Job Market Paper

The Perceived Sources of Unexpected Inflation with Emilio Zaratiegui

We use high-frequency asset price changes around Consumer Price Index announcements in the US to learn about market perceptions regarding the economy. First, we document three facts. An unexpected increase in the CPI inflation leads to an increase in (a) treasury nominal yields (b) forward breakeven inflation rates. The response of the stock price and the future annual dividends of S&P 500 companies varies over the years. We interpret these facts through the lens of a New Keynesian Model with an inflation announcement to decompose unexpected inflation into demand and supply components. We find that the share of supply in unexpected inflation has increased by 20 percentage points post-covid.

Working Papers

Anatomy of Banks’ IT Investments: Drivers and Implications with Nicola Pierri, Yannick Timmer and María Soledad Martínez Pería (submitted)

Using a newly compiled measure, this paper studies the determinants and implications of US banks’ Information Technology (IT) investments. Exposure to fintech competition and novel economies of scale are important drivers of the six-fold increase in IT investments observed over two decades. Further analyses point towards significant implications of banks’ IT investments for both (i) monetary policy transmission to lending and (ii) financial inclusion of low income borrowers.

Loan Covenants and the Firm Investment Channel of Monetary Policy

We study the role of loan-level financial covenants in determining the investment channel of monetary policy. We find that out of all covenant-types, the minimum interest coverage covenant, which sets a minimum ratio of earnings to interest payments, interacts robustly with monetary shocks. When there is a positive monetary shock, the farther away a firm is from violating its interest coverage threshold, the more responsive it is to a monetary shock in terms of investment. This finding is robust to controlling for factors known to affect the transmission of monetary policy to firm investment. The intuition is that in an environment with agency frictions, a firm that is farther away from violating its interest coverage covenant face a lower marginal cost and borrow more to invest in riskier projects.