Luigi Falasconi



Welcome to my page!

I am a Ph.D. Candidate in Economics at the University of Pennsylvania.

Research Areas: Macroeconomics, Finance, International Economics.

Working Papers

We show that a policy rate cut lengthens corporate debt maturity. A 1 standard deviation (10 basis points) interest rate cut raises the share of long-term debt by 87 basis points, explaining 20% of its variation. In the cross-section, large and bond-issuing firms drive this adjustment. We provide a theory to rationalize these findings. A policy rate cut increases demand for long-term bonds due to reach for yield. Financial frictions allow only large, unconstrained firms to benefit by refinancing at lower yields. Empirical evidence on corporate bond issuance and debt security holdings by insurance firms supports our proposed mechanism.

"The Foreign Liability Channel of Bank Capital Requirements," with P. Herrero, C. Mendicino and D. Supera

This paper highlights a novel trade-off of bank capital regulation. Setting bank capital requirements at appropriately high levels is essential to increase the resilience of the banking sector to domestic sources of financial instability. However, a reduction in bank default risk is also associated with a greater reliance on foreign liabilities. This makes the economy more exposed to global sources of financial instability. Our results suggest that in the presence of bank default risk, foreign exchange interventions are complementary to bank capital requirements in addressing financial vulnerabilities in emerging markets. Estimates using bank-level data on Peru’s transition to higher capital requirements lend support to the foreign liability channel of bank capital requirements.

"Bank Capital Regulation in a Monetary Union," with C. Mendicino, K. Nikolov and D. Supera

We examine the international spillovers from bank capital regulation in a model of a monetary union featuring bank default risk and cross-border banking. Capital requirement increases make domestic banks safer but entail cross-country spillovers which operate via trade as well as cross-border lending and bank solvency channels. The design of the deposit insurance scheme and the reciprocation of capital regulatory measures are two key determinants of the overall spillovers.
Secondary markets face fire sale costs as well as search and bargaining frictions. In this paper, we study the welfare implications of accessing centralized versus decentralized over-the-counter (OTC) secondary markets. To do so, we develop an informed principal contract design model with two signalling activities and endogenous signalling costs. In our model, good borrowers, unable to signal their type through cash alone, choose between liquidating low-quality assets in a centralized market or exchanging them in an OTC market for assets that can be posted as collateral. Equilibrium prices and haircuts determine signaling costs endogenously. We establish conditions for equilibria where different markets are accessed-centralized, OTC-only, and dual-market-and rank them by the welfare they provide to borrowers. We show that OTC-only equilibria offer the highest welfare, followed by dual-market and centralized-market equilibria. Our findings highlight the importance of market access and dealer bargaining power in lending markets with asymmetric information.

Work in Progress

"The Sovereign Risk-Banking Fragility Nexus," with A. Hannon, C. Mendicino and E. Mendoza

"CLOs as Fire Sale Insurance: The Macroeconomics of Loan Securitization," with W. Diamond, T. Landvoigt and C. Xu

"Customer Capital and Corporate Borrowing," with L. Nord and G. Ruzzier