Working Papers
Revise and Resubmit
Active
13.) "The Fed Information Effect and Firm-level Investment: Evidence and Theory." With Indrajit Mitra, Yu Xu, and Linghang Zeng, 2024.
We present evidence that the Fed's private information about economic conditions revealed through FOMC announcements affect firm investment. We use firm-level investment data and analyst forecasts of firm fundamentals to document three facts. First, the investment rate sensitivity to Fed information is greater for more cyclical firms. Second, revisions in analyst forecasts of firm fundamentals are greater for more cyclical firms. Third, the investment response is consistent with changes in firm profitability following Fed announcements. We propose a HANK model to explain these patterns. Our model rationalizes the slow decline in inflation in 2022-2023 despite aggressive policy rate hikes.
14.) "Asset Pricing with Hand-to-Mouth Households." 2017.
I develop a heterogeneous agent model in a general equilibrium production economy to analyze the asset pricing implications when the marginal pricer can potentially lose the ability to save and invest. Building on the saver-spender dichotomy of Mankiw (2000), an optimizing household (saver) is faced with the possibility of being switched to a hand-to-mouth household (spender), and vice versa, with time-varying probabilities. The baseline model is capable of generating large risk premia for both stocks and Treasury bonds while matching a set of macroeconomic moments. The potential to encounter a household-level rare-disaster-like switching shock results in a pricing kernel, purely driven by the saver's consumption process, that is the weighted average of the marginal utility of staying as a saver and the marginal utility of getting switched to a spender. The switching mechanism amplifies the covariances between the real pricing kernel and the return on dividend claims of firms as well as inflation. The former generates large equity risk premium while the latter produces large inflation risk premium on nominal bonds.