The (Unintended?) Consequences of the Largest Liquidity Injection Ever  

Journal of Monetary Economics, 112, June 2020
Co-authors: Miguel Faria-e-Castro and Luìs Fonseca
Paper · BibTeX· Google Scholar

Working Papers

The Design and Transmission of Central Bank Liquidity Provisions
Being revised for resubmission at the Journal of Financial Economics
Co-authored with Luisa Carpinelli
Paper · BibTeX
AFA 2017, RFS BSRMM 2017

Young Economist Award, ECB Forum on Central Banking
Edwin Elton Prize for the Best Finance JMP at NYU Stern
Media Mentions: Wall Street Journal

AbstractWe show how the design of central bank provisions of collateralized liquidity to banks following a wholesale funding dry-up affects their transmission. Combining Italian banks’ security-level holdings with the national credit register, we analyze the role of maturity and collateral during the ECB’s three-year Long-Term Refinancing Operations. We find that (i) long-term liquidity helped banks hit by the dry-up support their credit supply to firms; (ii) a government guarantee, by allowing these banks to expand their eligible collateral, was necessary for the transmission to firms; and (iii) banks used most liquidity to buy government bonds.

Why Are Banks Not Recapitalized During Crises?
Being revised for resubmission (2nd round) at the Journal of Financial Economics
Paper · BibTeX
EFA 2016, OxFIT 2016, Barcelona Summer Forum 2015
Eleventh Klaus Liebscher Award, 2015
Ieke van den Burg Prize for Research on Systemic Risk, Shortlisted, 2016

Abstract: I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector.

The Anatomy of the Transmission of Macroprudential Policies

Co-authors: V. Acharya, K. Bergant, T. EisertF. McCann, April 2020
Paper · BibTeX
FIRS 2018,
 LSE PWC, NBER SI (CF), EFA 2019, WFA-CFAR 2019, AFA 2020

Abstract: We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low- to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.

Zombie Credit and (Dis-)Inflation: Evidence from Europe

Co-authors: V. AcharyaT. Eisert, C. Eufinger, May 2020
Paper · BibTeX · VoxEU · FT
FRBNY/NYU FI 2019, CEPR MonPolicy and Reality, 
FIRS 2020, SFS Cavalcade 2020, WFA 2020
Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post-2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher.

Monetary Policy and Export-Dependent Growth in the Euro Area: Curse or Blessing?
Co-authors: T. Eisert, T. Marchuk
Pirates without Borders: the Propagation of Cyberattacks through Firms’ Supply Chains
Co-authors: Marco MacchiavelliAndre Silva

Other Papers

The Portuguese Banking System During the Sovereign Debt Crisis
Banco de Portugal Economic Studies, 1(2), pp. 43-80, July 2015
Co-authored with Miguel Faria-e-Castro and Luìs Fonseca
Paper (english) · Paper (portuguese) · BibTeX
Mentions: Deutsche Bundesbank President speech