Published Papers

Below are my publications in Finance, Macroeconomics, and Political Economy with links to the working paper versions (in reverse chronological order)

Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging
American Economic Review , 2017, 107(11):3550-3588
(with Marco DiMaggio, Amir Kermani, Ben Keys, Tomask Piskorski, Amit Seru and Vincent Yao)

Did households bene…fit from the recent prolonged period of low interest rates? To address this question we investigate the role of monetary policy in shaping households’ consumption and saving decisions. We exploit the expected changes in monthly payments for borrowers with adjustable rate mortgages originated between 2005 and 2007 featuring an automatic reset of the interest rate after …ve years. We show that at the moment of the interest rate adjustment the monthly payment falls on average by $900. This results in a total positive income shock to these households in the tens of thousands over the remaining life of the mortgage. We uncover two important patterns. First, households increase their monthly car purchases on average by 40 percent after the change in monthly payment. Second, the expansionary e¤ect of the reduction in interest rate is attenuated by the borrowers’ desire to voluntary deleverage, by employing a signi…cant fraction of the increased income to repay their debts more quickly. Moreover, the marginal propensity to consume is signicantly higher for borrowers that experienced a larger decline in housing wealth. To complement these …ndings, we employ county-level data to provide evidence that consumption, especially of non-luxury cars, responded more forcefully to a reduction in short-term interest rates primarily in counties with a greater fraction of adjustable rate mortgage debt. Altogether these results shed light on the role of debt rigidity in the transmission of monetary policy.

(Note: this is a combined version of working papers Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging by M. Di Maggio, A. Kermani and R. Ramcharan previously Revise & Resubmit at American Economic Review and Mortgage Rates, Household Balance Sheets, and the Real Economy by B. Keys, T. Piskorski, A. Seru, and V. Yao previously Revise and Resubmit at Journal of Political Economy))

The Real Effects of Liquidity During the Financial Crisis: Evidence From Automobiles
Quarterly Journal of Economics, 2017, 132(1):317-365

(with Ephraim Benmelech and Ralf Meisenzahl)

This paper shows that illiquidity in short-term credit markets during the financial crisis may have sharply curtailed the supply of non-bank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we show that the collapse of the asset-backed commercial paper market decimated the financing capacity of captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on captive-leasing companies declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market: the captive leasing arms of auto manufacturing companies. These results also imply that interventions aimed at arresting illiquidity in credit markets and supporting the automobile industry might have helped to contain the real effects of the crisis.

The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program
 Journal of Financial Economics, 2016, 122(2):409-429. 
(with Nathan Foley-Fisher and Edison Yu)
Winner of the 2015 BANKSCOPE Prize for best paper at the UNSW-Australasian Finance and Banking Conference
Wall Street Journal:

This paper investigates the impact of unconventional monetary policy on firm financing constraints. It focuses on the Federal Reserve’s Maturity Extension Program (MEP) which was intended to lower longer term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and firms’ sticky borrowing preferences, we find evidence that around the MEP’s announcement, stock prices rose most sharply for those firms that traditionally relied on longer term debt. We also find that these firms issued more long-term debt during the MEP, “filling the gap” created by the Fed’s asset purchases. There is also evidence of “reach for yield” behavior among some institutional investors, as the demand for longer duration riskier debt also rose during the MEP, reducing the cost of external finance for some non-financial firms. We also find that non-financial firms more dependent on longer term debt increased investment during the MEP. Unconventional monetary policy may thus have helped to relax financing constraints for some firms after the financial crisis.

Local Financial Capacity and Asset Values: Evidence from Bank Failures
Journal of Financial Economics, 2016, 120(2): 229-251

(with Raghuram Rajan)
Winner of the 2014 The Wharton School-WRDS Best Paper Award in Empirical Finance at the Western Finance Association
Profiled in Chicago Booth's Capital Ideas

Using differences in regulation as a means of identification, we find that a reduction in local financial intermediation capacity reduces the recovery rates on assets of failing banks. It also depresses local land prices and is associated with subsequent distress in nearby banks. Fire sales appear to be one channel through which lower local intermediation capacity reduces the recovery rates on failed banks’ assets. The paper provides a rationale for why bank failures are contagious, and why the value of specialized financial assets may depend on the size of the intermediary market that is available to buy it.

