Research in Progress

The Effect of Monetary Policy on Convenience Yield 

With Francisco Ilabaca (OFR)

We provide evidence that contractionary monetary policy increases the convenience yield—or liquidity premium—of U.S. Treasuries. Specifically, we show that following contractionary monetary policy surprises, the "specialness" of U.S. Treasuries in the U.S. repo market increases. Our results suggest monetary policy shifts liquidity demand, and also provides insight into how policy rates affect short term funding markets and financial institution liquidity management. 

Interaffiliate Repo Flows 

With Robert Mann (OFR), Andreas Schrimf (BIS), and Nick Zarra (NYU Stern)

A significant fraction of U.S. repo transaction volume occur between distinct legal entities affiliated with the same bank holding company, for example between J.P. Morgan Securities LLC and Chase Bank. Interaffiliate trades sometimes occur at notably different rates or at notably different volumes than unaffiliated trades. Using OFR’s regulatory data, we study how financial institutions use interaffiliate flows to manage liquidity and respond to investment opportunities. 

Working Papers

Inside Money, Employment, and the Nominal Rate

Job Market Paper

In this paper I make three contributions. First, I show that it possible to generate empirically realistic Phillips curves in a monetarist model by explicitly modeling employment and supply chains. Flexible price monetarist models have arguably more realistic assumptions than sticky price models, but usually fail to generate downward sloping Phillips curves. Second, I show that when money is inside money – when deposits that the private financial sector intermediates at a real cost are necessary for transactions – financial sector productivity constrains the output of the real economy. In a special case, the solution of the model closely corresponds to the Keynesian IS-LM model, with shocks to the financial sector – including monetary policy shocks – shifting the “LM” curve. Third and finally, I show that if firms must hire workers before knowing how productive they will be, a type of risk not included in most macro models, increases in risk are contractionary and deflationary, and correspond to shifts in the “IS” curve. (Note: planning to split this paper into three).

[draft available here] [slides]

Household Portfolio Rebalancing by the Rich

I examine how households adjust their financial portfolios in response to economic fluctuations, using the Distributional Financial Accounts (2019) and the financial system "unveiling" method of Mian, Sufi, and Straub (2021). First, I show that when income risk rises, the share of liquid assets held by the top 10% of the wealth distribution increases. This effect is strong for directly held liquid assets such as checkings, savings, and government debt, but weaker when financial assets are “unveiled” into final holdings. Second, I find that contractionary monetary shocks decrease the share of low-yield liquid assets held by the top 10% of the wealth distribution, particularly government debt. Together, these findings suggest that the wealthy rebalance portfolios to respond to economic conditions, leaving the less wealthy to disproportionately absorb shocks.

[draft available here] 

Published Papers

The Current Fed Information Effect

With David Miller. FEDS Note, 2024. 

Interest rate changes by the Federal Reserve may reveal private information about the state of the economy, leading forecasters to react both to the direct effect of the change on the macroeconomy, and to the information revealed.  We isolate and identify forecaster reaction to the information revealed using a novel dataset of daily frequency forecasts of macroeconomic releases.  The unexpected component of an interest rate change cannot have a direct effect on the current month's releases because their underlying data comes from the prior month or quarter.  That surprise component can only affect forecaster expectations through the information channel.  Using a difference-in-differences framework around FOMC meetings while controlling for other macro releases, we find that, consistent with the information channel, positive surprises increase forecasts of inflation: a 1 bp surprise leads to current month Core PCE inflation forecasts increasing 1 bp.

The U.S. Syndicated Loan Market: Matching Data

With Gregory J. Cohen,  Kamran Gupta, William Hayes, Seung Jung Lee, W. Blake Marsh, Nathan Mislang, Maya O. Shaton, and Martin Sicilian. Journal of Finanical Research, 2021. 

We introduce a new software package for determining linkages between datasets without common identifiers. We apply these methods to three datasets commonly used in academic research on syndicated lending: Refinitiv LPC DealScan, the Shared National Credit Database, and S&P Global Market Intelligence Compustat. We benchmark the results of our match using results from the literature and previously matched files that are publicly available. We find that the company level matching is enhanced by careful cleaning of the data and considering hierarchical relationships. For loan level matching, a tailored approach based on a good understanding of the data can be better in certain dimensions than a more pure machine learning approach. The R package for the company level match can be found on Github.

Other Projects

Safe Assets, Portfolio Substitution, & the Optimal Quantity of Government Debt  

Presented at the Federal Reserve Board 

Financial crises that generate “flights to safety” are commonly understood to negatively impact the real economy. However, in general equilibrium models with safe debt and risky productive capital, increases in risk are normally expansionary, because the price of safe debt adjusts such that the precautionary motive dominates. I find that it is possible to generate a contractionary flight to safety in a heterogenous agent model when safe debt is government debt and the government partially accommodates investor demand. I show that this mechanism can quantitatively match empirical movements in both prices and real output in response to uncertainty shocks. Optimal policy maximizes the trade-off between the mean and variance of consumption. 

[updated draft coming soon] [slides here]

Risk and Misallocation: Can't invest or Won't invest? 

With Anuraag Aekka

A number of papers have documented that firm marginal revenue product of labor (MRPL) and marginal revenue product of capital (MRPK) appear more dispersed in developing than in developed countries, and that this "misallocation" of productive inputs is large enough to partially explain observed differences in total factor productivity (TFP). However, the sources of this misallocation remain unclear. One strand of literature focuses on the idea that, due to underdeveloped financial markets and a lack of access to working capital, firms in developing countries are constrained from reaching their desired size. This paper explores the idea that greater production risk —  for example due to more limited information, uncertain market access, or political instability — leads risk averse entrepreneurs in developing countries to optimally operate at smaller scales.  We aim to test alternative sources of misallocation in a general equilibrium heterogenous agent model. 

On hiatus. 

The Effect of Policy on Optimal Entrepreneurial Effort in a Lottery Model  

London School of Economics Master's thesis.