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Jel Classification:O17 

Working Paper
Misallocation, informality, and human capital: understanding the role of institutions

Accepted for publication, Journal of Economic Dynamics and Control The aim of this paper is to quantify the role of formal-sector institutions in shaping the demand for human capital and the level of informality. We propose a firm dynamics model where firms face capital market imperfections and costs of operating in the formal sector. Formal firms have a larger set of production opportunities and the ability to employ skilled workers, but informal firms can avoid the costs of formalization. These firm-level distortions give rise to endogenous formal and informal sectors and, more importantly, ...
Working Papers , Paper 14-11

Working Paper
Financial contracting with enforcement externalities

Contract enforceability in financial markets often depends on the aggregate actions of agents. For example, high default rates in credit markets can delay legal enforcement or reduce the value of collateral, incentivizing even more defaults and potentially affecting credit supply. We develop a theory of credit provision in which enforceability of individual contracts is linked to aggregate behavior. The central element behind this link is enforcement capacity, which is endogenously determined by investments in enforcement infrastructure. Our paper sheds new light on the emergence of credit ...
Working Papers , Paper 16-1

Discussion Paper
Heat versus Light: Fact-Checking the Debate over De-Risking

In this article, we examine the evidence for claims about the connection between bank derisking and anti–money laundering (AML) regulation. Specifically, we examine evidence for the claim that the cost of increased AML compliance and increasing bank fines have led to banks exiting entire sectors or geographical regions and that this de-risking is deeply damaging to economies. We draw on multiple sources of evidence, including financial flow data, discourse and social media analysis, an evidentiary history, elite interviews, and participant observation. In the end, we find that substantial ...
Policy Hub

Working Paper
Credit Enforcement Cycles

Empirical evidence suggests that widespread financial distress, by disrupting enforcement of credit contracts, can be self-propagatory and adversely affect the supply of credit. We propose a unifying theory that models the interplay between enforcement, borrower default decisions, and the provision of credit. The central tenets of our framework are the presence of capacity constrained enforcement and borrower heterogeneity. We show that, despite heterogeneity, borrowers tend to coordinate their default choices, leading to fragility and to credit rationing. Our model provides a rationale for ...
Working Papers , Paper 17-27

Journal Article
Heat versus Light: Fact-Checking the Debate over De-Risking

In this article, we examine the evidence for claims about the connection between bank derisking and anti–money laundering (AML) regulation. Specifically, we examine evidence for the claim that the cost of increased AML compliance and increasing bank fines have led to banks exiting entire sectors or geographical regions and that this de-risking is deeply damaging to economies. We draw onmultiple sources of evidence, including financial flow data, discourse and social media analysis, an evidentiary history, elite interviews, and participant observation. In the end, we find that substantial ...
Policy Hub , Volume 2021 , Issue 8 , Pages 20

Working Paper
Does bitcoin reveal new information about exchange rates and financial integration?

I show that the prices of the internationally traded crypto-currency bitcoin can be used to estimate a currency?s unofficial exchange rate and capital controls at a daily interval. Two important bitcoin features are documented: (1) Bitcoin-based exchange rates approximate the behavior, but not the level, of unofficial exchange rates, and (2) Bitcoin prices contain a bitcoin-trend term and must be appropriately normalized prior to being used for this purpose. Bitcoin-based exchange rates reveal that (3) there is no consistent pattern of Granger causality between unofficial rates and official ...
Globalization Institute Working Papers , Paper 292

Journal Article
On the Aggregate Implications of Removing Barriers to Formality

This article examines the aggregate implications of several policies aimed at removing barriers to formality. To this end, we build a dynamic equilibrium model in which heterogeneous agents choose to work for a wage or operate a technology in the formal or informal sector, based on the costs and benefits associated with these occupational choices.
Review , Volume 102 , Issue 2 , Pages 203-220

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