University of Notre Dame
Department of Economics
3033 Jenkins Nanovic Hall
Notre Dame, IN 46556
“Borrowing to Save and Investment Dynamics” (updated December 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 percent 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 model borrowing to save as an optimal portfolio choice when firms face gradually resolving uncertainty. In a quantitative general equilibrium model with heterogeneous firms, I show that this mechanism can simultaneously generate a sharp downturn and a slow recovery.
“The Behavioral Financial Accelerator” (with Antonio Falato; updated March 2019)
Leverage makes the real economy vulnerable to the whims of credit markets. We explore this behavioral accelerator hypothesis using survey data to measure fluctuations in investor expectations of corporate profits. We propose a firm financing model with incomplete information in which the bond investors need to learn the hidden state of the firm. We provide a novel rationale for persistently weak aggregate investment based on imperfect information in credit markets, and find strong evidence in support of the learning mechanism at the core of the model.