Job Market Paper

A Macro-Finance model with Realistic Crisis Dynamics

CESifo Distinguished Affiliate Award 2021

Runner up for European Systemic Risk Board 2021 Ieke van den Burg Prize

Abstract : Financial recessions are typically characterized by a large risk premium and a slow recovery. However, macro-finance models have trouble quantitatively explaining these empirical features, especially when they are calibrated to simultaneously match both the observed unconditional and conditional macroeconomic and asset pricing moments. In this paper, I build a macro-finance model that quantitatively explains the salient features of a financial crisis, such as a large drop in output, a spike in the risk premium, reduced financial intermediation, and a long duration of economic distress. The model has leveraged intermediaries with stochastic productivity and a state-dependent exit rate that governs the transition into and out of a crisis. A model without these two features suffers from a trade-off between the amplification and persistence of crisis. I show that my model resolves this tension and generates realistic crisis dynamics.

Presentations(*in-person): AFA poster (2022), Princeton University Finance seminar series* (2022), CESifo conference on Macro, Money, and International Finance (2021), RiskLab/BoF/ESRB Conference (2021), Paris December Meetings (2021), DGF German Finance Association Innsbruck* (2021), Econometric Society Meetings (2021; North America, Europe, Asia, Australia), AFFI PhD session (2021), AEFIN Ph.D. Mentoring Day (2021), Day-Ahead Workshop on Financial Regulation poster Zurich* (2021), Workshop on Macroeconomic Research Carcow (2021), Money Macro and Finance Society Conference (2021), Miami Winter Research Conference on Machine Learning and Business (2021), New Zeland Finance Conference (2021), SFI Gerzensee Research Days (2021), UNIL/EPFL Brown Bag (2020) .

Crisis in six scenes