Working Papers

  • I study how central banks should communicate monetary policy in liquidity trap scenarios in which the zero lower bound on nominal interest rates is binding. Using a standard New Keynesian model, I argue that the key to preventing self-fulfilling deflationary spirals and anchoring expectations is to promise to keep nominal interest rates pegged at zero for a length of time that depends on the state of the economy.
    Online Appendix
  • We construct an empirical measure of expected network spillovers that arise through default cascades for the US financial system for the period 2002-2016. Compared to existing studies, we include a much larger cross-section of US financial firms that comprise all bank holding companies, all broker-dealers and all insurance companies, and consider their entire empirical balance sheet exposures instead of relying on simulations or on exposures arising just through one specific market (like the Fed Funds market) or one specific financial instrument (like credit default swaps).
  • Financial Vulnerability and Monetary Policy with Tobias Adrian, September 2017
    We present a microfounded New Keynesian model that features financial vulnerabilities. Financial intermediaries' occasionally binding value at risk constraints give rise to vulnerabilities that generate time varying downside risk of the output gap. Monetary policy impacts the output gap directly via the IS curve, and indirectly via its impact on the tightness of the value at risk constraint.
  • We show a novel relation between the institutional investors’ intrinsic trading frequency — a commonly used proxy for the investors’ investment horizon — and the cross-section of stock returns. We show that the 20% of stocks with the lowest trading frequency earn mean returns that are 6 percentage points per year higher than the 20% of stocks that have the highest trading frequency.
  • We show that firms in models with menu costs, when calibrated to have the empirically observed frequency and size of individual-goods price adjustments, have stock returns that are always positively correlated with inflation. The cross-sectional dispersion in this correlation is almost negligible, even though firms have very diverse micro-level pricing behavior.
  • Aggregate Investment and Stock Returns with Leonid Kogan and Dmitry Livdan, April 2012
    In this paper we study the relation between returns on the aggregate stock market and aggregate real investment. While it is well known that the aggregate investment rate is negatively correlated with subsequent excess stock market returns, we find that it is positively correlated with future stock market volatility.