Fiscal Policy Design in Collateral-Constraint Economies: the Role of Commitment, Journal of International Economics (2025): 158: 104176. (Link to Submitted Paper) (Link to Journal)
Impact of higher capital buffers on banks’ lending and risk-taking in the short- and medium-term: evidence from the euro area experiments, with Aurea Ponte Marques and Giuseppe Cappelletti, Journal of Financial Stability (2024): 72: 101250. (Link to Submitted Paper) (Link to Journal)
Young Economist Prize 2024, Qatar Centre for Global Banking & Finance at King’s College London
Finalist, Young Economist Prize 2024, European Central Bank
This paper develops a quantitative heterogeneous-bank model to study how interest-rate risk transmits through the financial sector. Banks optimally choose their leverage and maturity structure in the presence of limited equity issuance, default risk, and partial deposit insurance. Long-maturity assets carry a premium because they expose banks to valuation losses when interest rates rise. To preserve their franchise value, banks with low net worth relative to risky assets take on less interest-rate risk, despite the presence of risk-shifting incentives associated with deposit insurance. Applying the model to the 2022–2023 monetary tightening, I show that a rapid increase in interest rates can generate large declines in asset prices and equity values even though banks have access to short-term assets that provide insurance against interest-rate risk. Under the lens of the model a substantial share of the losses in 2022 was predictable, whereas the losses in 2023 were largely unexpected. A shift toward long-term assets during a period of unusually low rates amplified the initial tightening, but a rebalancing toward shorter maturities dampened the transmission of later hikes.
Sovereign Debt, Domestic Banks and the Provision of Public Liquidity, with Diego Perez
(Link to Paper), September 2025, Reject & Resubmit at Review of Economic Studies
This paper develops a model to study how a default can affect the domestic economy and the government’s ability to provide liquidity. Banks that do not have good investment
opportunities invest in public debt. After a default the government’s ability to credibly issue debt is undermined. A scarcer supply of public debt makes banks substitute
away from government securities to investments in their less productive projects. A quantitative analysis of the model for Argentina can generate a deep and persistent
fall in output post-default, which induces repayment incentives to sustain significant levels of external public debt. We provide empirical support for the model’s mechanism
and use the model to analyze different policies that regulate banks’ holdings of public debt.
Work in Progress
Market Efficiency and Welfare in the Interbank Market, with Thomar van Hees