Welcome to my webpage. I am a Senior Research Economist at the Federal Reserve Bank of Cleveland.
My research interests are in Macroeconomics and Financial Stability.
In "Debt Overhang in a Business Cycle Model", joint with Andrea Pescatori, we develop a DSGE model to study the macroeconomic implications of the debt-overhang distortion on firms' investment and labor decisions: When the risk of default of a firm increases, the debt-overhang distortion becomes larger and induces the firm to reduce its investment and labor demand. The distortion manifests itself as investment and labor wedges that move counter-cyclically, increasing during recessions when the risk of default is high. The dynamics of the two wedges amplify and propagate the effects of shocks to productivity, government spending, volatility, and funding costs.
In other research work, I study financial spillovers—the transmission of risks and losses from bank to bank. Financial spillovers amplify the effects of shocks on the financial system and on the economy, making the economic and financial systems less stable. Several recent papers estimate various measures of the exposure of individual banks to the financial system as a whole, and of banks' interdependence and joint risk of distress.
I focus on financial spillovers generated by the debt-overhang distortion on banks' lending decisions: when the risk of default of a set of banks increases, the distortion widens and discourages the banks' loan supply; lending, investment and aggregate demand decline; firms' balance sheets deteriorate, impairing the firms' ability to repay their liabilities; the value of loans and securities of other banks declines, and the risk of their default increases.
Financial spillovers make banks' lending decisions strategic complementary and can lead to multiple equilibria and financial crises driven by self-fulfilling expectations. I study this type of crises in "Debt-Overhang Banking Crises: Detecting and Preventing Systemic Risk" and in "The 2012 Eurozone Crisis and the ECB's OMT Program: A Debt-Overhang Banking and Sovereign Crisis Interpretation".
In "The Optimal Response of Bank Capital Requirements to Credit and Risk in a Model with Financial Spillovers", I study how financial spillovers depend on economic and financial conditions and how capital requirements should be set depending on the spillovers' size.
I show that financial spillovers amplify the effect of shocks on the banking system and on economic activity, and that financial spillovers increase with banks' financial distortions, which in turn increase with banks' credit risk. An implication is that the volatility of aggregate variables increases with banks' credit risk and financial distortions, which is consistent with recent evidence that connects the volatility of real GDP growth with financial conditions (Adrian, Boyarchenko and Giannone 2016).
Furthermore, the prudential authority faces an intertemporal trade-off: tighter capital requirements discourage the current level of lending and investment activity, by raising banks' cost of funds, but mitigate the future financial distortions faced by banks, by decreasing banks' credit risk. The capital requirements should be raised in response to both an expansion of banks' credit supply and an increase in the expected future credit risk of banks. They should be lowered close to one-to-one in response to bank losses.
 The NYU Stern Volatility Institute (V-Lab) estimates the long-run marginal expected shortfall, the expected percent equity loss of a bank when the stock market declines 40 percent in a 6-month period—see also Acharya, Pedersen, Philippon and Richardson (2010), Acharya, Engle and Richardson (2012) and Brownlees and Engle (2015).
Adrian and Brunnermeier (2014) propose the exposure CoVaR, the increase in the value-at-risk of a financial institution given an increase in the value-at-risk of the financial sector—see also Sedunov (2013) and Pagano and Sedunov (2014).
Saldías (2013) estimates the difference between the average distance-to-default of banks and the distance-to-default of the aggregate portfolio of banks, using data from banks' balance sheets, equity markets and option markets, and proposes this difference as a measure of banks' interdependence and joint risk of distress.
Weller (2016) estimates the conditional tail risk for a broad set of factors using high-frequency data on the cross-section of bid-ask spreads.