Review of Financial Studies, 36(7), July 2023, pp. 2756-2796
CEPR-TFI Household Finance Award, 2020
AREUEA Homer Hoyt Dissertation Award (honorable mention), 2021
Review of Economic Studies, 90(1), January 2023, pp. 293-330
Internationalization versus Regionalization in the Emerging Stock Markets, with Virginie Coudert and Karine Herve
Abstract: We highlight the role of financial constraints in leading to spatial misallocation and racial disparities in housing and wealth accumulation. Using bunching and difference-in-differences designs, we show that down payment constraints disproportionately limit the ability of Black households to access housing in high-opportunity areas. Using a spatial general equilibrium life-cycle model, we examine the long-term wealth effects of these geographic distortions for minority borrowers. Black households are more affected by financial and spatial frictions, limiting wealth building opportunities. Improving mortgage access and housing supply in high-opportunity areas helps reduce racial wealth disparities, emphasizing the need for access to geographic opportunities rather than homeownership alone.
Abstract: This paper analyzes the effect of aggregate risk on households' precautionary savings, a channel that complements the standard idiosyncratic precautionary motive. I build a general equilibrium model with incomplete markets, heterogeneous households, and aggregate risk to decompose the drivers of precautionary savings. The precautionary motive due to credit supply shocks is large, nuancing received wisdom about the low costs of aggregate fluctuations. It is larger for middle-class households, who are too rich to benefit from social programs but too poor to have enough liquid assets. Aggregate precautionary motives imply that aggregate shocks can have permanent effects even when they are temporary.
Abstract: How do shocks to banks transmit to loan terms faced by borrowers on different loan markets? In our model of multidimensional contracting between heterogeneous risky borrowers and intermediaries with limited lending capacity, loan terms depend on loan demand elasticities and default elasticities. These two sufficient statistics predict how the cross-section of loan terms and bank risk react to changes in capital and funding costs. Using empirical estimates, they explain the heterogeneous transmission of shocks across loan markets and borrower risk categories. Accounting for non-price loan terms is important for dynamics because their endogenous response can increase the persistence of credit crises.