Safe Assets, Collateralized Lending and Monetary Policy (Job Market Paper)
I study how quantities of safe bonds affect asset prices and lending volumes in financial markets.
In a quantitative model, heterogeneous agents trade securities of different maturity and risk exposure.
Risk-tolerant investors issue collateralized bonds to obtain leverage and to insure the risk-averse.
Despite the presence of higher return assets,
the most risk-tolerant hold long-maturity safe assets,
which they value as good collateral.
The value of collateralizability is high when safe bond quantities are low.
Given measured variations in safe bond quantities between 1990 and 2015,
the model replicates the dynamics of lending volumes
and generates large, volatile credit spreads and excess return predictability.
The model also predicts price effects of high-frequency changes of government debt quantities around tax due dates.
In policy experiments,
I use the model to study the effects of large-scale asset purchases.
On the Coexistence of Bank and Bond Financing
This paper studies why most bond issuing firms also obtain funding from bank loans
and credit lines. An entrepreneur has access to a risky investment opportunity, which is
profitable ex-ante but might become unprofitable at an intermediate stage. The entrepreneur
has incentives to continue an unprofitable project, which he can do if initial public borrowing
has raised enough funds to also finance the project continuation. Only the bank is permanently
present in the market and can provide and cancel funding on short notice. The dependence
on a bank credit line constrains the entrepreneur's continuation decision, thereby increasing
ex-ante and ex-post efficiency. Bank loans act as a complement to public debt, rather than as
a substitute. A contraction in bank loan supply limits access to bond financing. I conclude
that public debt markets cannot always mitigate banking crises.
Work in Progress
Financial Stability, Monetary Policy and the Payment-Intermediary Share
with Monika Piazzesi and Martin Schneider
The payment-intermediary share is the share of fixed income claims held by financial intermediaries with money-like liabilities.
It rises for all claims in times of financial stress and is always higher for safer claims.
This paper proposes a quantitative model of a modern monetary economy that accounts for the valuation of fixed income claims
as well as their allocation inside vs outside the payment intermediaries.
While all assets are valued for their risk and return properties,
those held inside payment intermediaries are also valued as collateral that backs inside money.
The payment-intermediary share depends on the transactions demand for inside money as well as portfolio responses to uncertainty shocks.
It determines the quantitative impact of monetary policy and macro-prudential regulation on asset prices.
Housing Policies and the Homeownership Rate
with Marco Giacoletti
In the 1990s, the US government implemented various policies to promote homeownership among low income households.
This paper studies the effect of these policies both empirically and in a quantitative portfolio choice model.
We document that homeownership rates increased during the housing boom (1995-2005) among young, highly educated households with high lifetime income.
However, homeownership rates did not increase for households with low lifetime income. During the housing bust (2005-2012),
homeownership rates fell among both groups, especially among households with low permanent income.
To understand these stylized facts, we solve the portfolio problems of a group of heterogeneous households.
In the model, households can buy or rent houses of different qualities, and homeowners can take out a mortgage which they can refinance and default on.
We use the model to study the dynamics of homeownership rates across demographic groups from 1995 to 2012 in California.
We find that young, educated households benefited more from the implemented policies than households with permanently low income.