1131 International Affairs Building, Columbia University
A Q-Theory of Inequality (2020)
with E. Gouin-Bonenfant
We study the effect of interest rates on top wealth inequality. While lower rates decrease the average growth rate of existing fortunes, they increase the growth rate of new fortunes by making it cheaper to raise capital. Using a sufficient statistic approach, we show that the second effect dominates whenever individuals in the right tail of the wealth distribution are on average net equity issuers. Quantitatively, we find that the secular decline in real interest rates has been a major contributor to the rise of top wealth inequality in the U.S.
Sorting Out the Real Effects of Credit Supply (2020)
with B. Chang and H. Hong
We document that banks which cut lending the most during the Great Recession were lending to the riskiest firms. Motivated by this evidence, we build a competitive matching model of bank-firm relationship, in which firms with riskier projects borrow from the banks with lower holding costs (e.g. higher ability to securitize). A firm's ability to borrow depends on the entire distribution of bank holding cost. We derive and estimate a simple measure of this distribution using loan rate and credit ratings data. We conclude that its upward shift during the Great Recession, i.e. credit supply effect, explains the decline in aggregate firm loans as opposed to an increase in firm riskiness.
Displacement and the Rise in Top Wealth Inequality (2018)
Revise and Resubmit, Econometrica
The growth of top wealth shares can be decomposed into two terms: (i) a within term, driven by the average wealth growth of households in top percentiles relative to the economy and (ii) a displacement term, driven by all higher-order moments of their wealth growth. I propose an accounting framework to map this decomposition to the data. I find that the displacement term accounts for more than half of the rise in top wealth shares in the United States since 1983. I examine the importance of this finding for the relationship between wealth inequality and economic growth, as well as for wealth mobility.
Asset Prices and Wealth Inequality (2017)
I document a strong interplay between asset prices and wealth inequality (i) when stock returns are high, inequality increases (ii) higher inequality predicts lower stock returns. This corresponds to the basic prediction of a model where agents have heterogeneous preferences. Quantitatively, however, the model cannot match the excess volatility of asset prices without implying a wealth distribution with a tail thicker than the data. I suggest two parsimonious deviations to resolve this tension: (i) "live-fast-die-young dynamics", in which risk-tolerant investors remain levered only for a short period of time, (ii) time-varying investment opportunities for the rich relative to the rest.
Video of the Wealth Distribution with Regime Switches
Bank Exposure to Interest-Rate Risk and the Transmission of Monetary Policy (2016)
with A. Landier, D. Sraer and D. Thesmar
Journal of Monetary Economics, Accepted
The cash-flow exposure of banks to interest rate risk, or income gap, is a significant determinant of the transmission of monetary policy to bank lending and real activity. When the Fed Funds rate rises, banks with a larger income gap generate stronger earnings and contract their lending by less than other banks. This finding is robust to controlling for factors known to affect the transmission of monetary policy to bank lending. It also holds on loan-level data, even when we control for firm-specific credit demand. When monetary policy tightens, firms borrowing from banks with a larger income gap reduce their investment by less than other firms.