The Evolution of Household Net Worth during COVID-19
The U.S. economy suffered a huge shock with the onset of the COVID-19 pandemic, yet asset returns were relatively high during the recovery. Who benefited?
The Nonlinear Effects of Fiscal Policy
We argue that the fiscal multiplier of government purchases is increasing in the spending shock, in contrast to what is assumed in most of the literature. The fiscal multiplier is largest for large positive government spending shocks and smallest for large contractions in government spending. We empirically document this fact using aggregate U.S. data. We find that a neoclassical, life-cycle, incomplete markets model calibrated to match key features of the US economy can explain this empirical finding. The mechanism hinges on the relationship between fiscal shocks, their form of financing, ...
Can Countercyclical Capital Buffers Help Prevent a Financial Crisis?
Higher bank capital requirements may buffer the effects of crises.
Credit and Liquidity Policies during Large Crises
We study the evolution of firm financials during two large crises: the Great Financial Crisis (GFC) and the COVID-19 pandemic. While the two crises featured similar increases in corporate spreads, corporate debt and liquid asset holdings moved in opposite directions. The micro-data reveal that firm leverage was a more important predictor of firm-level credit spreads and investment during the GFC, but that firm funding liquidity was more important during the pandemic. We augment a dynamic model of firm capital structure with an explicit motive to hold liquid assets, and calibrate it to match ...
Corporate Bond Spreads and the Pandemic III: Variance across Sectors and Firms
Corporate bond spreads widened when COVID-19 initially began spreading, then spreads stabilized. How have spreads fared across individual sectors and issuances from the same firm?
Corporate Bond Spreads and the Pandemic IV: Liquidity Buffers
The cost of borrowing rose for most firms during the pandemic-related disruption of financial markets, but firms with greater liquidity have had smaller increases in credit spreads.
Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19
We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding ...
Domestic Debt Before and After the Pandemic Recession
U.S. government and nonfinancial business debt drove domestic debt levels higher during the COVID-19 recession.
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
The COVID Retirement Boom
As of August 2021, during the COVID-19 pandemic, slightly more than 3 million people likely retired earlier than they would have otherwise.