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.
I am a member of the Finance Theory Group.
- Financial Intermediation (main), Theory, International Finance
- 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.Review of Financial Studies, 30 (6), June 2017, Pages 2130-78(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.Journal of Money, Credit and Banking 48 (8), December 2016, Pages 1753-85.(Previous versions published as European Central Bank WP 1667 and Bank of Canada WP 2014-23)
- 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.Journal of Financial Stability, doi:10.1016/j.jfs.2017.05.009(Also published as Bank of Canada WP 2017-29)
- Asset Encumbrance, Bank Funding, and Fragility (with Kartik Anand, Bundesbank; Prasanna Gai, University of Auckland; and James Chapman, Bank of Canada)
R&R, Review of Financial Studies
We propose a model of asset encumbrance by banks subject to rollover risk and study the consequences for fragility, funding costs, and prudential regulation. A bank's choice of encumbrance trades off the benefit of expanding profitable investment, funded by cheap long-term secured debt, against the cost of greater fragility due to runs on unsecured debt. We derive several testable implications about privately optimal encumbrance ratios. Deposit insurance or wholesale funding guarantees induce excessive encumbrance and exacerbate fragility. We show how regulation, such as explicit limits on encumbrance ratios and revenue- neutral Pigouvian taxes, can mitigate the risk-shifting incentive of banks.
- 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.
Work in progress (selected)
- Intermediaries as Safety Providers (with Enrico Perotti, University of Amsterdam)
- Transparency in Global Games of Regime Change (with Christoph Bertsch, Sveriges Riksbank; Daniel Quigley, Oxford; Frederik Toscani, IMF)
- Safe Assets, Demand-Deposit Contracts and Bank Runs (with Mahmoud Elamin)
- The impact of macroprudential FX regulation of banks (with Kristin Forbes, MIT Sloan; Christian Friedrich, Bank of Canada; Dennis Reinhardt, Bank of England)
- Financial Contagion and Aggregate Liquidity Risk (with Co-Pierre Georg, University of Cape Town + Bundesbank; Gideon duRand, Stellenbosch)