such as its degree of upstreamness, the volatility of sector-specific productivity, and realized marginal costs, influence firms’ attention to inflation.

2024

1. Expectations and Frictions: Lessons from a Quantitative Model with Dispersed Information

   Rafael Gonçalves, and Marcel Ribeiro

   Sep 2024

   Abstract PDF Appendix

   This paper examines the macroeconomic implications of information frictions within a quantitative business cycle model. We develop a general solution method that allows enriching a standard medium-scale DSGE model with dispersed information. We estimate the model using Bayesian methods, incorporating comprehensive macroeconomic and expectation data, and revisit crucial questions about business cycles. Expectations data identifies strong information frictions, which dampen general equilibrium effects and change the relative importance of various shocks in driving business cycles. We find that information frictions complement standard inertial frictions rather than being alternatives. The former is crucial for generating sluggishness in inflation, whereas the latter is important for inertia in real macroeconomic aggregates.