Research

Job market paper

Optimal Macroprudential Policy and Investment  (find latest version here)

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 Banking Specialization (Draft coming soon)