Working papers
Inequality and the Rise of Finance [JMP]
[Draft]
Abstract: This paper studies the causes behind the rise of the financial sector observed in the United States from the 1980s. The growth of the financial sector is seen from the perspective of an endogenous rise of non-bank financial institutions (shadow banking sector). The shadow banking sector rises as a result of a domestic safe asset shortage. An increase in wealth inequality induces a higher amount of savings to invest in the hands of the wealthier households — the investors. Investors need to allocate their holdings between risky and safe assets. Given a constrained supply of public safe assets, real interest rates decline to accommodate the larger demand. A compression of the real interest rates reduces the costs of issuing debt for the poorer households, and represents the incentive for the shadow banking system to step in by transforming the debt of the poorer households into the private safe assets that the investors demand. The model allows for an endogenous and non-mechanical feedback loop between inequality and finance. The primitive increase in wealth inequality is obtained through non-trivial dynamics generated by an exogenous decline in the labor share. The financial sector rises in size and changes in structure as a result of secular macroeconomic forces. The paper is quantitative in spirit with a few empirical exercises which corroborate the model predictions.
— Gregory Chow Rising Star award (CES 2024), Macro Finance Society PhD student award 2024, Best Macroeconomics paper (SOCAE 2023).
The political economy of banks and shadow banks competition
Abstract: This paper provides a political economy rationale for the financial deregulation wave that happened in the United States from the 1980s. The paper takes a higher amount of savings to intermediate and safe assets to produce from the 1980s as given. It claims that institutions that could take advantage of technological and regulatory advantages (shadow banks) gained market power with respect to traditional banks. In light of this element, the paper sees the wave of financial deregulation as a by-product of higher competition in the banking system, which led traditional banks to lobby harder in order to level the playing field. In this respect, the paper is able to produce an economic root cause for the financial deregulation process and timing. I provide a time series empirical analysis that corroborates such claims. Subsequently, I build a model to illustrate these dynamics. The model allows also for financial innovations to be pursued as a temporary and alternative mechanism to cope with failed lobbying attempts.
Publications
Peer reviewed
Accounting for the Duality of the Italian Economy (with J. Fernàndez-Villaverde, L. E. Ohanian, V. Quadrini)
Review of Economic Dynamics (2023), 50, 267-290.
Abstract: After 162 years of political unification, Italy still displays large regional economic differences. In 2019, the per capita GDP of Lombardia was 39,700 euros, but Calabria’s per capita GDP was only 17,300 euros. We build a two-region, two-sector model of the Italian economy to measure the wedges that could account for the differences in aggregate variables between the North and the South. We find that the largest driver of the regional disparity in per capita output is the difference in total factor productivity, followed by fiscal redistribution. These two factors, together, account for more than 70 percent of the output disparity between the North and the South.
[VoxEu column] | NBER Working Paper No. 31299 [Link] | CESifo Working Paper No. 10470 [Link]
[Paper] [Replication material]
Identifying the Effects of Sanctions on the Iranian Economy Using Newspaper Coverage (with M.H. Pesaran)
Journal of Applied Econometrics (2023), 38(3), 271-294 (Lead article).
Abstract: This paper focuses on the identification and quantitative estimation of sanctions on the Iranian economy over the period 1989–2019. It provides a new time series approach and proposes a novel measure of sanctions intensity based on daily newspaper coverage. In absence of sanctions, Iran’s average annual growth could have been around 4-5 per cent, as compared to the 3 per cent realized. Estimates of the proposed sanctions-augmented structural VAR show that sanctions significantly decrease oil export revenues, result in substantial depreciation of Iranian rial, followed by subsequent increases in inflation and falls in output growth. Keeping other shocks fixed, two years of sanctions can explain up to 60 per cent of output growth forecast error variance, although a single quarter sanction shock proves to have quantitatively small effects.
[Paper+Supplements] [Data and replication material]
Previous WP version: CESifo Working Papers 9217/2021 [Link] [Data and Codes]
Policy
Evidence and Policy Implications of Sanctions in the Long Run: The Case of Iran
CESifo EconPol Forum (2023), 24(3), 27-30
Financial and Monetary Instruments (with L. Doria, and L. Fantacci) [multiple chapters]
in “Co-Economy. An analysis of a socio-economic emergent framework” (2019) Lampugnani D. (ed.), Milano: Fondazione Feltrinelli (in Italian)
Work in Progress
The shadow money multiplier: Liquidity and maturity transformation in the shadow banking system
From health contagion to currency contagion: The heterogeneous effects of COVID-19 on FX markets
Discussions
Castellanos et al. (2024) — The aggregate and distributional implications of credit shocks on housing and rental markets [Slides]
Xu et al. (2024) — Does multiple collective attention for companies improve stock market pricing efficiency? [Slides]
Adrangi et al. (2023) — Equity Market Volatility, Regime Dependence and Economic Uncertainty [Slides]