Research
Work in Progress
Endogenous Bank Risks and the Lending Channel of Monetary Policy
with David Rivero and Hugo Rodriguez Mendizabal
This paper develops a general equilibrium banking model where credit creation and payment flows endogenously link credit, liquidity, and solvency risks. Banks issue deposits at loan origination. As deposits circulate, reserve settlement creates liquidity exposure and repayment shortfalls generate credit and solvency risk. These risks are jointly determined by credit provision and bound balance sheet expansion at an internally determined profitability threshold rather than an external funding or capital limit. We present an application of the theory that provides a new look to the bank lending channel where monetary policy operates through the pricing of bank liabilities, compressing margins and curbing credit. Our quantitative results align with empirical observations, including comovement of policy rates with deposit spreads and net interest margins and a decline in deposit growth after tightening. The mechanism speaks to policy: calibrating liquidity and capital tools in isolation can blunt their effectiveness.
Policy Takeaway: Examines how bank liquidity, credit risk, and solvency interact to shape monetary transmission, providing insights for macroprudential policy design and central bank liquidity frameworks.
Migration, Culture, and Long-Run Development: Evidence from Brazil’s German Colonies
This paper examines the long-term impact of early settlers on economic prosperity. Specifically, this paper investigates the long-term economic impact of 19th-century German immigration to southern Brazil, focusing on how early human capital shocks shaped development in a largely undeveloped region. Exploiting spatial variation in proximity to historical German settlements, I find that municipalities closer to these colonies exhibit significantly higher current literacy rates and income levels. The empirical strategy combines a quasi-natural experiment with robustness checks, placebo tests, and a comparative analysis with Italian settlement areas to support causal interpretation. I show that literacy is a key mediating channel, and that historical proximity to German colonies is associated with structural shifts away from agriculture and toward human capital-intensive industries. These findings highlight the enduring influence of early skilled immigration on local development.
Policy Takeaway: Quantifies the multi-decade structural returns to human capital shocks, demonstrating how early institutional and educational investments drive structural transformation out of low-productivity agriculture
Money Growth, Credit Allocation, and Inflation Regimes
This paper develops a theory of why money growth predicts inflation in some regimes but not in others. Broad money is modelled as inside money created through bank lending. Lending expands nominal purchasing power, but only part of it is converted into productive capital. When credit is productive, money growth is matched by higher real income and productive capacity, so inflation remains low and the money-inflation relationship is weak. When credit is weakly productive, money growth creates nominal claims that are not backed by real resources, so inflation rises and the money-inflation relationship strengthens. The model rationalises the empirical fact that excess broad money growth is weakly related to inflation in low-inflation regimes but strongly related to inflation in high-inflation regimes. It also implies that monetary policy has stronger disinflationary effects when credit creation is weakly productive, because tightening reduces nominal purchasing power with smaller losses in productive capacity. The chapter provides a banking-based mechanism linking endogenous money creation, credit allocation and inflation regimes.
Policy Takeaway: Provides a banking-based framework showing how credit productivity dictates inflation dynamics, explaining why broad money growth predicts inflation primarily in high-inflation regimes and clarifying when monetary tightening minimizes real output losses.
Synthetic Risk Transfers: Effects on Financial Fragility and Redistribution
with Antonio Villani
Banks increasingly buy credit protection on part of their loan books through synthetic risk transfers (SRTs), which lower the capital they must hold against the covered loans. Since banks create deposits when they lend and capital limits how much they can create, an instrument that economises on capital also changes the supply of money. We ask how SRTs affect the price level and who gains and loses. In a quantitative model, a bank with pricing power, limited liability and risk-weighted capital requirements lends to entrepreneurs who privately choose project risk, and can transfer part of that risk to levered protection sellers who are themselves funded by the bank and can default when losses are largest. Deposits are inside money held alongside central bank money, so the price level is pinned by the demand for outside money once the bank has created what its capital allows. With SRTs the bank is more valuable, lends more, and the deposit stock and price level are higher, while a narrower deposit spread passes part of the gain to depositors; in a crisis the sellers’ failure returns the losses to the bank and the same mechanism produces deflation. Because every contract is nominal, these price movements are transfers between depositors, borrowers, bank shareholders, protection sellers and money holders, which the paper quantifies.
Policy Takeaway: Shows how regulatory capital arbitrage via synthetic risk transfers alters inside money creation, price dynamics, and crisis transmission, offering quantitative insights for macroprudential risk-weight regulation and shadow banking supervision.
The Impact of Work Sponsor Visas on Earnings, Productivity and Sorting
with Cecilia Karmel
Published papers
Which Firms Get Credit? Evidence from Firm-level Data, Reserve Bank of Australia Bulletin, December 2018.
with Jonathan Hambur
Financial Stability Risks and Retailing, Reserve Bank of Australia Bulletin, September 2018.
with Timoth de Atholia