Research

Publications in Refereed Journals


Link to Full Text ECB Working Paper 2886/January 2024

 

 Link to Full Text ECB Working Paper 2782/February 2023


      Link to Full Text ECB Working Paper 2713/August 2022

Link to Full Text  ECB Working Paper 1932/July 2016

Link to Full Text ECB Working Paper 2067/May 2017

Link to Full Text  ECB Working Paper 2032/March 2017

Completed Working Papers

CBDC and financial stability (with T. Ahnert,  P. Hoffmann and D. Porcellacchia) 

 What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a global games model of financial intermediation with an endogenously determined probability of a bank run. As an alternative to bank deposits, consumers can also store their wealth in remunerated CBDC issued by the central bank. Consistent with widespread concerns among policymakers, higher CBDC remuneration increases the withdrawal incentives of consumers, and thus bank fragility. However, the bank optimally responds to the additional competition by offering better deposit rates to retain funding, which reduces fragility. Thus, the overall relationship between CBDC remuneration and bank fragility is U-shaped. 

Link to Full Text, ECB Working Paper 2783/February 2023

Savings, efficiency and bank runs (with C. Mendicino, E. Panetti and D. Porcellacchia)  

 Does the level of deposits matter for bank fragility and efficiency? By augmenting a standard model of endogenous bank runs with a consumption-saving decision, we obtain two results. First, depositors' incentives to run increase with the amount of savings held as bank deposits. Second, a saving externality emerges since individual depositors do not internalize the effect of their savings on the bank-run probability. Therefore, the economy features over-saving and inefficient bank liquidity provision, as well as excessive bank fragility. Finally, we characterize the optimal policy to implement the efficient allocation.

R&R Review of Finance

Link to Full Text ECB Working Paper 2636/January 2022

Demandable debt without  liquidity insurance (with E. Carletti and R. Marquez) 

Demandable debt is a common funding source for banks. A large literature justifies demandability with the need to provide liquidity insurance to investors that are risk averse and face uncertainty about their consumption needs. Using a canonical model of financial fragility augmented with bank capital, we show that banks find it optimal to offer demandable debt, at times with a liquidity premium, as part of their profit-maximization strategy, even when investors have no demand for liquidity. Our paper therefore shows that debt demandability is a much more generally optimal contractual feature than has been commonly assumed.

The Interdependence of Bank Capital and Liquidity (with E. Carletti and I. Goldstein) 

This paper analyzes the role of liquidity regulation and its interaction with capital requirements. We first introduce costly capital in a bank run model with endogenous bank portfolio choice and run probability, and show that capital regulation is the only way to restore the efficient allocation. We then enrich the model to include fire sales, and show that capital and liquidity regulation are complements. The key implications of our analysis are that the optimal regulatory mix should be designed considering both sides of banks' balance sheet, and that its effectiveness depend on the costs of both capital and liquidity.

Presented at NBER SI 2018; OxFIT  2018; AFA 2019

Other writing

Book Chapters

Old Stuff

Horizontal Mergers in Two-Sided Market

The paper analyses the effects of horizontal mergers on consumers' welfare in two-sided markets. It shows that in such markets the traditional merger analysis does not always apply: even without efficiency gains, horizontal mergers can be welfare-enhancing when indirect network externalities are sufficiently high. The existence of such externalities induces merging platforms to keep their price low at least on one side of the market. This in turn produces a positive effect on consumers' welfare. In a simple setting of horizontal differentiation and price competition, I model the merger between two platforms focusing on the effect of indirect network externalities on the profitability of the merger for merging platforms, as well as on consumers' welfare.

Financial Network, Interbank Market Breakdowns and Contagion (with E. Iancu)

We investigate interbank market freeze and contagion through asset sales in a financial network in which mark-to-market is the accounting standard in place. The paper develops a theoretical model where banks can borrow liquidity on the interbank market or sell assets at fire sale prices to meet their liquidity needs. Interbank market freeze arises in equilibrium as consequence of the uncertainty of the counterparty risk. In this case, the distress of few financial intermediaries spreads to the whole system through fire sales and mark-to-market accounting. We show that under incomplete information, banks have different perceived probability of bankruptcy, when the banks with excess liquidity underestimate the risk of contagion and expect those with a shortage to attach a higher probability to it, the former are induced to demand excessively high interest rates. As a consequence, banks in distress prefer to sell the assets to meet their liquidity demand and this trigger contagion with some positive probability.