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I am a Senior Economist in the Systemic Financial Institutions and Markets section of the Federal Reserve Board, and this is my personal research page. Follow this link to access my official FRB page and contact information. The views expressed on this site are mine and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or its staff.
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[current research]

+ Over-the-Counter Market Liquidity and Securities Lending (
with Nathan Foley-Fisher and Stefan Gissler) [PDF] [preliminary version: June, 2017]

This paper studies how over-the-counter (OTC) market liquidity was adversely affected by the collapse of securities lending during the 2007-2008 financial crisis. We combine micro-data on corporate bond OTC market trades with securities lending transactions, in which life insurance companies are major counterparties. We exploit cross-sectional differences in the corporate bonds that are held and lent by life insurance companies to estimate the causal effect of securities lending on corporate bond market liquidity. We show that the collapse of AIG's securities lending programs in 2008 caused a substantial and long-lasting reduction in the market liquidity of the corporate bonds that were predominantly held by AIG, even after controlling for the interaction between funding liquidity and market liquidity. We find that some of the increase in the illiquidity of bonds held predominantly by AIG can be attributed to a sharp increase in relatively small trades among a greater number of dealers.
  • American Risk and Insurance Association Annual Meeting 2017

Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry (with Nathan Foley-Fisher and Borghan Narajabad) [PDF] [this version: June, 2017] [NBER WP #22774]

The existing literature assumes that securities lenders primarily respond to demand from securities borrowers and reinvest their cash collateral in safe short-term markets. We offer compelling evidence for a supply channel, using new data matching the universe of securities lending transactions to U.S. life insurers' bond lending and cash collateral reinvestment decisions, covering nearly one million bond holdings from 2011 to 2015. We find that, controlling for bond demand, the cross-sectional variation in liquidity transformation by U.S. life insurers accounts for about 45~percent of the variation in their bond lending decision. Moreover, insurers that aggressively reinvest their cash collateral tend to switch to repo financing when borrowing demand for their bonds is low. In addition to revealing a potential vulnerability on securities lenders' balance sheets, these results point to a new nexus between market making, price discovery, and the creation of money-like instruments that begets market fragility. Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry (with Nathan Foley-Fisher and Borghan Narajabad) [PDF] [Online Appendix] [this version: June, 2017] [revised & resubmitted to the Journal of Political Economy]

The interaction of worsening fundamentals and strategic complementarities among investors renders identification of self-fulfilling runs challenging. We propose a dynamic model to show how exogenous variation in firms' liability structures can be exploited to obtain variation in the strength of strategic complementarities. Applying this identification strategy to puttable securities offered by U.S. life insurers, we find that at least 40 percent of the $18 billion run on life insurers by institutional investors during the 2007-08 crisis was amplified by self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component.+ Aggregate Consequences of Dynamic Credit Relationships [PDF] [this version: November, 2016] [revise & resubmit to the Review of Economic Dynamics, 2nd round]

I investigate the aggregate consequences of canonical financial frictions in the supply of credit to firms: private information and limited enforcement. I propose a general equilibrium model in which entrepreneurs finance their firm through a long-term contract with a financial intermediary. The contract is constrained efficient because firm cash flow is costly to monitor and borrowers that repudiate cannot be excluded from capital markets. By investing in enforcement capacity, an intermediary can delay debt repayment and maintain incentive compatibility. Reforms that seek to decrease the cost of monitoring or enforcing contracts, or both, affect firm dynamics and can generate complementaries. Estimating the model with data on Colombian manufacturing firms in the 1980s and 1990s, I find that financial frictions are responsible for a significant aggregate output loss. Most of this distortion can be attributed to private information. Reforms that only reduce private information create significant economic growth and welfare gains, while those that only improve enforcement do not. There are significant complementarities between different types of reforms as moral hazard is less significant when contracts are more enforceable.
  • SED 2016; LAEF Conference on Macroeconomics & Business Cycle 2014; MidWest Macro; Workshop on Macroeconomic Dynamics, Sydney; CEF 2012; LAEF Conference on Firm Financing, Dynamics and Growth
+ Financing Constraints, Firm Dynamics, and International Trade (with Till Gross) [PDF] [online appendix] [this version: November, 2013]

This paper studies the impact of financial constraints on exporter dynamics, and the role of financial intermediation in international trade. We propose a two-country general equilibrium model economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial markets are endogenously incomplete because of private information, and .financial constraints arise as a consequence of optimal financial contracts. Young and small firms operate below their efficient level, and their financial constraint is relaxed as the entrepreneur's claim to future cash-flows increases. Consistent with empirical regularities, there is a substantial year-to-year transition in and out of export markets for smaller firms, and new exporters account only for a small share of total exports. Established exporters are less likely to exit export markets and tend to experience slower, albeit more stable growth.
  • SED 2012; RES 2012, CEF 2012

[publication]

+ From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply (with Rodney Ramcharan and Skander Van Den Heuvel) [PDF] [online appendix] [Journal of Finance, 2016, 71:1323–1356]
  • AEA 2014; NBER SI Risks of Financial Institutions 2013; NBER Monetary Economics 2013; FIRS 2012
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