Financial Intermediation and Aggregate Demand: A Sufficient Statistics Approach (with Piotr Zoch, R&R at the Review of Economic Studies)

Abstract: We derive sufficient statistics to describe how the financial sector affects aggregate responses to macroeconomic policies. Our framework features heterogeneous and illiquid households and nests financial intermediation with various microfoundations. Relevant features of the financial sector are summarized by its liquidity supply elasticities. These elasticities can be linked directly to data and are quantitatively important for debates over the effectiveness of policies targeting the financial sector vs. households. Among workhorse models, output responses differ by orders of magnitude due to implicit assumptions about these elasticities. Our estimates for the U.S. imply a stronger effect targeting households than the financial sector.

Attention and a Paradox of Uncertainty (R&R at the Review of Economic Studies) 

Abstract: I show that macroeconomic uncertainty during recessions can arise from people paying more attention to aggregate events. When information is dispersed, people’s attempts to acquire more information can lead to higher aggregate volatility, forecast dispersion, and uncertainty about aggregate output. Information rigidity is reduced, consistent with evidence in forecast surveys, and distinct from the prediction of exogenous volatility shocks. When the model is calibrated to U.S. data, endogenous attention accounts for half of the observed fluctuations in volatility, forecast dispersion, and uncertainty. I also provide a method to solve models with varying attention and uncertainty under an infinite regress problem due to dispersed information.

Nominal Maturity Mismatch and the Liquidity Cost of Inflation (with Ezra Karger)

Abstract:   We document a liquidity channel through which unexpected inflation generates substantial welfare losses. Household balance sheets are nominal maturity mismatched: nominal liabilities have a longer duration than nominal assets. Due to this mismatch, losses from unexpected inflation are concentrated over short time horizons, while gains are spread out over the longer run. This has negative effects on liquidity-constrained households, who cannot easily borrow against their future gains. We quantify the importance of the liquidity channel and show that, for households in the lower half of the wealth distribution, the recent 2021-2022 unexpected inflation shock caused welfare losses valued at 0.5% of lifetime wealth: a monetary loss equal in size to 15% of current-year consumption. More than 75% of that loss is due to the liquidity channel, with the remainder coming from the more commonly studied wealth channel.

Higher-Order Approximations of Dispersed Information Models

Media Competition for Attention