Working Papers

Unintended Side Effects: Stress Tests, Entrepreneurship, and Innovation (2019)

Previously circulated under "No Risk, No Growth: The Effects of Stress Testing on Entrepreneurship and Innovation"

This paper shows that post-crisis stress tests can have negative side effects for entrepreneurship and innovation. Banks subject to stress tests strongly cut small business lending, in particular lending secured by real estate collateral. Lower credit supply leads to a relative decline in entrepreneurship during the recovery in counties with higher exposure to stress tested banks. Since real estate collateral is an important source of financing for young firms, the decline in entrepreneurship is stronger in sectors with a higher share of firms using home equity financing, i.e. where the reduction in credit hits hardest. Counties with higher exposure also see a decline in patent applications by young firms, but not by old. I also provide suggestive evidence that the decline in entrepreneurship due to a lack in credit affects labor productivity, reflecting young firms’ disproportionate contribution to growth.

Bank Loan Supply during Crises: The Importance of Geographic Diversification (2019)

With Philipp Schaz

We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks.

From Finance to Fascism: The Real Effect of Germany’s 1931 Banking Crisis (2019)

With Stefan Gissler, José-Luis Peydró and Hans-Joachim Voth

Summary in English on, summary in German on Ö

Do financial crises radicalize voters? We analyze a canonical case – Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.

Collateral, Reallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom (2018)

Young Economist Award, EEA-ESEM Annual Congress 2018 (short summary)

I show that rising real estate prices reduce industry productivity, because they reallocate capital and labor towards inefficient firms. Rising real estate values relax collateral constraints, so firms borrow to invest and increase output. However, firms owning real estate are significantly less productive than non-owners. Higher real estate prices thus allocate resources to unproductive firms, and industries with stronger growth in real estate values see a significant reduction in total factor productivity growth. Banks with superior information about borrowers are better at identifying productive borrowers and supply less credit to unproductive firms when collateral values rise.


Credit-Supply Shocks and Firm Productivity in Italy (2018), Journal of International Money and Finance, Vol 87, p. 155-171

With Mehdi Raissi and Anke Weber

IMF Working Paper WP/17/67

The Italian economy has been struggling with low productivity growth and bank balance sheet strains. This paper examines the implications for firm productivity of adverse shocks to bank lending in Italy, using a novel identification scheme and loan-level data on syndicated lending. We exploit the heterogeneous loan exposure of Italian banks to foreign borrowers in distress, and find that a negative shock to bank credit supply reduces firms' loan growth, investment, capital-to-labor ratio, and productivity. The transmission from changes in credit supply to firm productivity relates to labor market rigidities, which delay or distort the adjustment of firms' desired labor and capital allocations, and thereby reduce firms' productivity. Effects are stronger for firms with higher capital intensity and external financial dependence.

Work in Progress

Identifying the Economic Origins of Segregation: Evidence from US Cities during the First Great Migration (2018), with Sebastian Ottinger (funded by UCLA Ziman Center Research Grant)