From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply

Journal of Finance, 2016, 71(3): 1323-1356
(with Stephane Verani and Skander Vandenheuvel)

This paper studies how the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. We find that balance sheet losses at correspondent credit unions stemming from the collapse of the ABS market are associated with a large contraction in the supply of credit and a hoarding of cash among downstream credit unions. We also find that this credit crunch was concentrated among downstream credit unions which began the crisis with lower capital asset ratios, and that the contraction in credit supply may have amplified the initial decline in house prices. These results suggest that bank capital regulation might shape the ability of banks to transmit securities price volatility onto the real economy.

Crisis and Collapse in the Long Run: Some Microeconomic Evidence
American Economic Review, Papers and Proceedings, May 2016.
(with Raghuram Rajan)
The webcast at the 2016 Annual Meetings of the American Economic Association is here

This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in the local banking system. These areas also suffered slower population growth and worse economic outcomes over the long run relative to towns that were less affected by the Great Depression. There is also evidence that financial regulation after the Great Depression, and in particular limits on bank branching, may have helped to render the effects of the initial collapse persistent. All of this suggests a reason why post-crisis financial regulation, while potentially reducing financial instability, can also have longer run real consequences.

Constituencies and Legislation: The Fight Over the Mcfadden Act of 1927
Management Science, 2016, 62(7):1843-1859
(with Raghuram Rajan)

The McFadden Act of 1927 was one of the most hotly contested pieces of legislation in U.S. banking history, and its influence was still felt over half a century later. The act was intended to force states to accord the same branching rights to national banks as they accorded to state banks. By uniting the interests of large state and national banks, it also had the potential to expand the number of states that allowed branching. Congressional votes for the act therefore could reflect the strength of various interests in the district for expanded banking competition. We find congressmen in districts in which landholdings were concentrated (suggesting a landed elite), and where the cost of bank credit was high and its availability limited (suggesting limited banking competition and high potential rents), were significantly more likely to oppose the act. The evidence suggests that while the law and the overall regulatory structure can shape the financial system far into the future, they themselves are likely to be shaped by well-organized elites, even in countries with benign political institutions.

 The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s
American Economic Review, 2015, 105(4): 1439-77.
(with Raghuram Rajan) 

How important is the role of credit availability in inflating asset prices? And does greater credit availability make the economy more sensitive to changes in sentiment or fundamentals? In this paper we address these questions by examining the rise (and fall) of farm land prices in the United States in the early twentieth century, attempting to identify the separate effects of changes in fundamentals and changes in the availability of credit on land prices. We find that credit availability likely had a direct effect on inflating land prices. Credit availability may have also amplified the relationship between the perceived improvement in fundamentals and land prices. When fundamentals turned down, however, areas with higher ex ante credit availability suffered a greater fall in land prices, and experienced higher bank failure rates. We draw lessons for regulatory policy.

 House Prices and Household Credit Access: Evidence from an Internet Bank
 Journal of Money, Credit and Banking, vol 45, Issue 6, September 2013, pp 1085-1115.

(with Christopher Crowe)

How do fluctuations in the value of home prices affect the borrowing conditions that households face outside the mortgage market? This paper turns to over 220,000 loan applications on - an internet based peer to peer bank - to analyze this question. We find that home owners in states with declining home prices face significantly higher interest rates. Declining home prices also limit their ability to access credit, and accelerate the pace of loan delinquencies in this market. These results are especially large for borrowers with sub prime credit ratings, and are driven in part by an increased demand for non-collateralized lending among this group. Thus, fluctuations in home prices appear to have a substantial impact on credit availability and consumer finance well beyond the mortgage market.

Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century
Journal of Finance,volume 66: Issue 6, December 2011, pp 1895-1931.
(with Raghuram Rajan)

We find that, in the early 20th century, counties in the United States where the agricultural elite had disproportionately large land holdings had significantly fewer banks per capita, even correcting for state-level effects. Moreover, credit appears to have been costlier, and access to it more limited, in these counties. The evidence suggests that elites may restrict financial development in order to limit access to finance, and they may be able to do so even in countries with well-developed political institutions.

