Assistant Professor, Columbia University (on leave at UCLA Anderson, 2020-2021)
A Q-Theory of Inequality (2020) with E. Gouin-Bonenfant
We study the effect of interest rates on top wealth inequality. While low rates decrease the average growth rate of existing fortunes, we argue that they increase the growth rate of new fortunes by making it cheaper to raise capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution. It depends on the average equity issuance rate and leverage of individuals reaching the right tail of the distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. We conclude that the secular decline in discount rates has played a key role in the recent increase of top wealth inequality.
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.
Decomposing the Rise in Top Wealth Shares (Revised June 2020)
The growth of the wealth share of a top percentile can be decomposed into three terms: a within term, which is the difference between the growth of individuals in the top percentile and the growth of the economy, a displacement term, which accounts for the flow of individuals in and out of the top percentile, and a demography term, which accounts for death and population growth. After applying this framework to the data, I find that displacement accounts for more than half the rise in top wealth inequality in the U.S. I examine the implications of this finding for the relationship between wealth inequality and 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 with A. Landier, D. Sraer, and D. Thesmar
Journal of Monetary Economics (2020)
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.