Research

 Working Papers:


Abstract:

We extend a simple Dynamic Stochastic General Equilibrium (DSGE) model with segmented financial markets to include financial repression and examine its impact on the transmission of conventional and unconventional monetary policies. In our model, financial repression arises as the government forces banks to hold a fraction of their assets in government debt. We show that such distortions can invert monetary transmission under quantitative easing (QE) policy: an expansionary QE program raises term premiums on corporate bonds and causes a contraction instead of an expansion in the economy. Such perversion is absent under conventional policy. Further, in contrast to the literature 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.

Keywords: Financial Repression, Segmented AssetMarkets, Quantitative easing, Term Premium targeting, Leverage constraint.

SSRN Link: https://dx.doi.org/10.2139/ssrn.3963101 


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 


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.

Case Study

“Digital Saga of Mailers” in AIMS Journal, Vol. 6, No. 2, January 2021 (pg. 240-252)