Inequality and Redistribution: Evidence from U.S. Counties and States, 1890–1930
Review of Economics and Statistics, November 2010, volume 92, No.4, pp 729-744

Does economic inequality affect redistributive policy? This paper turns to U.S. county data on land inequality over the period 1890-1930 to help address this fundamental question in political economy. Redistributive policy was primarily decided at the local level during this period, making county level data particularly informative. Examining within state variation also reduces the potential impact of latent institutional and political variables. The paper also uses a variety of identification strategies, including historic variables as well as county weather and crop characteristics as instruments for land inequality. The evidence consistently suggests that greater inequality is significantly associated with less redistribution. This negative relationship is especially large in heavily rural counties, where concentrated land ownership implied that landed elites also controlled the majority of economic production. 

The B.E. Journal of Macroeconomics. Volume 10, Issue 1, Pages 1–35, ISSN 1935-1690, May 2010 

There is now considerable evidence that a range of institutional, legal, cultural, political and religious variables determine financial development. But economists have conjectured that the presence of diversification opportunities in the real economy can also shape the development of the financial sector. This paper finds evidence in support of this conjecture. Both the OLS estimates, and the IV results, which use instruments derived from topographical characteristics, suggest that increased economic concentration can impede financial development. Thus, financial underdevelopment might have not only socio-cultural and political causes. Risk diversification opportunities in the real economy might also be key.

Journal of Economic Geography, Vol 9, Issue 4, pp 559-581, July 2009. 

What determines the spatial distribution of economic activity? And why is economic activity sometimes ‘lumpy’, distributed in a core-periphery pattern in some countries? This article uses new subregional data on the spatial distribution of economic activity for a large cross section of countries, as well as information on roads, rails and surface topography to help understand the role of domestic transport costs in shaping economic geography. The evidence suggests a significant role for physical geography and transport costs in determining the location of economic activity. Countries with rougher surfaces have less developed road and rail transport networks, and greater spatial concentration of economic activity.

Journal of International Economics, Volume 73, Issue 1, September 2007, pp 31-47.

Does the choice of exchange rate regime affect an economy's adjustment to real shocks? Exploiting the unpredictability and economic exogeniety of windstorms–hurricanes and typhoons–and earthquakes this paper assesses the often contrasting answers found in the theoretical literature. There is robust evidence that exchange rate flexibility helps an economy better adjust to real shocks. And consistent with the channels emphasized in the classic literature on exchange rates and shocks, differences in the behavior of the export sector help explain the different reactions between the two regimes.

IMF Programs and Growth: Is Optimism Defensible? 
(with Reza Baqir and Ratna Sahay)

IMF-supported programs focus on key objectives (such as growth, inflation, and the external current account) and on intermediate policy targets (such as monetary and fiscal policies) needed to achieve these objectives. In this paper we use a new, large data set, with information on 94 programs between 1989 and 2002, to compare programmed objectives and policy targets to actual outcomes. We report two broad sets of results. First, we find that outcomes typically fell short of expectations in growth and inflation but were broadly in line with the programmed external current account objectives. Similarly, programmed intermediate policy targets were generally more ambitious than the intermediate policy outcomes. Second, focusing on growth, we examine the relationship between objectives and policy targets, and find differences in the way ambitious monetary and fiscal targets affected the achievement of the growth objective. On the one hand, more ambitious fiscal targets, even when they were missed, led to better growth performance. On the other hand, more ambitious monetary targets tended to be associated with lower growth performance.

Higher or Basic Education? The Composition of Human Capital and Economic Development?

No country has achieved sustained economic development without investment in education. But do all types of human capital affect growth identically? And which types of schooling-secondary or tertiary-should public policy promote? This paper develops an analytical framework to address these questions. It shows how the composition of human capital stock determines a country's development. Hence, promoting the "wrong" type of schooling can have little effect on development. In addition, the paper helps in understanding why empirical studies have failed to find a significant relationship between schooling and growth