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Working Paper
The Reversal Interest Rate
The reversal interest rate is the rate at which accommodative monetary policy reverses andbecomes contractionary for lending. We theoretically demonstrate its existence in a macroeconomic model featuring imperfectly competitive banks that face financial frictions. When interest rates are cut too low, further monetary stimulus cuts into banks’ profit margins, depressing their net worth and curtailing their credit supply. Similarly, when interest rates are low for too long, the persistent drag on bank profitability eventually outweighs banks’ initial capital gains, also stifling credit ...
Journal Article
Making Sense of Decentralized Finance
What is DeFi? And how does it differ from traditional finance?
Working Paper
Token-Based Platform Governance
develop a model to compare the governance of traditional shareholder-owned plat forms to that of platforms that issue tokens. The owners of a traditional platform have incentives to implement policies that extract rents from users. If the platform’s owners can commit to future policies, they can implement a more efficient outcome by issuing a token that offers claims on the platform’s services. Such a token alleviates conflicts of interest between the platform’s owners and its users, mitigating inefficiencies: a policy that benefits users increases the value of tokens and therefore the ...
Working Paper
Blockchain Economics
The fundamental problem in digital record-keeping is establishing consensus on an update to a ledger, e.g., a payment. Consensus must be achieved in the presence of faults—situations in which some computers are offline or fail to function appropriately. Traditional centralized record-keeping systems rely on trust in a single entity to achieve consensus. Blockchains decentralize record-keeping, dispensing with the need for trust in a single entity, but some instead build a consensus based on the wasteful expenditure of computational resources (proof-of-work). An ideal method of consensus ...
Working Paper
Monetary Policy with Inelastic Asset Markets
I develop a New Keynesian model to study the transmission of both conventional and unconventional monetary policy through financial markets. The model’s two key features are (i) heterogeneous financial intermediaries with downward-sloping asset demand curves, and (ii) households that face frictions in reallocating their savings across intermediaries. The central bank directly controls the risk-free rate, whereas the risk premium is determined by the distribution of intermediaries’ wealth and the central bank’s purchases of risky assets. Interest rate hikes reduce long-term risky asset ...