Research

Working Papers

Oosthuizen, Dick & Zalla, Ryan. (August 2022). Funding Deposit Insurance. [ .pdf | ECB ] (JOB MARKET PAPER)

Abstract: We present a quantitative model of deposit insurance. We characterize the policymaker's optimal choices of coverage for depositors and premiums raised from banks. Premiums contribute to a deposit insurance fund that lowers taxpayers' resolution cost of bank failures. We find that risk-adjusted premiums reduce moral hazard, enabling the policymaker to increase deposit insurance coverage by 3 percentage points and decrease the share of expected annual bank failures from 0.66% to 0.16%. The model predicts a fund-to-covered-deposits ratio that matches the data and declines in taxpayers' income due to taxpayers' risk aversion.

Curran, Michael, Fagerstrom, Matthew & Zalla, Ryan. (July 2022). Monetary Growth and Financial Sector Wages. [ .pdf | supplement ]

Abstract: We investigate the relation between monetary growth and compensation in the financial industry since the end of the Bretton Woods system. Estimating local projections, we find that the growth of the monetary base positively associates with a higher differential between financial and average wages. Our findings indicate that the effects are short lived, lending support to the temporary non-neutrality of money argued by David Hume and against the more permanent non-neutrality argued by Richard Cantillon. Our results help clarify debates on the non-neutrality of money going back to the eighteenth century.

Curran, Michael, O'Sullivan, Patrick & Zalla, Ryan. (February 2022). Can Volatility Solve the Naive Portfolio Puzzle? [ .pdf | supplement | arXiv ]

Abstract: We investigate whether sophisticated volatility estimation improves the out-of-sample performance of mean-variance portfolio strategies relative to the naive 1/N strategy. The portfolio strategies rely solely upon second moments. Using a diverse group of portfolios and econometric models across multiple datasets, most models achieve higher Sharpe ratios and lower portfolio volatility that are statistically and economically significant relative to the naive rule, even after controlling for turnover costs. Our results suggest benefits to employing more sophisticated econometric models than the sample covariance matrix, and that mean-variance strategies often outperform the naive portfolio across multiple datasets and assessment criteria.

Publications

Zalla, Ryan. (2017). Economic Policy Uncertainty in Ireland. Atlantic Economic Journal, 45(2), 269-271. [ DOI | Index | .pdf ]

Abstract: This investigation provides an alternative technique for assessing business cycles in Ireland. I construct a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. I compile thousands of articles from one of Ireland's most widely circulated newspapers from 1985-2016, each containing key terms that are positively associated with policy-driven uncertainty in the Irish economy. The index displays sharp spikes in conjunction with Brexit, the Great Recession of 2008, the Good Friday Agreement of 1998, and the Eurozone Conversion of 1999, as well as fluctuations around political elections and terrorist activity. Furthermore, the index telegraphs shocks to macroeconomic variables such as the interest rate, stock market, industrial production, and employment.