Working Papers

Too many Voters to fail  -new-    (prev.  'Subsidized Coordination and Political Bargaining for Bail-outs'),   March, 2019                     [pdf]

Bank failures and subsequent bank resolutions are politically important events. Politicians are sensitive to outcomes of bank resolution especially during election time when bank investors at risk of losing money are also voters. The bank investors' threat to change voting behavior in the upcoming election yields power towards local politicians to press for bail-outs. This kind of bargaining for bail-outs is fruitful since transnational bank resolution directives leave discretion at the hands of national politicians when resolving banks. This paper provides a novel theory in which a bank's capital structure not only describes the source of her financing but also the anticipated strength of her investors' bargaining power should the bank fail in the future. Contrary to the existing literature, bank stability improves in debt financing if bargaining power for bailouts grows sufficiently fast. This is since bail-outs act like deposit insurance. The bank exploits the double role of her investors to boost shareholder value by trading on her creditors' bargaining power, i.e. by strategically setting the number of voters at risk. Depositors are willing to accept a discount on the interest rate on their debt contract in return for an increase in the bank's debt ratio. By this, the bank manages to divert part of the bail-out payable in future states where she fails into good states in which she survives. In particular, incentives of the bank and her debt investors to maximize leverage are aligned against the taxpayer.

[to be presented at: Oxford Financial Intermediation Theory conference 2019]

Currency Substitution under Transaction Costs,  with Harald UhligJan 2019,  AEA Papers & Proceedings vol. 109,  [pdf]]  [slides]

A major selling point and feature of cryptocurrencies is that they allow anonymous payments around the globe without a third party watching. For payments of certain goods, this censorship resistance feature makes cryptocurrencies more suitable or less costly a medium of exchange than traditional fiat monies such as Dollars or Euros. On the other hand, there exist goods which are easier to acquire using traditional means of payments. The costs of employing cryptocurrencies may involve fees to miners, while traditional money might be subject to taxation. In this paper, we explore how asymmetry in transaction fees across goods drives currency substitution. We assume a continuum of differentiated goods which can be strictly ordered according to the costs agents occur when purchasing these goods with Bitcoins as opposed to Dollars. In a market equilibrium, agents endogenously decide which goods to acquire using Dollars and which goods to purchase using Bitcoins. The marginal good at which agents are indifferent between purchasing with Bitcoins or Dollars depends on and varies in the size of the value-added-tax and transaction fees to miners.

[presented at Tokenomics Paris 2019]

Some Simple Bitcoin Economics,  with Harald Uhlig May 2019,   r&r  Journal of Monetary Economics (special issue)                     [pdf]

[to be presented at Bank of Finland and CEPR "Money in the Digital Age";  2nd MMCN conference by CEPR and Hoover, Stanford; the Cleveland FED, BFI Macro Financial Modeling Summer Session 2018 Cape Cod, Federal Reserve Board of Governors, Wharton 'Liquidity and Financial Fragility' 2018, JME-SNB-SCG conference Gerzensee 2018, ASSA meetings Atlanta 2019]

Marginal Revolution

VOX EU reposted on the World Economic Forum

Chicago Booth Review and dailyhunt

Thrive Global  &  Authority Magazine

CATO  contains an important critical discussion of the paper's assumption of substitutability between crypto and traditional fiat

The Economics of Fintech and Digital Currencies  by Antonio Fatas, Vox EU ebook

Optimal Forbearance of Bank Resolution,  December 2018,  r&r  Journal of Finance                                                                        [pdf]

[to be presented at the Bank for International Settlements, SED Mexico city 2018, University College Dublin, UNSW Sydney (JM/S), University of Copenhagen, (JM), BI Norwegian Business School (JM), Ecole Polytechnique, CREST (JM), IWH Halle/University of Leipzig (JM), Bank of Canada (JM), University of Aarhus (JM), University of Gothenburg (JM), Bank for International Settlements]

The paper in a nutshell: BFI Research Brief, thanks to David Fettig

The Value of the Bank under Endogenous Liquidity Risk: The Modigliani-Miller Theorem revisited,  Oct 2017   [pdf]

Regulated Competition on Health Insurance Markets: Budget Balancing, Opt-out and Price Caps,  
with Ben Schickner,  Oct 2017      (prev. 'Redistributional Effects of Health Insurance in Germany: Private and Public Insurance, Premia and Contribution Rates)     [pdf]

Work in Progress

Capital Structure, Liquidity and Miscoordination on Runs  [pdf]

[presented at the NASM ES Philadelphia 2016, the EEA/ESEM meetings in Geneva 2016, the UECE Lisbon Meetings in Game Theory and Applications 2016]

Bank Runs and the Repo Market  (prev.  'The Impact of Recovery Value on Bank Runs'),  January, 2018                                       [pdf]

[presented at the UECE Lisbon meetings on Game Theory 2019,  EBC network workshop Luxembourg 2017, NASM ES 2017]

DD meets MM
(with Harald Uhlig)