Research
Research
"Conventional vs. Unconventional Monetary Policy under Credit Regulation" with Chetan Subramanian (IIM Bangalore) and Ankit Kumar (IIM Calcutta)
We provide empirical evidence that the impact of quantitative easing (QE) programs on investment is weaker for countries with high credit market regulations. We then extend a simple DSGE model with segmented financial markets to include credit regulation and examine its impact on the transmission of conventional and unconventional monetary policies. In our model, the government requires banks to hold a fraction of their assets in government debt. We show that the presence of such regulation can invert monetary transmission under QE policy: An expansionary QE program raises term premiums on corporate bonds and causes a contraction instead of an expansion in the economy. Such a perversion is absent under conventional policy. Further, in contrast to Carlstrom et al. (2017), we show that a simple Taylor rule welfare dominates a term premium peg under financial shocks, while the peg does better in the case of non-financial shocks.
"Land Misallocation and Industrial Development" with Kunal Dasgupta (IIM Bangalore)
Abstract:
In many poor and densely populated countries, a large fraction of land is devoted to agriculture. This makes industrialization and urbanization, both of which require land, a serious challenge. We argue that land can be re-allocated from agricultural to non-agricultural uses without any adverse effect on agricultural output when the existing land use in agriculture is sub-optimal. Using actual and potential crop yield data from Indian districts, we show that a planner who allocates agricultural land to its best possible use can release up to 70 percent of land without affecting aggregate agricultural output. The effect is analogous to a land- augmenting productivity increase in the agricultural sector. Using a calibrated two-sector model, we find that the re-allocation of land from agriculture to the manufacturing sector raises manufacturing output by 21 percent and real income by 11.69 percent.
Keywords: Mis-allocation, Agriculture, Manufacturing, Land, GAEZ.
SSRN Version: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4182433
Media coverage: https://www.ideasforindia.in/topics/agriculture/land-misallocation-and-industrial-development.html
"Credit market frictions: collateral-based vs. earnings-based borrowing constraints" with Chetan Subramanian (IIM Bangalore)
Abstract:
We classify US manufacturing firms into financially constrained and unconstrained groups using the textual analysis-based measure of debt-constraints as proposed by Hoberg et al. (2015). We find that constrained firms (i) have a higher debt-to-earnings ratio, (ii) have a lower debt-to-asset ratio, (iii) are more productive, (iv) are not necessarily small, and (v) have a lower net worth. In addition, we also find that the correlation between size and the marginal revenue product of capital is close to zero. Macro models have typically linked firms’ borrowing constraints to the collateral value of their assets. In contrast, using a static input choice model, we show that an earnings-based constraint does a better job of explaining the above-stylized facts than the conventional size-dependent collateral- based constraints. Finally, we use a dynamic framework to link “misallocation”, i.e., dispersion in marginal products of capital (MRPK), to the type of loan contract. Our results indicate that collateral-based borrowing constraints overstate the effects of misallocation due to financial frictions.
"Inefficiency in Agricultural Production: Do Information Frictions Matter?" with Aranya Chakraborty (Ahmedabad University) and Digvijay Singh Negi (Ashoka University)
Abstract:
Does information and communication technology (ICT) based provision of agricultural extension services help improve agricultural productivity in poor or developing countries? We answer this question in the case of rice production in rural Bangladesh. We exploit the spatiotemporal variation in the availability of village-level phone services and the temporal variation in the timing of an ICT-based intervention to identify the differential impact by input use, network centrality, and geographic proximity. We observe that, in the villages with access to phone service, there is a 50 percent reduction in plot-level inefficiency after the intervention, driven by plots that used rainfed water for cultivation. We provide evidence suggesting that these effects are due to increased input use by the farmers using rainfed farming. Our results also document that the intervention benefits geographically remote farmers differentially more, whose information needs are otherwise unfulfilled by traditional extension services. However, the diffusion of information via networks remains relevant as we document significant cross-community spillovers through geographic ties.
“Digital Saga of Mailers” in AIMS Journal, Vol. 6, No. 2, January 2021 (pg. 240-252)