Working Papers
Monetary Policy Transmission Under Supply Chain Pressure - with Sebastian Laumer (revision requested)
- This study examines how global supply chain conditions influence the transmission of US monetary policy during the pre-pandemic period. We find that elevated supply chain pressures amplify the standard effects of monetary policy shocks on macroeconomic outcomes. For instance, peak effects on output and prices are 160 and 30 percent larger, respectively, when supply chains are stressed. This amplification arises from an intensification of the credit channel, as financial variables related to the cost of external finance become more sensitive to monetary policy under heightened supply chain pressures. For example, the peak response of the excess bond premium doubles in magnitude. Firm-level estimates further support this conclusion, with investment becoming three times more responsive to monetary policy shocks when supply chains are strained. When extending the sample beyond March 2020, the amplification effect becomes larger and occurs at longer lag lengths.
- 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.
- This paper studies the relationship between household credit and small business loans using the 1997 liberalization of home equity lending in Texas. First, we build a closed economy general equilibrium 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 result empirically by exploiting the liberalization of home equity loans 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.
- Krishnamurthy and Lustig (2019) propose a convenience yield channel of monetary policy, whereby Federal Reserve decisions affect global financial variables via their influence on the convenience yield of dollar-denominated safe assets. We document that the convenience yield channel contributes to the spillover of Fed policy to international stock markets. Following a surprise monetary tightening, the convenience yield differential between US Treasuries and equivalent foreign government bonds grows. A monetary policy-induced increase in the convenience yield differential, in turn, results in a decline in international stock indexes. This decline cannot be explained by movements in interest rates or exchange rates, but instead seems likely to be driven by a higher equity risk premium. While policy-induced changes in convenience yield differentials contribute to international spillovers of Fed policy, a wider differential (in levels) can help to insulate foreign markets from the cumulative impact of Fed policy decisions.
- This paper investigates the interplay between financial frictions, organizational innovation and managerial restructuring among Italian small and medium-sized enterprises during the Great Financial Crisis. Using firm-level data from the VIII UniCredit survey, we find that financial constraints spurred managerial and organizational innovation, suggesting a Schumpeterian-like response to the downturn. The analysis reveals that this effect was stronger for relatively young and small firms operating in services industries. Limited entrenchment with financial institutions and propensity to engage in financial innovation facilitated firms’ organizational transformations. While we find no evidence of an across-the-board effect of public support on firms’ organizational and managerial innovations, the results indicate that public policies eased the reorganization efforts of financially constrained firms.
Publications
Financial Liberalization, Credit Market Dynamism and Allocative Efficiency - with Ana Maria Herrera and Raoul Minetti (appendix) (working paper)
Journal of Money, Credit and Banking, August 2024
Spectral Density Estimation for Random Processes with Stationary Increments - with Wei Chen, Chunfeng Huang, and Haimeng Zhang
Applied Stochastic Models in Business and Industry, Vol 40(4), pp 960-978, March 2024
International Monetary Spillovers to Frontier Financial Markets: Evidence from Bangladesh - Md Rashedur Rahman Sardar (working paper)
International Finance, Vol 27(1), pp 81-100, March 2024
Identifying the Emergence of Academic Entrepreneurship Within the Technology Transfer Literature - with Christopher S. Hayter and Albert N. Link
Journal of Technology Transfer, pp 1-13, August 2023
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
Quantitative Easing, Nonbank Lending, and the Pandemic Mortgage Boom - with Nir Eilam, Yeonjoon Lee, and Nimrod Segev
Investigating the Dynamics of Monetary Policy and International Trade - with M. Jahangir Alam
