Research

[1] Bank Credit and the Risk of Recession: the Role of Business Cycle Shocks (2022, Job Market Paper). with Mikhail Mamonov. [Paper] [slides] 

Abstract.  What is the relationship between current credit expansion and future recession risks and how do the business cycle shocks shape it? Using a quarterly dataset on 25 emerging and advanced economies, we document the boom-bust real effects of credit expansion: a one standard deviation increase in the bank credit growth reduces the risk of recession by 3 pp in one year but then raises it by nearly 10 pp in three years.  We establish that the boom-bust recession response to bank credit is due to exclusively household credit expansion, in particular when household credit expansion is driven by shocks to aggregate demand. In contrast, firm credit expansion exhibits no boom-bust effects but immediately increases the risk of recession, and this increase is primarily driven by an exogenous easing of credit supply by banks. As for the mechanism, we find that firm credit supply expansion leads to a reduction of the total factor productivity growth. We show that firm credit supply expansion further increases recession risk if accompanied by asset price booms while there is no such pattern for household credit expansion. We conclude that the recessionary effects of credit expansions vary substantially with the type of credit and a type of aggregate shocks driving credit.

[2] The Price of War: Economic Effects of Financial Sanctions on the Russian Economy (2023). with Mikhail Mamonov. [Paper] [slides]

Abstract. How much do sanctions harm the sanctioned economy? We appeal to the case of Russia which provides a useful laboratory to study macroeconomic effects of sanctions. Over the last decade, three major waves of sanctions were sequentially imposed on Russia (in 2014, 2017, and 2022). In a VAR model of the Russian economy, we first apply sign restrictions to isolate the innovations to international credit supply to proxy for the financial sanctions shocks. We provide a microeconomic foundation for the sign restriction approach by exploiting the syndicated loan deals in Russia. We then examine the effects of the overall sanctions shocks (financial, trade, technological, etc.) by employing a high-frequency identification (HFI) approach. Our HFI is based on each OFAC's / EU's sanction announcement and the associated daily changes in the yield-to-maturity of Russia's US Dollar-denominated sovereign bonds. Our macroeconomic estimates indicate that, in response to the first wave of sanctions, Russia’s GDP could have lost no more than 0.8 pp; nearly zero in response to the second wave, and between 8 and 23 pp as a result of the third wave of sanctions---the largest output contraction since the USSR collapse in 1991. Our cross-sectional estimates show that the real income of richer households declined by 1.5--2.0 pp while poorer households enjoyed rising real income during the first year after the shock: +1.2 pp. Finally, we obtain that the real total revenue of large firms with high (low) TFPs declines by 2.2 (4.0) pp during the first year after the sanctions, whereas the effects on small firms are close to zero. Overall, our results indicate heterogeneous effects of sanctions with richer households and larger firms affected the most.