Welcome to my homepage!
In 2013, I graduated with a Ph.D. in Economics from the London School of Economics and Political Science, where I was a Deutsche Bank Fellow at the Financial Markets Group. In Spring 2012, I visited the Department of Economics at New York University.
In September 2013, I joined the Bank of Canada as a research economist in the Financial Studies Division, subsequently promoted to Principal Researcher in September 2016.
- Banking, Global Games, Financial Crises, Contagion
- "Information choice and amplification of financial crises" (with Ali Kakhbod, MIT)
We propose an amplification mechanism of financial crises based on the information choice of investors. Information acquisition always makes investors more likely to act against what is suggested by the prior. Deteriorating public news under an initially strong (weak) prior increases (reduces) the value of private information and induces more (less) information acquisition. Deteriorating public news always increases the probability of a crisis, since the initially strong (weak) prior suggests do-not-attack (attack). This effect is amplified when information choices are endogenous. To enhance financial stability, a policymaker can use taxes and subsidies to affect information acquisition. We also derive implications about the magnitude of amplification and discuss how these can be tested.Accepted, Review of Financial Studies(Previous version published as Bank of Canada WP 2014-30)
- "Rollover Risk, Liquidity and Macroprudential Regulation"
I study rollover risk in wholesale funding markets when intermediaries hold liquidity ex ante and fire sales may occur ex post. Multiple equilibria exist in a global rollover game: intermediate liquidity holdings support equilibria with both positive and zero expected liquidation. A simple uniqueness refinement pins down the private liquidity choice, which balances the forgone expected return on investment with reduced fragility and costly liquidation. Due to fire sales, liquidity holdings are strategic substitutes. Intermediaries free ride on the holdings of other intermediaries, causing excessive liquidation. To internalize the systemic nature of liquidity, a macroprudential authority imposes liquidity buffers.Accepted, Journal of Money, Credit and Banking(Previous versions published as European Central Bank WP 1667 and Bank of Canada WP 2014-23)
- "A wake-up call theory of contagion" (with Christoph Bertsch, Sveriges Riksbank)
We offer a theory of contagion based on the information choice of investors after observing a financial crisis elsewhere. We study global coordination games of regime change in two regions with an unobserved common macro shock as the only link between regions. A crisis in the first region is a wake-up call to investors in the second region. It induces them to reassess the regional fundamental and acquire information about the macro shock. Contagion can even occur after investors learn that regions are unrelated (zero macro shock). Our results rationalize empirical evidence about contagious bank runs and currency crises after wake-up calls. We also derive new implications and discuss how these can be tested.Presented at 2014 NBER Summer Institute
- "Asset Encumbrance, Bank Funding, and Financial Fragility" (with Kartik Anand, Bundesbank; Prasanna Gai, University of Auckland; and James Chapman, Bank of Canada)
How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues secured debt backed by a pool of assets that is bankruptcy-remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt and expand profitable investment, but it also concentrates risk on unsecured debt and thus exacerbates fragility and raises unsecured funding costs. Deposit insurance or wholesale funding guarantees induce excessive encumbrance and fragility. To mitigate such risk-shifting, we study prudential regulatory tools, including limits on encumbrance, minimum capital requirements, and surcharges for encumbrance.Bank of Canada Working Paper 2016-16To be presented at the 2017 AFA in Chicago
- "Opaque Assets and Rollover Risk" (with Benjamin D. Nelson, Bank
We model the asset opacity choice of a bank subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about bank profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to be high. However, the endogenous cost of opacity is a ‘partial run’, whereby some investors receive bad private signals about profitability and run even though the bank is solvent. We find that banks choose to be transparent (opaque) when expected profitability is low (high). Banks with less volatile profitability are also more likely to choose to be opaque.Bank of Canada Working Paper 2016-17Resubmitted, Journal of Financial Intermediation
- "Information Contagion and Systemic Risk" (with Co-Pierre Georg, University of Cape Town + Bundesbank)
We examine the effect of ex-post information contagion on the ex-ante level of systemic risk defined as the probability of joint default of banks. Because of counterparty risk or common exposures, bad news about one bank reveals valuable information about another bank and trigger information contagion. When banks are subject to common exposures, information contagion induces small adjustments to bank portfolios and therefore increases systemic risk overall. When banks are subject to counterparty risk, by contrast, information contagion induces a large shift toward more prudential portfolios and therefore reduces systemic risk.Resubmitted
Work in progress (selected)
- "Intermediaries as Safety Providers" (with Enrico C. Perotti, University of Amsterdam)
We propose a novel view of financial intermediation driven by a segmented demand for safety around a subsistence level of consumption. Intermediaries can improve upon self-insurance by providing safety to investors with poor access to storage, but face an agency conflict over their choice of risk in some states. Demandable debt enables carving out safe claims from risky assets, since the option to withdraw on demand protects risk-intolerant investors. Thus, private safety provision that relies on occasional runs can explain an increased mismatch and instability in credit cycles driven by fluctuations in public debt supply. Beyond some scale, demand for safety induces runs on private intermediaries even by risk-tolerant investors.
- "The Effect of Safe Assets on Financial Fragility in a Bank-Run Model" (with Mahmoud Elamin, Cleveland Fed)
- "Public Information in Global Games of Regime Change" (with Christoph Bertsch, Sveriges Riksbank; Daniel Quigley, Oxford; Frederik Toscani, IMF)