Under-Diversification and Idiosyncratic Risk Externalities
(joint with Felipe Iachan and Chao Zi)
Journal of Financial Economics
Endogenous idiosyncratic uncertainty and investor under-diversification lead to underinvestment and excessive aggregate risk-taking. These risk externalities can be measured using asset-pricing data and inform optimal financial regulation.
Optimal Fiscal Consolidation under Frictional Financial Markets
Economic Journal
Optimal fiscal policy when governments face a tradeoff between stimulating the economy and reducing debt to stabilize sovereign spreads. The optimal policy avoids spending stimulus and instead uses tax policy to deliver a front-loaded fiscal consolidation.
Fiscal Policy and the Monetary Transmission Mechanism
(joint with Nicolas Caramp)
Review of Economic Dynamics
An analytical decomposition showing how fiscal policy shapes monetary transmission. Fiscal variables determine inflation responses to monetary shocks, Neo-Fisherian effects, forward guidance, and drive the paradox of flexibility.
Machine Learning for Continuous-Time Finance
(joint with Victor Duarte and Diogo Duarte)
Review of Financial Studies (editor's choice article / lead article)
A deep-learning algorithm for solving nonlinear, high-dimensional continuous-time finance models. The method handles many state variables, kinks, and jumps, with applications to asset pricing, corporate finance, and portfolio choice.
Mini-Course: Machine Learning for Computational Economics.
Monetary Policy and Wealth Effects: The Role of Risk and Heterogeneity
(joint with Nicolas Caramp)
Journal of Finance
Note on decomposition in Nagel and Xu (2024).
A monetary model with rare disasters and heterogeneous beliefs. Tractable framework capturing the impact of monetary shocks on asset prices and the real economy. Risk and heterogeneity are major drivers of the output response to monetary policy.
Heterogeneous Beliefs, Asset Prices, and Business Cycles
(joint with Saki Bigio and Eduardo Zilberman)
Journal of Financial Economics, conditionally accepted
Winner of best macrofinance paper at the EBF Meeting (2025)
Production economy with heterogeneous beliefs and employment hired in advance. Model matches asset-pricing, business-cycles, and expectations moments, including the equity premium, return volatility, return predictability, and subjective return expectations.
Risk-taking over the Life Cycle: Aggregate and Distributive Implications of Entrepreneurial Risk
(joint with Robert M. Townsend)
Quarterly Journal of Economics, reject and resubmit
Quantitative model of entrepreneurship under limited idiosyncratic insurance. Relaxing risk constraints reduces the risk premium, boosts investment, increases inequality in the short run, and reduces it in the long run, generating a financial Kuznets curve.
Liquidity and Risk in OTC Markets: A Theory of Asset Pricing and Portfolio Flows
(joint with Mahyar Kargar, Juan Passadore, Yucheng Yang)
Journal of Finance, revise and resubmit
Model of risk premia and liquidity frictions capturing main features of Covid-19 crisis: large negative shock leads to portfolio reallocations, rise in risk premia and decline in interest rates, increase in trading volume, and deterioration of market liquidity.
The Risk Channel of Unconventional Monetary Policy
Review of Financial Studies, revise and resubmit
Model of unconventional monetary policy (UMP) with heterogeneity in investor’s risk tolerance and limited portfolio reallocation. The framework allows us to study the impact of UMP on risk premium, volatility, growth, and financial stability.
Sticky Inflation: Monetary Policy when Debt Drags Inflation Expectations
(joint with Saki Bigio and Nicolas Caramp)
Journal of Political Economy: Macroeconomics, revise and resubmit
Optimal monetary policy in response to a fiscal shock, given the expectation of a reform involving monetary accommodation. Before the reform, it is optimal to underreact to the fiscal shock, deviating from the Taylor rule's prescription, consistent with the Fed's response to the Covid-19 shock.
Dissecting the Aggregate Market Elasticity
(joint with Victor Duarte, Goutham Gopalakrishna, Mahyar Kargar, and Jiacui Li)
A general-equilibrium model of the aggregate market elasticity with heterogeneous investors, passive investors, and financial constraints. When the interest rate is allowed to adjust, the market can be elastic even when individual investors are price-insensitive. Inelastic markets emerge when passive investors are under-exposed to risk.
On the Recovery of Demand Elasticities in Dynamic Settings
(joint with Carter Davis, Mahyar Kargar, and Jiacui Li)
A framework for recovering structural demand elasticities in dynamic asset markets from observed price and flow responses. Structural elasticities are roughly twenty times larger than the naive inverse-multiplier benchmark.
Monetary Policy and the Zero-Beta Rate
(joint with Nicolas Caramp and Andres Sarto)