Current Research
The Heterogeneous Bank Lending Channel of Monetary Policy
Joint with Jorge Abad, Saki Bigio, Salomon Garcia-Villegas, and Galo Nuño
Draft Coming Soon
This paper examines the heterogeneity in the bank lending channel of monetary policy transmission, focusing on differences in bank leverage and loan pricing. We introduce a heterogeneous-bank model, calibrated to replicate key features of the Euro area banking system. The model shows that banking systems with a high proportion of fixed-rate loans amplify the impact of monetary tightening and deteriorating financial stability. High-leverage banks tend to transmit monetary policy more effectively due to their higher marginal propensity to lend (MPL), making them more sensitive to changes in policy rates.
January 2023
I develop a framework for studying media of exchange within Heterogenous Agent New Keynesian (HANK) models. To this end, I extend an otherwise standard HANK model with search-theoretic monetary frictions as in Lagos and Wright (2005). I show that the medium of exchange role of money breaks monetary super-neutrality in HANK, meaning that changes in the central bank's inflation target affect real variables and the wealth distribution in the long run. The extent of non-neutrality can be substantial, with aggregate consumption declining by 0.74% after an increase in the central bank's inflation target from 0% to 5%. I then apply the framework to study how heterogeneity in the dependence on non-interest-bearing payment instruments shapes the welfare costs of inflation across wealth and income distributions. I show quantitatively that the welfare costs of inflation are about 8% higher for the wealth- and income-poor households in the economy. The result stems from the fact that poor households, in line with microdata, depend more on non-interest-bearing payment instruments, such as cash.
January 2022
This paper develops a New Keynesian model that features endogenous build-ups of financial imbalances, where financial crises typically follow credit booms and are characterized by sharp output drops. A quantitative analysis of the model shows that if the macroprudential authority does not implement the optimal policy, a central bank that is leaning against the wind, i.e. sets higher interest rates in response to build-ups of imbalances, reduces the frequency of financial crises and improves welfare at the cost of more volatile inflation. The result stems from a failure of the `divine coincidence' due to financial frictions in the banking sector.
Publications
Joint with Jesús Fernández-Villaverde, Galo Nuño and Omar Rachedi
Journal of Econometrics, 2024
This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully non-linear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households' precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.
Policy Papers
Joint with Ángel Estrada Carlos Pérez Montes, Jorge Abad, Carmen Broto, Esther Cáceres, Alejandro Ferrer, Jorge E. Galán, Gergely Ganics, Javier García Villasur, Samuel Hurtado, Nadia Lavín, Enric Martorell, David Martínez Miera, Ana Molina Iserte, Irene Pablos and Gabriel Pérez Quirós
Documentos Ocasionales, No. 2414, 2024
This paper first identifies the level of cyclical systemic risks in Spain, also calibrating their impact on the solvency of the banking system, and, second, assesses the costs and benefits of the countercyclical use of capital requirements. The first part of the paper is based on an integrated analysis of indicators and other quantitative and qualitative information, while impacts are calibrated using a combination of macroeconomic projection models and stress tests. The second part of the analysis is undertaken using quantile regression models, applied to European data, Bayesian time series models, applied to data for Spain, and a general equilibrium model. The integrated analysis to identify cyclical systemic risks shows the importance of a holistic approach monitoring the different dimensions of these risks, while the impact calibration shows that slight or intermediate materialisation of such risks also involves material capital consumption for the banking sector. The different methodologies applied for cost-benefit analysis find favourable results, in terms of GDP and credit growth, for the activation of releasable capital requirements in situations where cyclical systemic risks are intermediate and high and, notably, for their release in adverse cyclical phases.