Research
Working Papers
This paper assesses banks' risk-shifting in the non-regulated banking activity, also called shadow banking. Exploiting variations in risks disclosed by banks in their financial reports and using textual analysis tools, this document provides a new measure of non-regulated banking activity. The paper empirically documents that (1) banks are more likely to shift risk out of the regulator's reach when their risk-based capital constraints become binding, (2) there is a positive relationship between risk-shifting and tail risk of banks. The paper then rationalizes banks' risk-shifting behavior using a macroeconomic model with a financial sector. In the model, the event of default on debt and the presence of externality due to imperfect regulation enforcement encourage banks to engage in risk-shifting strategies. As a result, banks behave as cross-sector arbitrageurs. Finally, the paper uses this framework to study optimal regulation. We show that a tax on sectoral activity effectively reduces banks' risk-shifting compared to other bank's equity regulation policies.
Excess smoothness of consumption and household finance [ Poster]
This paper investigates how the response of consumption to human capital risk affects household finance. Using joint data on consumption, income, and assets of representative US households, I document the excess smoothness of consumption as an essential factor for explaining household's portfolio allocation decision. Furthermore, I formalized the effect of the excess smoothness on the portfolio choice using a structural life-cycle model where a household faces an idiosyncratic wage income risk. The model is calibrated to match relevant aspects of the dynamics and the life cycle of risky asset holding from the PSID.
Long-run carbon consumption risks and asset prices joint with Stéphane N'dri
This paper analyzes how environmental policies that aim to reduce carbon emissions affect asset prices and household consumption. Using novel data, we propose a measure of carbon emissions from a consumer point of view and a carbon consumption growth risk measure. The measures are based on information on aggregate consumption and the carbon footprint for each good and service. To analyze the effects of environmental policies, a long-run risks model is developed where consumption growth is decomposed into two components: the growth rate of carbon consumption and the growth rate of the share of carbon consumption out of total consumption. This paper argues that the long-run risk in consumption growth comes mainly from the carbon consumption growth arising from policies and actions to curb emissions. The model helps to detect long-run risk in consumption from climate policies while simultaneously solving the equity premium and volatility puzzles and explaining the cross-section of assets.
Work in Progress
Climate policy uncertainty and carbon prices