Research in Progress

International Hedge Fund Repo 

With Jay Kahn (Federal Reserve) and Adrian Walton (Bank of Canada)

About $1 trillion of U.S. hedge fund repo activity is denominated in foreign currency and collateralized by

foreign sovereign debt. This paper studies links and contagion channels between foreign relative value strategies and U.S. Treasury relative value strategies, notably the cash-futures basis trade.

Cross-Border Affiliate Repo 

With Robert Mann (OFR) Andreas Schrimf (BIS) and Nick Zarra (Federal Reserve)

A significant fraction of U.S. repo occurs between distinct legal entities affiliated with the same parent company and located and different domiciles. Using OFR’s unique regulatory data, we study how financial institutions use affiliate flows to manage liquidity and respond to investment opportunities.

Working Papers

Production Complexity and Monetary Transmission 

Job Market Paper

Standard monetarist models with flexible prices generate upward-sloping expectations-augmented Phillips

curves: contractionary monetary policy raises inflation through the Fisher effect, contradicting empirical

evidence. New Keynesian models resolve this by introducing sticky prices, making nominal rigidities necessary for monetary transmission. This paper shows that production complexity alone can generate downward-sloping Phillips curves in flexible price models. When consumption requires multiple monetary transactions—consumers paying firms, firms paying workers and suppliers—the opportunity cost of holding money compounds across production stages. The elasticity of employment to the nominal rate is proportional to production complexity, with stronger monetary transmission in economies with longer supply chains. Contractionary monetary policy reduces both employment and inflation without sticky prices, and unlike in standard NewKeynesian models, the slope of the Phillips curve varies depending on the persistence of shocks. Empirical evidence from U.S. manufacturing industries confirms this mechanism: industries positioned further upstream in supply chains exhibit output responses to monetary policy shocks that are approximately twice as large as downstream industries, with the differential effect statistically significant at the 12-month horizon.

[draft available here] 

Lines of Credit and the Bank Liquidity Rebalancing Channel: Evidence from Bank Regulatory Data 

With  Dasol Kim (OFR) and April Meehl (Villanova)

This paper provides theory and evidence that banks reallocate credit-line supply ex ante to manage liquidity risk as interest rates move. A simple model predicts that, when rates fall, banks rebalance their loan portfolios away from rate-sensitive borrowers that are more likely to draw. The mechanism is driven by a shadow cost of

providing credit-line liquidity, which increases under tighter liquidity regulations. Using confidential supervisory

data, we find associations consistent with this mechanism, and use a within-borrower design to establish a causal interpretation. The results are strongest for banks with larger liquidity imbalances tied to undrawn exposures, consistent with a higher shadow cost of liquidity. Rebalancing activities spill over to the real economy, depressing investment and asset growth in rate-sensitive sectors. These results uncover a liquidity-rebalancing channel of monetary policy operating through precommitted credit lines and highlight its interaction with liquidity regulation.

[draft available upon request]

The Convenience Yield Channel of Monetary Policy & Special Repo Spreads

With Francisco Ilabaca (OFR)

We show that the specialness of U.S. Treasuries in the U.S. repo market, a measure of convenience yield or

liquidity premia, increases after contractionary monetary policy shocks. This result is surprising, because

contractionary monetary policy usually increases the supply of Treasuries available in the repo market, which

should all else equal lower special spreads. We also study how monetary shocks affect other repo market

measures. Together, our results suggest that changes in convenience yield may be an important channel of

monetary policy transmission and provide insight into how policy affects short term funding markets and

financial institution liquidity management.

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 (World Bank) 

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.