Research

Publications

Q-Monetary Transmission (with Ricardo Lagos), Journal of Political Economy (Vol. 132, No.3,  March 2024) [Draft] [NBER Working Paper]

We study the effects of monetary-policy-induced changes in Tobin’s q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary transmission to aggregate investment.

Working Papers

Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy (with Manuel García-Santana, Julian di Giovanni, Enrique Moral-Benito, and Josep Pijoan-Mas) [Draft] (R&R at American Economic Review)
(Previously titled "Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications")

This paper provides a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We build a novel panel dataset for Spain that merges public procurement data, credit register loan data, and quasi-census firm-level data. We provide evidence consistent with the hypothesis that procurement contracts act as collateral for firms and help them grow out of their financial constraints. We then build a model of firm dynamics with asset- and earnings-based borrowing constraints and a government that buys goods and services from private sector firms, and use it to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that policies which promote the participation of small firms have sizeable macroeconomic effects, but the net impact on aggregate output is ambiguous. While these policies help small firms grow and overcome financial constraints, which increases output in the long run, these policies also increase the cost of government purchases and reduce saving incentives for large firms, decreasing the effective provision of public goods and output in the private sector, respectively. The relative importance of these forces depends on how the policy is implemented and the type and strength of financial frictions.

Firm Balance Sheet Liquidity, Monetary Policy Shocks, and Investment Dynamics [Draft] [JMP version]

I study the role of firms’ balance sheet liquidity in the transmission of monetary policy to investment. In response to monetary contractions, U.S. firms with fewer liquid asset holdings reduce investment relatively more. I analyze the mechanism, and rationalize the results using a heterogeneous firm macroeconomic model with financial constraints, debt issuance costs, and differential returns on cash and borrowing. In the calibrated model, the direct channel of monetary transmission is considerably weaker than in a canonical framework ignoring liquidity considerations. Also, liquidity noticeably affects firms’ investment responses in partial equilibrium, yet general equilibrium effects dampen its influence on aggregates.

Risk Aversion, Labor Risk, and Aggregate Risk Sharing with Financial Frictions [Draft]
(Previously titled "Risk Aversion, Unemployment, and Aggregate Risk Sharing with Financial Frictions")

If agents in workhorse business cycle models with financial frictions can index contracts to observable aggregates, they share aggregate financial risk (almost) perfectly, eliminating the financial accelerator mechanism. I show that in the standard specification of the Bernanke, Gertler, and Gilchrist (1999) framework with TFP shocks this happens because: i) borrowers and lenders are implicitly assumed to have identical, logarithmic utility, and ii) the representative lender's human wealth comoves closely with aggregate financial wealth. Non-state-contingent borrowing rates can arise optimally if i) lenders' risk aversion is increased to plausible degrees, or ii) at identical preferences, lenders face uninsurable countercyclical idiosyncratic risk in labor productivity.

Monetary Policy Shocks, Financial Structure, and Firm Activity: A Panel Approach [Draft]

This paper assesses the differences in how nonfinancial firms respond to high frequency identified monetary policy shocks conditional on various measures of their financial conditions. In line with the effects of monetary policy shocks on real aggregate activity, the most significant disparities between firms arise slowly, over a horizon of approximately 4 to 12 quarters after a shock. Among the explanatory financial variables considered, both higher leverage and lower liquid asset holdings at the time of a contractionary monetary shock tend to predict relatively lower fixed capital, inventory and sales growth in the cross-section of firms. When simultaneously controlling for both the relevance of leverage and liquid assets, it is the latter that explains the disparities over the longer horizon. Low liquid asset holdings are also shown to be associated with stronger pass-through to borrowing costs.

Works in Progress

Frost and Fire: A Tale of Two Crises (with Vladimir Asriyan and Alberto Martin)