Labor Rigidities and Firms’ Resilience to Liquidity Shocks (with Edoardo M. Acabbi and Alessandro Sforza, 2024). Previously circulating as "The Financial Channels of Labor Rigidities: Evidence from Portugal". Banco de Portugal Working Paper No. 2019-15. [link] [most updated version]
R&R at Management Science
We study how labor rigidities affect firms' responses to liquidity shocks. Using administrative data on workers, firms and banks in Portugal, we establish two key results. First, the negative effects on employment and firm survival of an unexpected liquidity shock are concentrated in firms with greater share of value added from labor. These firms feature a higher-skill, less replaceable workforce, requiring greater investment in on-the-job training. Second, firm productivity does not mitigate the impact of liquidity shocks. Our findings suggest that labor rigidity impedes productivity-enhancing reallocation during financial crises.
Winner of the Prize on "Poupança e Financiamento da Economia Portuguesa" (Savings and Financing of the Portuguese Economy) awarded by the Office of Strategy and Studies (GEE) of the Portuguese Ministry of Economy and the Portuguese Association of Insurers (APS).
Media coverage: Banco de Portugal; Portuguese Economic Journal; Thorsten Beck's blog
Monetary Policy, Labor Income Redistribution and the Credit Channel: Evidence from Matched Employer-Employee and Credit Registers (with Martina Jasova, Caterina Mendicino, José-Luis Peydró and Dominik Supera, 2021). CEPR Discussion Paper No. 16549. [link] [most updated version]
This paper documents the redistributive effects of monetary policy on labor market outcomes via the credit channel. For identification, we exploit matched administrative datasets in Portugal - employee-employer and credit registers - and monetary policy since the Eurozone creation in 1999. We find that softer monetary policy improves worker labor market outcomes (wages, hours worked and firm employment) more in small and young firms, which are more financially constrained. Within small and young firms, the wage effects accrue to incumbent workers, in line with the back-loaded wage mechanism. Consistent with the capital-skill complementarity mechanism, we document an increase in skill premium and show that financially constrained firms increase both physical and human capital investment by most. Our findings uncover a central role for both the firm-balance sheet and the bank lending channels of the monetary policy transmission to labor income inequality, with state-dependent effects that are substantially stronger during crisis times. Importantly, we do not find any redistributive effects for firms without bank credit.
Awarded the Equitable Growth grant
Media coverage: Portuguese Economic Journal
Banks' Liquidity Management and Financial Fragility (with Luca G. Deidda, 2017). Previously circulating as "Banks' Liquidity Management and Systemic Risk". Banco de Portugal Working Paper No. 2017-13. [link]
How do banks manage liquidity against financial fragility? To answer this question, we study an economy where banks undertake maturity transformation and insure their depositors against idiosyncratic and aggregate shocks. Moreover, strategic complementarities might trigger depositors’ self-fulfilling runs, modeled as "global games". During runs, if depositors' risk aversion is sufficiently high, the banks engage either in liquidity hoarding when the productive asset in portfolio is sufficiently liquid, or in liquidity cushioning when it is sufficiently illiquid. Ex ante, if the probability of the idiosyncratic shock is sufficiently large, banks hold extra precautionary liquidity, and narrow banking is not viable.
AI Runs (with Kartik Anand, Sophia Kazinnik and Agnese Leonello, 2025).
We investigate the performance of Gen-AI and ML agents in a mutual fund setting and study the potential for runs.