Jose Lara

We develop a structural approach to identify latent belief shocks underlying the cross-sectional subjective macroeconomic expectations system, combining sign restrictions with narrative identification. Departing from existing literature that studies expectations one outcome at a time, we provide a unified anatomy of expectation comovement while remaining agnostic about underlying microfoundations. Contrary to the conventional supply-side view, we show that a pessimism shock-a broad adverse shift in beliefs across macroeconomic outcomes-accounts for the dominant share of covariance in households expectations, extending well beyond output and inflation. We further map these belief shocks to observable heterogeneity, showing that pessimism is concentrated among individuals with low income, unemployment, deteriorating financial conditions, and poor health, who anticipate lower future earnings, higher job-loss and default risk, and plan to dissave.

We study how production lags shape monetary transmission in a New Keynesian economy. Because output takes time to produce, firms’ pricing decisions depend on both current marginal costs and the expected cost of completing production in the future. This transforms the Phillips curve into an inflation-expectations equation linking current inflation to future inflation, future real rates, and the inherited production pipeline. The model highlights that supply-chain and production delays can change the magnitude and persistence of inflation and output responses to monetary policy, highlighting why policy transmission depends on the time structure of production.

This paper tests whether and how trade policy uncertainty affects domestic credit conditions. We exploit a unique micro dataset on Mexico that combines bank and firm loan-level data, with customs data on the trading activity of Mexican firms. Studying the period around the renegotiation of NAFTA, we estimate an empirical regression model interacting trade policy uncertainty with bank characteristics, controlling for firm-bank factors, and sector specific shocks. Generally  banks increase new loan issuance, but raise interest rates and shorten tenors. Specifically, banks with high loan to asset ratios increased new loans, although at shorter maturities. Banks with existing exposures to trade firms adjusted new loan issuance, interest rates, and maturity depending on whether their exposure was to importing firms, exporting firms or Global Value Chain (GVC) firms. Notably, higher exposure to exporters or GVC firms, was associated with more new loans and shorter maturities. For banks with higher levels of FX intermediation, new loans rose, and with higher interest rates and shorter maturities, suggesting a higher risk appetite. Also, increased trade uncertainty is associated with less new credit from foreign banks hosted in Mexico when the parent is headquartered in the NAFTA/USMCA trade agreement member countries (the U.S. or Canada), and more credit when the foreign bank is headquartered outside of the U.S. or Canada. These banks with Non-NAFTA parents, issued more new loans, adjusted interest rates higher and maturities shorter. This evidence illustrates how trade policy uncertainty can affect credit conditions via banks, and in particular how banks transmit uncertainty shocks.

This paper examines the link between bank competition measures and risk indicators using quarterly interbank exposures data for all banks in Mexico during 2008Q1–2019Q1. The classical literature focuses on disentangling the link between competition and individual bank solvency risk. In this paper, we take one step forward in analyzing the relationship between competition and systemic risk. We use counterfactual bank-level contagion risk indicators as a proxy of systemic risk to assess their relationship with traditional competition measures. Our main finding indicates a negative relationship between the bank-level Lerner index and systemic risk. This means that an increase in competition is associated with an increase in systemic risk. Additionally, we find that the implementation of regulatory reform during the period studied does not affect this relationship.

This paper analyzes the monthly evolution of bank competition in Mexico from 2008 to 2019 using different measures. Subsequently, we analyze whether the 2014 financial reform had an effect on some of our competition measures. We use ordinary and quantile regression techniques and Markov switching models to identify changes in regimes. We find partial empirical evidence supporting the idea that the reform had a positive average effect and increased banks’ competition intensity during a few years. However, we also document heterogeneity as some large banks benefited from an increase in their market power. We perform several robustness tests and report that our measures lead to values that are congruent and similar to those available in the literature. The main policy lesson of our research is that regulators could benefit from the monitoring of competition evolution using a finer time frequency.

In this paper we document empirical evidence regarding the unintended consequences of financial regulatory changes on market liquidity of Mexican sovereign debt. We find mixed impacts: in the context of Basel 2.5, Basel III and the Liquidity Coverage Ratio, we find negative effects, while in the case of the Dodd-Frank Act and the Volcker Rule we find positive effects. The difference in results can be explained by the fact that some of the regulatory changes mainly imposed additional constraints on government debt holdings, while others were designed to enhance transparency and thus reduce uncertainty as well as information asymmetries. Moreover, our estimates suggest that the aggregate effect of the regulatory changes decreased the weekly turnover ratio of Mexican sovereign debt securities by 18 percent. Our results hold under different liquidity measures and different econometric specifications.