I am a macro-economist, specializing in macro-finance. I develop quantitative models to study the
effects and optimal design of different macro-prudential policies. My work lies at the intersection of
banking, international macro, monetary economics and household heterogeneity.
In my current papers, I provide three instances in which macro-prudential policies can induce
costly unintended consequences. First, I find that deposit insurance can be counter-productive if it
induces excessive bank-risk taking or reacts slowly to panic driven crises. Second, I argue that bank
capital regulation can induce more severe exchange rate fluctuations. Third, I provide evidence that
changes in mortgage loan-to-value constraints can induce a demand recession with important
implications for inflation and household inequality.
In future work, I aim to build on these insights to continue contributing to the field of macro-
finance. In particular, I plan to study: 1) whether tighter bank capital requirements can increase the risk of bank-runs, and 2) whether monetary policy is better equipped than macro-prudential policy at
dampening house price fluctuations.
In this paper, I analyse the effectiveness of alternative deposit insurance (DI) schemes in a quantitative dynamic general equilibrium model in which (a) panics are idiosyncratic and emerge as a unique equilibrium outcome and (b) failure of a share of bank leads to contagion to non-defaulting banks and real economic activity. My analysis is motivated by the recent policy debate on the deposit insurance reform following the March 2023 banking turmoil characterized by (1) bank-runs on a small share of the regulated banking sector, (2) fear of “systemic contagion” to healthy banks and to the real economy (3) ex-post coverage of all ex-ante uninsured depositors.
I calibrate the model to the US economy and use it to evaluate several FDIC proposals for deposit insurance reform. Three results emerge. First, under fast government response, it is optimal to increase DI ex-post rather than ex-ante. Second, under delayed government reaction, ex-ante increases in deposit insurance are preferred to ex-post ones. Third, delayed government reaction does not justify full DI at all time: the optimal policy covers around 65 % of total deposits.
An important feature of emerging market economies is the heavy reliance of banks on foreign debt, which makes them vulnerable to sudden capital outflows and currency depreciations. This paper provides a unified framework to study the interactions between bank capital regulation and capital outflow management tools. We develop a general equilibrium macro-banking model where banks borrow from abroad in foreign currency. Banks are subject to increases in default risk and sudden withdrawals of foreign funding. We calibrate the model to the Peruvian economy, and use it to study the effects of different macro-prudential interventions.
We show that increasing bank capital requirements improves financial stability by reducing bank default risk. However, by making the banks safer, this policy encourages a greater reliance of banks on foreign debt, intensifying the impact of foreign funding withdrawals. Moreover, foreign exchange interventions and foreign debt taxes can reduce the effects of capital outflows without compromising on the gains of higher bank capital requirements. As a result, capital outflow management tools and bank capital requirements are complementary. We provide micro empirical evidence supporting our model predictions using the recent transition of the Peru economy to higher bank capital requirements.
We develop a HANK model with housing. We calibrate the model to Spanish data, and use it study the effects of a tightening of the Loan-to-Value (LTV) limits at mortgage origination. Our model simulations deliver three results. First, a tightening of the LTV leads to a sharp reduction on total household consumption through general equilibrium effects induced by aggregate demand. Second, highly leveraged home-owners are the most affected group, which challenges the conventional wisdom that LTV policies harm renters the most. Third, the monetary policy response to the deflationary effects of LTV policies plays a crucial role in shaping their aggregate and distributional effects. Overall, our findings align the available empirical evidence, and illustrate that macro-prudential objectives of LTV policies interact with other policy objectives such as inflation stabilization and inequality.
Our work on “The Foreign Liability Channel of Capital Requirements” suggests that higher capital requirements may encourage banks to take on unsecured foreign credit. The underlying mechanism, however, applies more broadly to the banks in developed economies who borrow both in secured and unsecured domestic markets. In future work, we plan on assessing whether the link between bank capital requirements and unsecured credit, can make the banking sector more vulnerable to bank-runs.
Studying this question requires a framework that features bank that: (a) operate under capital requirements, (b) can borrow in both secured and unsecured credit, and (c) can default due to fundamental and liquidity reasons. My paper “Assessing Options for Deposit Insurance Reform” already has features a) and c). We plan on extending that framework by introducing an endogenous choice between secured and secured credit to assess the “Solvency-Run paradox” of bank capital requirements.
Recent work argues that policymakers should “lean against the wind” to dampen house price fluctuations through either monetary policy or mortgage regulations. However, several questions remain unanswered: Which tools is more effective at mitigating house price fluctuations? Which policy induces smaller costs? Do the distributional implications of these two policies differ?
Answering these questions requires a HANK model featuring housing, mortgage debt and inefficient
house price fluctuations. In our work “The Aggregate Demand Channel of Loan-to-Value shocks” we
develop a HANK model with housing and long-term mortgages subject to LTV constraints. In future work, we aim to extend this framework by introducing inefficient house price fluctuations over the business cycle. Through the lenses of this model, we plan on assessing whether monetary policy is better equipped than macro-prudential policy to curb these fluctuations.