Stern School of Business
New York University
44 West 4th Street
New York, NY 10012
NBER Program Affiliations:
NBER Affiliation: Faculty Research Fellow
NBER Working Papers and Publications
|December 2017||Does Size Matter? Bailouts with Large and Small Banks|
with Ansgar Walther: w24132
We explore how large and small banks make funding decisions when the government provides system-wide bailouts to the financial sector. We show that bank size, purely on strategic grounds, is a key determinant of banks' leverage choices, even when bailout policies treat large and small banks symmetrically. Large banks always take on more leverage than small banks because they internalize that their decisions directly affect the government's optimal bailout policy. In equilibrium, small banks also choose strictly higher borrowing when large banks are present, since banks' leverage choices are strategic complements. Overall, the presence of large banks increases aggregate leverage and the magnitude of bailouts. The optimal ex-ante regulation features size-dependent policies that disproportion...
|November 2017||House Price Beliefs And Mortgage Leverage Choice|
with Michael Bailey, Theresa Kuchler, Johannes Stroebel: w24091
We study the relationship between homebuyers' beliefs about future house price changes and their mortgage leverage choices. From a theoretical perspective, whether more pessimistic homebuyers choose more or less leverage is ambiguous and depends on their willingness to reduce the size of their housing investment. When households primarily maximize the levered return of their property investment, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we empirically investigate the cros...
|July 2016||Pecuniary Externalities in Economies with Financial Frictions|
with Anton Korinek: w22444
This paper characterizes the efficiency properties of competitive economies with financial constraints, in which phenomena such as fire sales and financial amplification may arise. We show that financial constraints lead to two distinct types of pecuniary externalities: distributive externalities that arise from incomplete insurance markets and collateral externalities that arise from price-dependent financial constraints. For both types of externalities, we identify three sufficient statistics that determine optimal taxes on financing and investment decisions to implement constrained efficient allocations. We also show that fire sales and financial amplification are neither necessary nor sufficient to generate inefficient pecuniary externalities. We demonstrate how to employ our framework...