IMPERFECT PASS-THROUGH TO DEPOSIT RATES AND MONETARY POLICY TRANSMISSION
I study a monetary model which is consistent with three salient features of the transmission of monetary policy. First, deposit rates adjust partially to changes in the Federal Funds rate. Second, banks substitute deposits with other liabilities in response to contractionary monetary policy changes. Finally, contractionary monetary policy shocks increase credit spreads, and in particular mortgage spreads. In the model, banks have market power in the deposit market, invest in long-duration assets but borrow using short-duration liabilities, and have a dividend-smoothing motive. Moreover, demand for banks' deposits has a dynamic component: it responds gradually to changes in current and past deposit rates, as in the literature on customer markets. I use the model to study the implications of imperfect pass-through to deposit rates for monetary policy transmission and find that the imperfect pass-through to deposit rates amplifies the response of output to monetary policy changes.
‘AND YET, IT MOVES’: INTERGENERATIONAL MOBILITY IN ITALY
with Paolo Acciari (Ministry of Economy and Finance of Italy) and Gianluca Violante (Princeton University)
We link administrative data on tax returns across two generations of Italians to study the degree of intergenerational mobility. We estimate that a child with parental income below the median is expected to belong to the 44th percentile of its own income distribution as an adult, and the probability of moving from the bottom to the top quintile of the income distribution within a generation is 0.10. The mean (median) rank-rank correlation is 0.25 (0.37), and rank persistence at the top is significantly higher than elsewhere in the income distribution. Upward mobility is higher for sons, first-born children, children of self-employed parents, and for those who migrate once adults. The data reveal large variation in child outcomes conditional on parental income rank. Part of this variation is explained by the location where the child grew up. Provinces in Northern Italy, the richest area of the country, display upward mobility levels 3-4 times as large as those in the South. This regional variation is strongly correlated with local labor market conditions, indicators of family instability, and school quality.
MACROECONOMIC FLUCTUATIONS AND COUNTERCYCLICAL INCOME RISK
What are the quantitative implications of countercyclical labor earnings risk? This paper investigates the welfare effects of eliminating business cycles when households face cyclical changes in the skewness of the labor earnings distribution as estimated by Guvenen, Ozkan and Song (2014). Using a heterogeneous agent, general equilibrium model with aggregate shocks I find that the average welfare effect can be as large as 9% of lifetime consumption. The welfare gain comes entirely from removing cyclical changes in the distribution of persistent idiosyncratic shocks. At the individual level, the welfare gain is increasing in earnings and decreasing in wealth. Low-earnings, low-wealth households however have little to lose from countercyclical risk and prefer the economy with aggregate fluctuations.
Works In Progress
MARKET CONCENTRATION AND INVESTMENT CYCLICALITY
with Peifan Wu (University of British Columbia)