Research

Working Papers
Monetary Policy Transmission Under Supply Chain Pressures: Pre-Pandemic Evidence From the US - with Sebastian Laumer

We investigate how supply chain conditions influence the transmission of monetary policy. Using a nonlinear local projection framework and a new index of supply chain conditions, we find that greater pressure on supply chains amplifies the standard effects of monetary policy on key macroeconomic variables. We argue that this is due to heightened financial frictions. Various measures of credit costs react more strongly to monetary policy when supply chain conditions are tight. The greater sensitivity of external finance premia in the high supply chain pressure state results in financially-constrained firms and households lowering their spending more following a contractionary monetary policy shock.

This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks' lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock's impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks' exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the EIP-related demand shock. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.

Employing the methodology put forward by Davis and Haltiwanger (1992) for the measurement of job reallocation, we construct measures of credit reallocation across firms in the U.S. states. We then exploit the staggered deregulation of the credit markets of the states of the eighties as a natural experiment to identify an exogenous shock to the process of credit reallocation. The analysis reveals that the credit market deregulation intensified inter-firm credit reallocation in the states, while leaving aggregate credit growth essentially unaltered. In turn, the increased dynamism in credit reallocation allowed to systematically transfer funds to more productive firms in a more flexible way.

This paper studies how changes in household credit affect small business lending. First, we build a closed economy model that examines two opposing channels: a negative crowding out effect and a positive collateral effect. Our analysis shows that, following a household credit expansion, the crowding out effect dominates and leads to an overall decline in firm borrowing. We test this empirically by exploiting the 1997 liberalization of home equity lending in Texas. The exogenous increase in household credit brought on by the liberalization results in a crowding out of business lending, as small business loan growth declines by roughly 20 percentage points. This negative effect is dampened in counties that experienced stronger house price growth, providing evidence of a subsidiary collateral effect.

This paper investigates international monetary spillovers to stock prices in Bangladesh, a frontier market that has been excluded from prior studies in the literature. Using daily stock price data for over 300 publicly traded firms in a high frequency framework, we find that contractionary monetary shocks originating from the US, euro area, and China lower stock prices, with Chinese monetary shocks having the largest impact. Contractionary shocks originating from India, on the other hand, lead to a statistically significant increase in stock returns. The positive response is driven by a small number of policy decisions. When these outlier decisions are removed from the sample, contractionary Indian monetary shocks lead to a decline in stock prices in line with spillovers from the other countries.

Publications
An Economic Analysis of Standard Reference Materials - with Michael J. Hall and Albert N. Link (working paper)
          Journal of Technology Transfer, pp 1-14, August 2022
The Deposits Channel Revisited - with Nimrod Segev (working paper) (code) (online appendix)
           Journal of Applied Econometrics, Vol 37(2), pp 450-458, March 2022
The International Spillover Effects of US Monetary Policy Uncertainty - with Aeimit Lakdawala and Timothy Moreland (working paper) (code) (online appendix)
           Journal of International Economics, Vol 133, 103525, November 2021
Bank Regulation and Monetary Policy Transmission: Evidence from the U.S. States Liberalization - with Aeimit Lakdawala and Raoul Minetti (working paper) (code)
European Economic Review, Vol 138, 103859, September 2021
Monetary Policy, Bank Competition and Regional Credit Cycles: Evidence from a Quasi-Natural Experiment - with Nimrod Segev (working paper)
        Journal of Corporate Finance, Vol 64, 101494, October 2020
Federal Reserve Private Information and the Stock Market - with Aeimit Lakdawala (working paper) (code)
Journal of Banking & Finance, Vol 106, pp 34-49, September 2019
Labor Market Effects in the Austrian Business Cycle Theory
           Quarterly Journal of Austrian Economics, Vol 20 (3), pp 224-254, Fall 2017

Work in Progress
The Impact of Quantitative Tightening on International Capital Flows