NBER Working Papers and Publications
|December 2016||Relationship Lending and the Great Depression: New Measurement and Implications|
with Jon Cohen, Gary Richardson: w22891
We demonstrate empirically that the collapse of long-term lending relationships amplified the severity of the Great Depression and affected the pace of recovery. We overcome the lack of loan-level data for this period by developing a new measure of continuing relationships that can be calculated at any level of aggregation. Our approach is based on the idea that loan rates charged in continuing relationships are less responsive to changes in bank funding costs than are those charged on other loans. After establishing the validity of this approach for a period when microeconomic data on lending relationships do exist, we show, first, that the marginal impact of bank suspensions on economic activity in the early 1930s was significantly higher in areas with more continuing relationships and, ...
|January 2016||Liquidity Regulation and Unintended Financial Transformation in China|
with Zheng Michael Song: w21880
We trace the origins of China's rapidly developing shadow banking sector to the adoption of stricter liquidity rules by Chinese regulators in the late 2000s. Our analysis exploits cross-sectional di¤erences in the bindingness of these rules along with time variation in product characteristics. We also discuss alternative hypotheses for the rise of shadow banking in China and explain why these hypotheses cannot account for the origins of the system.
|August 2014||Resource Allocation and Inefficiency in the Financial Sector|
I analyze whether banks are efficient at allocating resources across intermediation activities. Competition between lenders means that resources are needed to draw borrowers into credit matches. At the same time, imperfect information between lenders and borrowers means that resources are also needed for screening. I show that the privately optimal allocation of resources is constrained inefficient. In particular, too many resources are spent on getting rather than vetting borrowers but, once properly vetted, not enough matches are retained. Uninformed lending is thus inefficiently high, informed lending is inefficiently low, and a tax on matching activities helps remedy the situation.
|May 2014||Inflation Announcements and Social Dynamics|
with Jing Cynthia Wu: w20161
We propose a new framework for understanding the effectiveness of central bank announcements when firms have heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose to operate, putting downward pressure on realized inflation. Our model rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive. The same model also predicts that announcing an abrupt target to disinflate will cause inflation to undershoot the target whereas announcing gradual targets will not. We present new empirical evidence that corroborates this prediction.