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Working Paper
Shadow Bank Runs
Short-term debt is commonly used to fund illiquid assets. A conventional view asserts that such arrangements are run-prone in part because redemptions must be processed on a first-come, first-served basis. This sequential service protocol, however, appears absent in the wholesale banking sector---and yet, shadow banks appear vulnerable to runs. We explain how banking arrangements that fund fixed-cost operations using short-term debt can be run-prone even in the absence of sequential service. Interventions designed to eliminate run risk may or may not improve depositor welfare. We describe how ...
Working Paper
Inventories, Lumpy Trade, and Large Devaluations
Fixed transaction costs and delivery lags are important costs of international trade. These costs lead firms to import infrequently and hold substantially larger inventories of imported goods than domestic goods. Using multiple sources of data, we document these facts. We then show that a parsimoniously parameterized model economy with importers facing an (S, s)-type inventory management problem successfully accounts for these features of the data. Moreover, the model can account for import and import price dynamics in the aftermath of large devaluations. In particular, desired inventory ...
Working Paper
Fixed Costs in the U.S. Banking System
Fixed costs account for an increasing share of operating expenses in the U.S. banking system. From 1995 to 2026, estimated fixed costs rose from 37 percent to 62 percent as a share of total noninterest expense. Over the same period, estimated marginal and average operating costs declined, loan spreads and net interest margins fell, and estimated loan markups increased by 21 percentage points. These trends are pervasive across banks but are most pronounced among large banks. We develop a model of bank industry dynamics with endogenous fixed costs to rationalize these long-run trends and ...
Working Paper
The Dynamic Distribution in the Fixed Cost Model: An Analytical Solution
I derive an analytical solution to the Kolmogorov forward equation for fixed cost models. This is a challenging PDE because the dynamic distribution depends on the flow of resetting agents, which is endogenously determined by the distribution itself. I show that there is a shortcut that allows the reset flow to be derived without first finding the entire distribution of agents. This shortcut is also valuable because many aggregate variables can be written in terms of the reset flow alone. Steady-state conditional adjustment behavior recovers the entire marginal reset-flow response to a common ...