Monetary Policy When Households Have Debt: New Evidence on The Transmission Mechanism  [PDF]  [June 2018]  

with James Cloyne (UC Davis) and Paolo Surico (LBS)

Forthcoming at Review of Economic Studies

Abstract: Using household survey data for the U.S. and the U.K., we show that the aggregate response of consumption to interest rate changes is driven by households with a mortgage. Outright home-owners do not adjust expenditure at all while renters change their spending but by less than mortgagors. Income rises for all households as interest rate cuts directly affect firm investment and household consumption, boosting aggregate demand. A crucial difference between the housing tenure groups is the composition of their balance sheets: mortgagors hold sizable illiquid assets but little liquid wealth. Our results reveal that general equilibrium effects on household income coupled with balance-sheet-driven heterogeneity in the marginal propensity to consume play a key role in the transmission of monetary policy.

Working Papers & Work in Progress

Monetary Policy, Corporate Finance and Investment  [PDF]  [December 2018]  [NEW VERSION COMING SOON!]

with James Cloyne (UC Davis), Maren Froemel (LBS) and Paolo Surico (LBS)

Working paper: NBER 25366  | Bank of Spain DT1911

Abstract: We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most significant change in capital expenditure --- even after conditioning on size, asset growth, Tobin's Q, leverage or liquidity --- and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.

Housing Tenure and Household Debt over the Life-Cycle: Theory and Evidence for Spain

    with Julio Gálvez (Bank of Spain)

Bank Lending Channel and the Aggregate Effects of Sovereing Debt Shocks 

    with Andrea Gazzani (Banca d'Italia) and Alejandro Vicondoa (PUC Chile)

Democratic Monetary Policy Rules

    with J. Fernández-Villaverde (Upenn), J. Gálvez (Bank of Spain), S. Hurtado (Bank of Spain) and G. Nuño (Bank of Spain)

Who Pays for Inflation? Welfare Costs of Inflation With heterogeneous Households

Work in stand-by / Old(er) stuff

Firms Strategic Competition and The Dynamics of Reputation: The Case of an On-line Market (2016)   [PDF]

    (Modified and extended version of previous work joint with Ema Iancu)

Assigned To Your Choice? A Short Note on the Assignment of Researchers to Workspaces (2010)   [PDF]

 Recent Discussions

"Banking Supervision, Monetary Policy and Risk Taking: Big Data Evidence from 15 Credit Registers" (2019), by C. Altavilla, M. Boucinha, J.L Peydró and F. Smets   [Slides]

"Sovereign Default in a Monetary Union" (2018), by Sergio de Ferra and Federica Romei   [Slides]

"Housing Market Freezes, Deleveraging and Aggregate Demand" (2017), by Christian Bayer and Ralph Luetticke   [Slides]