Extend-and-Pretend in the U.S. CRE Market
Co-author: Saketh Prazad, October 2024
Paper · BibTeX

Abstract: We show that banks “extended-and-pretended” their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility. We detect this behavior using loan-level supervisory data on maturity extensions, bank assessment of credit risk, and realized defaults for loans to property owners and REITs. Extend-and-pretend crowds out new credit provision, leading to a 4.8–5.3% drop in CRE mortgage origination since 2022:Q1 and fuels the amount of CRE mortgages maturing in the near term. As of 2023:Q4, this “maturity wall” represents 27% of bank capital.

Stakeholders’ Aversion to Inequality and Bank Lending to Minorities
Co-author: Hanh Le, November 2023
AFA 2025 · 2024 Santiago Finance Workshop · 2024 UNC Solutions for Reducing Wealth Inequality
Paper · BibTeX · Liberty Street

Abstract: We find that banks differ in their propensity to lend to minorities based on their stakeholders’ aversion to inequality. Using mortgage application data collected under the Home Mortgage Disclosure Act, we document a large and persistent cross-sectional variation in banks’ propensity to lend to minorities. Inequality-averse banks have a higher propensity to lend to borrowers in high-minority areas and, within census tracts, to non-white borrowers compared to other banks. This higher propensity (i) is not explained by selection of applicants, (ii) allows these banks to retain and attract their inequality-averse stakeholders, and (iii) does not predict worse ex-post loan performance.

Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls
Co-authors: Lina Han, Marco Macchiavelli, André Silva, August 2024
CEPR & Kiel Institute Geonomics Conference 2023 · 2024 Bocconi Geonomics Workshop · 2024 GCAP Annual Conference (Columbia)
Paper · Liberty Street · BibTeX · FT · Bloomberg · CFR · CSIS · Barron’s · Marginal Revolution

Abstract: Increasing geopolitical risks prompted countries to use various economic tools to protect their national security interests. Analyzing export controls between the U.S. and China, we document that these measures prompt a broad-based decoupling of national and targeted-country supply chains. U.S. suppliers are more likely to terminate relations with Chinese customers following the imposition of export controls, including those not targeted by the policy. However, we find no evidence of reshoring or friend-shoring. Due to these disruptions, affected U.S. suppliers experience negative abnormal stock returns, wiping out $130 billion in market capitalization, and a drop in bank lending, profitability, and employment.

How do supply shocks to inflation generalize? Evidence from the pandemic era in Europe
Co-authors: Viral Acharya, Tim Eisert, Christian Eufinger, August 2024
EFA 2024 · WFA 2024 · 2024 Yale Supply Chain Workshop · 2023 CEPR Paris Symposium
Paper · BibTeX · FT · VoxEU

Abstract: We document how the interaction of supply chain pressures, heightened household inflation expectations, and firm pricing power contributed to the pandemic-era surge in consumer price inflation in the euro area. Initially, supply chain pressures increased inflation, especially in manufacturing sectors, through a cost-push channel and raised inflation expectations. Subsequently, the cost-push channel intensified as firms with high pricing power increased product markups in sectors witnessing high demand, including in services sectors that were initially not exposed to supply chain constraints. Eventually, even though supply chain pressures eased, these firms were able to further increase markups due to the stickiness of inflation expectations. The resulting persistent impact on inflation suggests supply-side impulses can generalize into broad-based inflation via an interaction of household expectations and firm pricing power.

Understanding the Pricing of Carbon Emissions: New Evidence from the Stock Market
Co-authors: Emilio Osambela, Matthew Pritsker, August 2024
2024 NBER SI EFEL
Paper · BibTeX

Abstract: Are carbon emissions priced in equity markets? The literature is split, but most research finds carbon emissions intensity, a measure targeted by ESG investors, is not priced. We show that: (i) most existing empirical tests suffer from measurement error and omitted variable bias, and (ii) if emissions intensity is priced, stock returns depend on expected emissions intensity and the product of the innovation in emissions intensity and the price-dividend ratio. Based on these new predictions, our empirical results confirm emissions intensity is priced, but the magnitude is largely driven by a few industries characterized by the presence of “super emitters.”