The Effects of Quantitative Easing on Bank Lending Behavior (with O. Darmouni)
(Review of Financial Studies, forthcoming)
Abstract: Banks’ exposure to large-scale asset purchases, as measured by the relative prevalence of mortgage-backed securities on their books, affects lending following unconventional monetary policy shocks. Using a difference-in-differences identification strategy, this paper finds strong effects of the first and third round of quantitative easing (QE1 and QE3) on credit. Highly affected commercial banks increase lending by 3% relative to their counterparts. QE2 had no significant impact, consistent with its exclusive focus on Treasuries sparsely held by banks. Overall, banks respond heterogeneously and the type of asset being targeted is central to QE.
“Persistent Anti-Market Culture: A Legacy of the Pale of Settlement after the Holocaust,” American Economic Journal: Economic Policy, Aug (2013), 5(3): 189–226. (with I. Grosfeld and E. Zhuravskaya)
Abstract: We estimate the long-term effects of Jewish presence in Europe before World War II, using discontinuity at the border of the “Pale of Settlement” area where Jews were allowed to live in the Russian Empire. Current residents of the Pale have lower support for the market, and are less entrepreneurial but more trusting compared to those outside the Pale. We suggest a mechanism and test for it: anti-Semitism generated persistent anti-market culture and trust among non-Jews. Consistent with this mechanism, anti-market attitudes and trust decrease with distance to pogroms controlling for historical Jewish presence. Self-identification and cohesion of a majority depends on the presence of a minority.
(Un)Competitive Devaluations and Firm Dynamics: Evidence from Abenomics
Abstract: This paper studies the micro-transmission mechanisms of a recent competitive devaluation in Japan and analyzes its effects on firm dynamics. Using a difference-in-differences identification strategy during the Abenomics episode, the yen devaluation is shown to negatively affect exporters in terms of employment, domestic sales and market capitalization relative to their non-exporting peers. Further cross-sectoral analysis reveals that the effects are stronger within industries characterized by a higher import content of production. Given their substantial dependence on imported intermediate inputs, exporters are adversely affected by competitive devaluations relative to purely domestic firms at home. Conventional macro models are too simplistic in their microstructure to capture these adjustment patterns. I propose a New Keynesian general equilibrium model featuring common ingredients from international trade and macro, including firm heterogeneity, varying intermediate import intensities, and international dollar pricing to explain the findings. The addition of strategic complementarities improves the quantitative performance of the model, but does not affect its qualitative properties. The new paradigm is successful in matching key firm-level moments as well as the evolution of inflation and net exports. The model is calibrated to evaluate the implications for monetary policy transmission under heterogeneous firm import intensities.
Endogenous Quality and Exchange Rate Pass-through (with D. Goetz)
Abstract: This paper uses a uniquely granular online retail dataset that spans Russia's enormous currency depreciation in late 2014 to show that firms choose to offer lower quality products in response to rising input costs. We show that this reallocation is not driven by an income shock or “flight from quality”. To explain quality downgrading, we construct a model of demand and firm dynamics where consumers value low prices and high qualities, and firms draw product cost and quality from a joint distribution on entry. We argue that a positive correlation between marginal cost and quality can explain quality downgrading. After verifying this correlation in the data, we calibrate the model and simulate a counterfactual cost shock. The model is able to generate a reallocation in offerings towards low cost, low quality products, and yields starkly different welfare implications following an exchange rate shock than a model with only cost heterogeneity.
Work in Progress
Financial Innovation and Trade: Evidence from Cotton Futures Trading (with C. Steinwender)
The Effects of Propaganda on Consumer Behavior
Abstract: This paper studies the impact of state propaganda on consumer purchasing behavior by analyzing online spending patterns in Kazakhstan, Russia and Ukraine around the annexation of Crimea in March 2014. A significant relative demand shift towards local brands is observed in regions and cities of Russia where anti-western online search requests, a proxy for exposure towards state-sponsored media, become particularly high. Consumption in the northern regions of Kazakhstan, home to a substantial fraction of ethnic Russians, reacts in a similar manner compared to other parts of the country. Relative spending on Russian brands in Ukraine stays largely unresponsive throughout the whole period.