Visiting Fellow, Economist Macroeconomic Research
Published Articles (Refereed Journals and Volumes)
Economics Letters 217, August 2022 | with Hashemi and Kirov
The production approach recovers markups using the output elasticity for a variable and undistorted input. We show using the revenue elasticity for a variable input recovers that input’s wedge. Our result has two implications. First, in the canonical setting with CES demand and monopolistic competition, past research using the production approach with revenue data should be recast as evidence of input, rather than output, distortions. Second, future research can use the production approach with revenue data to study input distortions, provided researchers can measure inputs in physical units. A promising application pertains to labor market distortions.
Journal of Financial Services Research 60(1), June 2021 | with Cetorelli
Using a synthetic control research design, we find that living will regulation increases a bank’s annual cost of capital by 22 bps, or 10% of total funding costs. This effect is stronger in banks measured as systemically important before the regulation’s announcement. We interpret our findings as a reduction in Too-Big-to-Fail subsidies. The effect size is large: multiplying our bank-specific point estimates by funding size implies a subsidy reduction of $42B annually. The impact on equity drives the main effect. The impact on deposits is statistically indistinguishable from zero, passing the placebo test for our empirical strategy.
Economic Policy Review 20(2), December 2014 | with Cetorelli and McAndrews
This study documents the changing organizational complexity of bank holding companies as gauged by the number and types of subsidiaries. Using comprehensive data on U.S. financial acquisitions over the past thirty years, the authors track the process of consolidation and diversification, finding that banks not only grew in size, but also incorporated subsidiaries that span the entire spectrum of business activities within the financial sector. Their analysis shows that bank holding companies added banks to their firms in the early 1990s, but gradually expanded into nonbank intermediation through acquisitions of already-formed subsidiaries in the years following. They view this emergence as consistent with a move toward a model of finance oriented to securitization and consider the implications of this new complexity for supervision and resolution.
Economic Policy Review 20(2), December 2014 | with Afonso and Santos
The notion that some banks are “too big to fail” builds on the premise that governments will offer support to avoid the adverse consequences of their disorderly failures. However, this promise of support comes at a cost: Large, complex, or interconnected banks might take on more risk if they expect future rescues. This paper studies the effect of potential government support on banks’ appetite for risk. Using balance-sheet data for 224 banks in 45 countries starting in March 2007, the authors find higher levels of impaired loans after an increase in government support. To measure support, they rely on Fitch Ratings’ support rating floors (SRFs), a new rating that isolates potential sovereign support from other sources of external support. A one-notch rise in the SRF is found to increase the impaired loan ratio by roughly 0.2 — an 8 percent increase for the average bank. The authors show similar effects on net charge-offs and for U.S. banks only.