Academic Publications
Climate Transition Risk and The Role of Bank Capital Regulation
Economic Modelling (2024), joint with Enric Martorell
Working paper Banco de España. Slides
Presentations: Malta - 2023 Dynare Conference, Montpellier - 2023 International Conference in Finance, Banking and Accounting (ICFBA), Paris - Bank the France, 2023 Green Finance Research Advances Conference, Society for Economic Dynamics (Barcelon 2024).
How should bank capital requirements be set to deal with climate-related transition risks? We build a general equilibrium macro banking model where production requires fossil and low-carbon energy intermediate inputs, and the banking sector is subject to volatility risk linked to changes in energy prices. Introducing carbon taxes to reduce carbon emissions in fossil energy induces risk spillovers into the banking sector. Sectoral capital requirements can effectively address risks from energy-related exposures, benefiting household welfare and indirectly facilitating capital reallocation. Absent carbon taxes, implementing fossil penalizing capital requirements does not reduce emissions significantly and may threaten financial stability. During the transition, capital requirements can complement carbon tax policies, safeguarding financial stability and trading off long-run welfare gains at the expense of lower investment and credit supply in the short run.
The Amplification Effects of Adverse Selection in Mortgage Credit Supply
Journal of Housing Economics (2023)
Working Paper Banco de España.
How do information frictions in the securitization market amplify the response of mortgage credit supply to house price shocks ? I develop a theoretical framework where banks sell loans to investors in a securitization market affected by banks' private information about the quality of loans. When accounting for such information frictions, house price shocks affect banks' securitization volumes through nonlinear price and quantity effects. These non-linearities affect banks' available liquidity and, in turn, amplify the fluctuations of mortgage credit supply. The degree of amplification is also a function of the technological differences in managing portfolios between banks and investors. The model is informative on how information frictions can induce large fluctuations in mortgage credit supply.
Working Papers
Mortgage Securitization and Information Frictions in General Equilibrium
Revise and Resubmit at the Review of Economic Dynamics
2022 Working Paper Banco de España. Summary Research Feature
2021 runner-up best paper of the XXVI meeting of Central Bank Research Network by CEMLA
2019 Winner of the AREUEA Homer Hoyt Doctoral Dissertation Award
I develop a quantitative model of the U.S. housing-mortgage market that can be used to quantify the importance of liquidity and information frictions in driving aggregate mortgage credit, household default, and house price dynamics. The model stresses the equilibrium connection between securitization and the credit market through the securitization liquidity channel. Securitization is central to providing liquid funds for mortgage lending in the United States. However, this source of liquidity is volatile and can rapidly expand or collapse due to information and liquidity frictions. I use the model to quantify an information frictions multiplier during the Global Financial Crisis of 2008-09. Estimating such a multiplier is relevant for the design of stabilization policies, like credit guarantees, currently in place in the U.S. mortgage market.
From Macroeconomic Stability to Welfare: Optimizing Fiscal Rules in Commodity-Dependent Economies
joint with Rodrigo Heresi (new draft coming soon!)
Revise and Resubmit at the Journal of Development Economics
We study the welfare and macroeconomic implications of simple and implementable fiscal policy rules in commodity-dependent economies, where a large share of output, exports, and government revenues depend on exogenous and volatile commodity prices. Using a multi-sector New Keynesian model estimated for the Chilean economy, we find that the welfare-maximizing fiscal policy involves an actively countercyclical response to the tax revenue cycle and a mildly procyclical response to the commodity revenue cycle. Compared to a benchmark acyclical policy, the optimized rule minimizes GDP growth volatility while delivering welfare gains of 0.6% of lifetime consumption to non-Ricardian (financially constrained) households. Government consumption and especially public investment are particularly helpful in stabilizing GDP, while targeted social transfers are essential to smooth the consumption of financially constrained households. Implementing the optimized rule requires moderate additional volatility (fiscal activism) in government spending and public debt.
Work in Progress
The Bank Lending Channel of Monetary Policy (draft available upon request)
joint with Jorge Abad, Saki Bigio, Galo Nuño, Joel Marbet
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.
The Consequences of Macroprudential Policy for Consumption, Housing Tenure, and Mortgage Pricing in General Equilibrium. Joint with Maximiliano San-Millan
We examine the combined effects of limits on bank leverage (capital requirements) and borrower leverage (loan-to-value and payment-to-income constraints) on households' consumption, housing tenure, mortgage default, and financial stability. To this aim, we build a quantitative incomplete-markets model that accounts for household heterogeneity in housing tenure, leverage, and liquid savings (similar to Gete and Zeccheto(2023), Garriga and Hedlund (2020), Kaplan et al. (2020) among others) and extend it to include a banking sector that provides credit to households and prices loans based on households credit risk. Banks in this framework are funded through a combination of insured deposits and equity, operate under limited liability, and are subject to capital requirements. Our framework aims to offer new insights into the housing literature by jointly examining the general equilibrium effects of household credit risk and banks' financing frictions on mortgage debt pricing—an aspect that previous models have overlooked.
Wedges: Taxes vs Policies. A cross-country analysis
joint with Paulina Restrepo-Echavarria, Lee Ohanian, Mark L. J. Wright
Policy Publications
Implications of Higher Inflation and Interest Rates for Macroprudential Policy Stance
Ocassional Paper - October 2024, European Central Bank
Bank of Spain Financial Stability Report.
Fall 2023, Spring 2024, Fall 2024 - Banco de España
Can Bank Capital Requirements Address Climate Transition risks?
Policy Brief - July 2024, SUERF
How asymmetries of information can amplify house price shocks to the supply of mortgage credit?
Policy Brief - Septiembre 2023, SUERF
Countercyclical Fiscal Rule, an Analysis for Chile (Pre-doctoral publication)
Revista Compendium. Cuadernos de Economia y Administración (2016)