Research

Job market paper

Optimal Macroprudential Policy and Investment  (find latest version here: Google Drive, Sciebo)

Abstract: This paper studies optimal time-consistent macroprudential policy in a model with financial frictions and endogenous capital formation. Like in previous studies, which assumed that productive capital is either fixed or absent, optimal macroprudential policy disincentivizes borrowing ex ante and supports borrowing when fire sales emerge. Yet, in an economy with endogenous capital formation, macroprudential policy harms capital formation and reduces the stock of collateral, such that the optimal policy in non-crisis times intervenes less than under fixed or no capital. Different to an economy without capital formation, this policy yields modest results in terms of crisis prevention and welfare gains. The combination of macroprudential policy with investment policy eliminates most crises and leads to substantially higher welfare gains, outperforming pure macroprudential policy. Under this policy mix borrowing is disincentivized more strongly and investment is supported ex ante. 

Macroeconomic Implications of Bank Specialization (Draft available upon request)

Abstract: This paper develops a general equilibrium model of bank specialization in which borrowers are not independent projects but firms that compete for market shares. Firms produce differentiated goods located on a product circle, and banks receive signals about firms’ productivity whose precision declines with the distance between a bank and a firm in this product space. Because firms compete for the same customers, information about one firm is also information about its competitors: good news about a close competitor is bad news for a borrower, but it can be good news when demand shocks are common to the sector. The model shows that lower rates in the sectors banks specialize in do not require competition among lenders. Conditional on its risk assessment, even a monopolistic bank lends more cheaply to firms it knows well, because precise information lowers expected default and verification costs and loan demand responds to the rate. Through loan rates, the information of banks determines investment and shapes the distribution of market shares. Whether specialized banks have an information advantage over their whole portfolio compared to diversified banks depends on how strongly the information of a bank deteriorates outside its area of expertise. 

Absorption or Contagion: Financial Shocks Across Sectors (with Oskar Juul)