University of Notre Dame
Department of Economics
3033 Jenkins Nanovic Hall
Notre Dame, IN 46556
“Borrowing to Save and Investment Dynamics” — November 2018
Existing literature on financial frictions argue that firms reduce investment in a crisis due to a lack of credit. However, U.S. public firms, which together accounted for 89% of the decline in investment during the Great Recession, experienced no drop in borrowing. Instead of investing, they borrowed to expand their stock of safe assets; that is, they borrowed to save. I argue that this is an optimal portfolio choice when firms face gradually resolving uncertainty. In a quantitative general equilibrium model with heterogeneous firms, I show that borrowing-to-save is a mechanism that can simultaneously generate a sharp downturn and a slow recovery.
Work in Progress
“The Behavioral Financial Accelerator“ (with Antonio Falato)