NBER Working Paper
Revision requested at the Journal of Monetary Economics
with Òscar Jordà and Alan Taylor

Fixing the exchange rate constrains monetary policy. Along with unfettered cross-border capital flows, the trilemma implies that arbitrage, not the central bank, determines how interest rates fluctuate. The annals of international finance thus provide quasi-natural experiments with which to measure how macroeconomic outcomes respond to policy rates. We find that the effects of monetary policy are much larger than previously estimated, and that these effects are state-dependent.

CEPR Discussion Paper,
with Benjamin Born, Gernot Müller, Petr Sedlacek

Economic nationalism is on the rise. What are the costs of cutting back international economic integration and rising policy uncertainty? We use the unexpected outcome of the Brexit vote in June 2016 as a natural macroeconomic experiment to study the costs of economic disintegration and their causes. As a methodological innovation, we propose a novel combination of synthetic control methods to identify the output loss caused by the Brexit vote, conjoined with an expectations-augmented vector autoregression to understand its drivers.

Summary on VoxEU

No Price Like Home
American Economic Review
with Katharina Knoll and Thomas Steger

We are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid-20th century, but rose sharply in recent decades. Land prices, not construction costs, hold the key to understanding the trajectory of house prices in the long-run.

Summary on VoxEU
Media coverage: Financial Times; FAZ

American Economic Review
with Alan Taylor

We study the behavior of money, credit, and macroeconomic indicators over the long run. Total credit has increased strongly relative to output and money in the second half of the twentieth century. Credit growth is a powerful predictor of financial crises, suggesting that policymakers ignore credit at their peril.

Summary on VoxEU
CEPR Working Paper,
with Bjoern Richter and Paul Wachtel

This paper shows that policy-makers can distinguish between good and bad credit booms with high accuracy and they can do so in real time. Credit booms that are accompanied by house price
booms and a rising loan-to-deposit-ratio are much more likely to end in a systemic banking
crisis. Importantly, we demonstrate that policy-makers have the ability to spot dangerous
credit booms on the basis of data available in real time.

CEPR Discussion Paper
Revision requested at the Quarterly Journal of Economics
with Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Alan Taylor

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing.

Media coverage: Financial Times, FAZ

CEPR Discussion Paper,
with Moritz Kuhn and Ulrike Steins

This paper studies the distribution of U.S.  household income and wealth over the past seven
decades. We introduce a newly compiled household-level dataset based on archival data from historical waves of the Survey of Consumer Finances (SCF).  While incomes stagnated, the middle class enjoyed substantial gains in housing wealth from highly concentrated and leveraged portfolios. The housing bust of 2007 triggered the largest spike in wealth inequality in postwar history.

Bank Capital Redux
NBER Working Paper,
with Òscar Jordà, Björn Richter and Alan Taylor

Capital ratios are a poor predictor of financial crises. This is true both for the entire history of advanced economies and for the post-WW2 period, and holds both within and between countries. However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financial crisis recessions are much quicker with higher bank capital.

Media coverage: FAZ

NBER Working Paper,
Òscar Jordà, Alan Taylor and Felix Ward

We show that the co-movement of credit, equity and house prices has increased above and beyond growing real sector integration. Fluctuations in risk premiums, and not risk-free rates and dividends, account for most of the observed equity price synchronization post-1980. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are muted in floating rate regimes

The Costs of Macroprudential Policy
Working Paper (2018),
with Bjoern Richter and Ilhyock Shim

Central banks increasingly rely on macro-prudential measures to manage the financial
cycle, but the effects of such policies on the core objectives of monetary policy are largely unknown. In this paper, we quantify the effects of changes in maximum loan-to-value (LTV) ratios on output and inflation. We rely on a narrative identification approach based on detailed reading of policy-makers’ objectives when implementing the measures. We find that a 10 percentage point exogenous decrease in the maximum LTV ratio leads to a 1% reduction in output over a four year horizon.