Research

Working papers

"Housing Boom Spillovers: Labor-Capital Substitution and the 2007-2010 Employment Drop"

Abstract:

The employment drop between 2007 and 2010 was the largest since the Great Depression. I show that one reason for this drop is the fact that the level of employment was, in 2007, too high than it should, due to labor-capital substitution arisen in the housing boom. The boom created two effects on other sectors: (i) higher demand for sectors that provide direct inputs to construction and (ii) higher capital input prices for sectors that use common inputs with construction. The industries that were affected by both effects met the higher demand by substituting expensive capital with cheaper labor. The findings are robust to different data sources and different levels of granularity. These results add to the literature on structural, as opposed to cyclical, explanations for the decline in employment of the current century, and provide an intuition for why much of this decline was concentrated only in the period 2007-2010. 

"Entry in Banking Markets” (with Guillaume Vuillemey)

Abstract:

We show that adverse selection is a key determinant of banking market structure. Using data on US bank branches over the period 1981-2016, we study banks’ decisions to expand or contract geographically. First, banks are more likely to expand in counties that are similar, in terms of industry shares, to those in which they already have branches. Second, when contracting, banks are more likely to close or sell branches in similar areas. These results suggest that banks value diversification, but that informational barriers prevent them from achieving optimal scale. These findings have implications for banking competition and the rise of fintech. 

"Eurozone vs. US: did the 2007/08 financial crisis alter the transmission mechanism between monetary policy and financial markets?"

Abstract:

The VIX (VSTOXX) is commonly regarded as a fear index, and, therefore, as a proxy of uncertainty and investors' risk aversion. Given its large use and its forward-looking role, its relationship with monetary policy may help clarify the more general link between monetary policy and financial markets. From previous results of the literature, I predict that the VIX (VSTOXX) should rise with central banks tightening. I find that, while this is true until 2007, the subsequent financial crisis altered the standard transmission mechanism: the new unconventional monetary policies adopted by the Fed and the ECB don’t seem to impact investors’ sentiment, and the conventional ones are effective only in the Euro area. These findings are robust to different econometric specifications. A possible explanation for these results is that interest rates in the US reached the zero lower bound much earlier than in the Euro area and that central bank asset growth (unconventional monetary policy loosening) was perceived, by market participants, as a sign that economic recovery hadn’t been achieved yet.