Bank Capital Buffers in a Dynamic Model (joint with Alex Michaelides and Spyros Pagratis) Financial Management (2020), Vol 49(2),Published Version (FM), Bundesbank Discussion Paper No 51/2018
Household Search and the Aggregate Labor Market (joint with Rigas Oikonomou) Review of Economic Studies (2017), Vol 84(4)Published Version (RES), Unemployment Insurance Appendix, Data and Numerical Appendix
The Rise of the Added Worker Effect (joint with Rigas Oikonomou) Economics Letters (2016), Vol 143Published Version (EL), Online Appendix: Data and Proofs, Bundesbank Discussion Paper No 10/2016
Entrepreneurship, Bankruptcy and Debt Portfolios (joint with Giacomo Rodano) Journal of Monetary Economics (2015), Vol 76Published Version (JME), Bundesbank Discussion Paper No 28/2015
The (Un-) importance of Chapter 7 wealth exemption levels Journal of Economic Dynamics and Control (2014), Vol 38Published Version (JEDC), Working Paper
The long and short of financing government spending (joint with Rigas Oikonomou and Romanos Priftis)
This paper shows that debt-financed fiscal multipliers vary depending on the maturity of debt issued to finance spending. Utilizing state-dependent SVAR models and local projections for post-war US data, we show that a fiscal expansion financed with short-term debt increases
output more than one financed with long-term debt. The reason for this result is that only the former leads to a significant increase in private consumption. We then construct an incomplete markets model in which households invest in long and short assets. Short assets have a lower
return (in equilibrium) since they provide liquidity services, households can use them to cover sudden spending shocks. An increase in the supply of these assets through a short-term debt financed government spending shock makes it easier for constrained households to meet their spending needs and therefore crowds in private consumption. We first prove this analytically in a simplified model and then show it in a calibrated standard New Keynesian model. We finally study the optimal policy under a Ramsey planner. The optimizing government faces a tradeoff between the hedging value of long-term debt, as its price decreases in response to adverse shocks, and the larger multiplier when it issues short-term debt. We find that the former effect dominates. The optimal policy for the government is to issue a relatively constant amount of short-term debt and finance spending shocks predominantly with long-term debt.
The rise of household insurance (joint with Rigas Oikonomou and Francesco Pascucci)
We document that, since the 1980s, US households have increasingly been using joint labour supply as an insurance device against unemployment shocks. Using data from the Current Population Survey, we show that the added worker effecthas increased from roughly 8% to 13% in the 2000s. To understand this pattern, we construct a Bewley-Aiyagari model with dual earner households and search frictions in the labour market. We subject the model to several well-known structural changes that have occurred since the 1980s in the US: the increase in wage inequality, the decline in the gender wage gap, changes in labour market frictions and in attitudes towards female employment. We show that the structural changes which resulted in a higher insurance value of the added worker effect, have made households focus more on this margin.
Sovereign risk and bank fragility (joint with Kartik Anand)
We develop a model of bank risk-taking with strategic sovereign default risk. Domestic banks invest in real projects and purchase government bonds. While an increase in bond purchases crowds out profitable investments, it improves the government's incentives to repay and therefore lowers its borrowing costs. For low levels of government debt, banks influence their default risks through purchases of bonds. But, for high debt levels, this influence is lost since bank and government default are perfectly correlated. Banks fail to account for how their bond purchases influence the government's default incentives. This leads to socially inefficient level of bond holdings.Previous version: Bundesbank Discussion Paper No 54/2020
House Price Expectations and Housing Choice (joint with Alexander Ludwig, Jorge Quintana and Mirko Wiederholt)
What is the role of heterogeneous house-price expectations for boom-bust cycles in the housing market? We exploit a unique Dutch panel data set on households' house price expectations and their consumption, savings and housing choices for the period 2003-2016. This period was characterized by a pronounced boom-bust cycle in the housing market. Conditioning the sample on household heads who report non-zero house price expectations, we find that expectations closely track realized house prices. We next develop a structural life-cycle model of the Dutch housing market where we distinguish household types according to their house price expectations. We employ a calibrated model variant to test if observed variations in expectations can account for the housing boom-bust cycle. First results show that our model closely matches the observed fluctuations of the rent-to-price ratio in the data but overshoots the size of the housing boom.
Changes in education, wage inequality and working hours over time (joint with Thomas Davoine)
The US skill premium and college enrollment have increased substantially over the past few decades. In addition, while low-wage earners worked more than high-wage earners in 1970, the opposite was true in 2000. We show that a parsimonious neoclassical model featuring skill-biased technical change, endogenous education and labor supply decisions can explain the change in the US college education rate between 1967 and 2000 as well as the trend in the wage-hours correlation. Moreover, we show analytically and quantitatively that endogenous labor supply is important. Assuming constant hours significantly biases the estimates of the effects of skill-biased technological progress on college enrollment and the skill premium. Further, we find that limiting the maximum number of hours someone can work lowers welfare for almost all generations. Since it increases the skill premium, the welfare loss is most severe for the low-skilled, reaching almost one percent
of life-time consumption.
A macroeconomic model of banking (joint with Alex Michaelides and Spyros Pagratis)
The long and short of financing government debt (joint with Rigas Oikonomou and Romanos Prifits)