RESEARCH
Inequality and Financial Fragility Journal of Monetary Economics, Vol. 115 (2020)
I study how the distribution of wealth influences the government’s response to systemic banking crises and shapes financial fragility. Under utilitarian policy maker wealthy individuals are more likely experience runs and receive bailouts. Recognizing this fact may alter the government’s desire to redistribute wealth ex ante.
Allocating Losses: Bail-ins, Bailouts and Bank Regulation July 2020 (Slides)
with Todd Keister
We study the interaction between a government's bailout policy and banks' willingness to impose losses on (or "bail in") their investors. The anticipation of this bailout undermines a bank's private incentive to impose a bail-in. In the resulting equilibrium, bail-ins are too small and bailouts are too large. Some banks may also face a run by informed investors, creating further distortions and leading to larger bailouts.
Unequal and Unstable: Income Inequality and Bank Risk June 2020 (Slides)
with Ulrich Schüwer
We document that the dispersion of failure risk across banks within a given region in the U.S. is greater in regions that have higher income inequality. We explain this pattern with a model based on risk shifting incentives where banks issue insured deposits and choose the riskiness of their portfolios.
Debt Maturity and Innovation June 2020 (Slides)
I propose a theory of debt maturity as an incentive device to motivate innovation. I show how the firm’s optimal debt maturity is shaped by the possibility of debt renegotiations, the tangibility of its assets and the riskiness of its innovative project. The model predicts that innovative firms would lengthen their debt maturity when expecting to extract more concessions from their financiers once the project has started.
Private Sunspots in Games of Coordinated Attack September 2017 (Slides)
I propose a new sunspot-based approach of endogenizing the probability of self-fulfilling outcomes in collective action games. This approach generalizes the public sunspot approach by introducing strategic uncertainty based on private signals of the sunspot variable and is particularly suitable for situations in which the policy maker cannot commit to follow policies which are not ex-post optimal.