Research

Given that US currency is used heavily abroad, how do changes in inflation impact the welfare of domestic and foreign consumers? I formulate a two-country model in which agents face idiosyncratic income risk and in which all transactions and savings are done using a single dominant fiat currency.  Higher inflation increases the level of seigniorage the domestic country collects from abroad but increases the cost of holding currency to consumption smooth for both domestic and foreign agents. Hence, for the domestic currency issuing country, neither a zero-inflation regime nor one targeting Friedman’s rule is optimal.  The results demonstrate the presence of a seigniorage channel, which can be used to inform the hegemon's inflation target. pdf available here or alternative link to pdf here

“Stagnation and the Global Demand for Housing” with Maya Eden

How will persistently low interest rates affect global housing demand? We study this question in a life-cycle model with financial constraints. A calibration suggests that, in the United States, low interest rates increase housing demand because they reduce the cost of mortgage financing. However, in financially underdeveloped countries in which down payments are high, low interest rates reduce housing demand, as they make it more costly to save towards a down payment.

“How Sharpe is the Wisdom of the Crowd?”

Does effective crowd wisdom occur in the context of personal investment choices? This study uses Department of Labor 5500 Schedule H portfolio data to compute the portfolio performance of American defined-contribution plans, focusing chiefly on aggregate portfolio diversification and how plan portfolios perform relative to Markowitz's classic efficient frontier. The plans in my sample of reconstructed portfolios are sub-optimal when measured against Markowitz's efficient frontier and are also outperformed by a well-performing index fund. However, on average the sample performs well in 2017, a record year for the stock market. When compared to a well-performing index fund, the foregone earnings are estimated to be 3 cents on every dollar of investment in 2017, prior to any management fees. My findings suggest that when financial literacy and smart portfolio allocation are costly in terms of training and time, representative investors stand to gain from passive investment strategies, holding all else fixed.