Secondary-Market Capital Prices and Financial Frictions in Real Business Cycles (Job Market Paper) - Draft coming soon
Secondary market capital prices are procyclical and volatile. This paper quantifies the role of financial frictions in amplifying secondary market capital price changes in response to aggregate productivity shocks. To do so, I develop a quantitative industry equilibrium model of investment and capital reallocation with heterogeneous firms, endogenous entry and exit, and heterogeneous capital durability. I calibrate the model to match key moments in the dynamics of the universe of U.S. firms. Financially constrained firms are net buyers of less durable capital because of its lower upfront cost despite its lower future resale value. Financially constrained firms are more responsive to aggregate productivity shocks than less financially constrained firms, so financial frictions amplify movements in secondary market capital prices. I decompose secondary market capital price volatility into 83 percent fundamental volatility and 17 percent amplification from financial frictions. I then explore two related questions. First, I decompose aggregate output volatility into 63 percent when secondary market capital prices are held fixed and 24 percent with fundamental volatility in secondary market capital prices, leaving the remaining 13 percent related to the financial amplification of secondary market capital prices. Second, I find that pecuniary externalities associated with secondary market capital prices are countercyclical. This suggests that policies such as investment subsidies, which may alleviate these externalities, should be countercyclical.
The Consequences of Missing the Trees for the Forest - August 2025 - with Michael B. Nattinger - Paper
We document that the heterogeneity of carbon emission intensity across U.S. public firms is substantial and persistent. Using a tractable heterogeneous-firm GE model, we show that heterogeneity in carbon dependence is quantitatively relevant for determining the socially optimal carbon tax. With heterogeneity in this dimension and endogenous entry and exit, the firm distribution becomes endogenously greener in terms of production technology in response to carbon taxes - a composition effect which is absent from models without this heterogeneity. Omitting this channel, the model-implied Pigouvian tax which implements the socially optimal allocation is 86 percent higher than when the composition effect is present, suggesting that integrated assessment models abstracting from this form of heterogeneity may recommend carbon taxes that are larger than optimal. Nevertheless, we find that the welfare consequences of implementing the too-large carbon taxes are much smaller than the consequences of ignoring climate change altogether.
Are Incurred Loss Standards Countercyclical? A Case Study Using U.S. Bank Holding Company Data - February 2022
Journal of Risk and Financial Management Vol. 15 (3) with Fang Du and Diana Hancock
The Costs and Benefits of Bank Capital – A Review of the Literature - April 2020
Journal of Risk and Financial Management Vol. 13 (74) with Oliver de Bandt, Diana Hancock, Matías Gutiérrez Girault, Valerio Scalone, Hitoshi Mio, Tord Krogh, Michael Straghan, Arzu Uluc, Simon Firestone, Missaka Warusawitharana, Don Morgan, and Ajay Palvia
Financing Affordable and Sustainable Homeownership with Fixed-COFI Mortgages - January 2020
Regional Science and Urban Economics Vol. 80 with Wayne Passmore
Assessing Major Country Exposures of U.S. Banks Using 009a Data Reports: A Brexit Case Study - November 2019
Finance and Economics Discussion Series Notes
Are Basel’s Capital Surcharges for Global Systemically Important Banks Too Small? - March 2019
International Journal of Central Banking with Wayne Passmore
Survey on the interaction of regulatory instruments: results and analysis - March 2019
Basel Committee Working Paper with Stefan Schmitz, Katharina Steiner, Clément Martin, Oana Toader, Tomoyoshi Teramura, Mahmut Kutlukaya, Doriana Ruffino, and Irina Barakova
GSE Guarantees, Financial Stability, and Home Equity Accumulation - December 2018
Federal Reserve Bank of New York Economic Policy Review with Wayne Passmore