Publications:
Management Science (2024)
Winner of the 8th SUERF/UniCredit Foundation Research Prize
In this paper we use Norwegian tax data and a novel natural experiment to isolate the impact of job loss risk on saving behavior. We find that a one percentage point increase in job loss risk increases liquid savings by roughly 1.2 -2.0 percent. Further, we show that employment falls in non-tradable industries not directly affected by the shock, also after controlling for intersectoral linkages and lower demand from affected industries, consistent with the household demand channel of recessions.
"Negative nominal interest rates and the bank lending channel" - with Gauti B. Eggertsson, Ragnar E. Juelsrud and Lawrence H. Summers.
Review of Economic Studies (2023)
We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to lending rates and credit volumes is substantially lower and bank equity values decline in response to further policy rate cuts. We construct a banking sector model and use our estimate of the pass-through of negative policy rates to lending rates as an identified moment to parameterize the model and assess the impact of negative policy rates in general equilibrium. Using the theoretical framework, we derive a sufficient statistic for when negative policy rates are expansionary and when they are not.
Media coverage: Bloomberg, Bloomberg, WSJ
"Kaldor and Piketty's Facts: The Rise of Monopoly Power in the United States" - with Gauti B. Eggertsson and Jacob A. Robbins.
Journal of Monetary Economics (2021)
The macroeconomic data of the last fifty years have overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and average returns on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy—that is, the emergence of a non-zero-rent economy—along with forces that have led to a persistent long-term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.
Media coverage: Bloomberg, The New York Times.
Journal of Financial Intermediation (2020)
We use a 2013 Norwegian policy reform to study how banks react to higher capital requirements and how these adjustments transmit to the real economy. Using bank balance sheet data, we document that banks raise capital ratios by reducing risk-weighted assets. Most of the reduction in risk-weighted assets is accounted for by a reduction in average risk weights. Consistent with this reduction in risk, we document a substantial decline in credit supply to the corporate sector relative to the household sector. We also show that banks react to higher requirements by increasing interest rates, consistent with the reduction in corporate credit growth being supply driven. Using administrative loan level tax data, we document a reduction in lending on the firm level. This is robust to controlling for firm fixed effects, thereby accounting for potential firm-bank matching. Finally, we find that the reduction in bank lending has a negative impact on firm employment growth and that this effect is driven by small firms.
Working papers:
"Mortgage regulation and financial vulnerability at the household level" - with Knut Are Aastveit and Ragnar E. Juelsrud.
Norges Bank Working Paper 6 2020
Revise & Resubmit American Economic Journal: Macroeconomics
We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses – thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.
"The housing channel of intergenerational wealth persistence" - with Knut Are Aastveit, Eirik E. Brandsaas, Ragnar E. Juelsrud and Gisle J. Natvik.
Norges Bank Working Paper 16/2023
We use Norwegian tax data and a life-cycle model with housing to study how wealth transmits across generations through the housing market. After controlling for a rich set of attributes, households with richer parents are nearly 15% more likely to be homeowners at age 30. Moreover, when entering, they have higher leverage and buy homes worth 15% more. Estimates using international stock market returns as a shiftshare instrument support a causal interpretation. We further document that housing outcomes when young are important determinants of midlife wealth. This holds also when using plausibly exogenous variation in homeownership caused by the timing of intra-family deaths. As a result, housing gaps caused purely by parental wealth explain 12% of intergenerational wealth persistence, making housing equally important as the combined impact of a wide range of household characteristics including income and education. We explore new mechanisms for parental support, such as intra-family housing transactions below market value. Through the lens of our model, house price expectations stand out as a key driver of the magnitude of the housing channel of intergenerational wealth persistence.
"Regulating Entrepreneurship: The case of Capital Requirements" - with Annika Bacher, Andreas Fagereng and Marius Ring.
Governments have a long history of regulating entrepreneurs' use of limited liability by mandating a minimum amount of paid-in equity. While opponents argue that these requirements pose an unnecessary barrier to entrepreneurship, proponents maintain that they protect stakeholders, in part by screening out low-quality entrepreneurship. We exploit a 2012 Norwegian reform that lowered the capital requirement from $17,000 to $5,000 to study this quantity-quality tradeoff. Our setting includes detailed data on both firms and the underlying entrepreneurs, providing comprehensive proxies for entrepreneurial quality. We first show that incorporation rates double after the reform and remain elevated over time. Post-reform entrants are considerably smaller in terms of assets and revenues but do not differ in terms of growth, survival rates, profitability, productivity, or leverage. Furthermore, post-reform entrants have similar past income levels, age, and educational attainment as pre-reform entrants. We further find no difference in educational achievement, captured by proxies for quantitative skills, communication skills, physical ability, and illicit traits. Thus, while the reform led to an influx of smaller firms, there is no indication that new entrepreneurs or their firms were riskier or of lower quality. These findings challenge the existing motivation for capital requirements. In explaining the mechanism behind the increase in entry, we find no evidence that the reform alleviated financial constraints. Rather, our empirical findings and enriched entry model suggest that returns-to-scale heterogeneity plays an important role. Optimally small entrepreneurs have more concave production functions and only enter when capital requirements are low.