Research

Working papers

Monetary Policy Transmission, Central Bank Digital Currency, and Bank Market Power
Joint with Matthias Hänsel and Hiep Nguyen [Paper]

Abstract: Interest rates on new central bank digital currencies (CBDCs) can be expected to enter the monetary policy toolkit soon. Using an extended Sidrauski (1967) model featuring an oligopsonistic banking sector, we study the complex transmission of interest rates on CBDC, which generally involve both direct and indirect effects. This is because a CBDC rate cut does not only affect the rate on the CBDC itself, but also induces the non-competitive deposit providers to adjust their spreads, as the new substitute for their products becomes relatively less attractive. A calibration exercise suggests that the indirect effects depend strongly on the sources of deposit market power: If driven by high concentration, they substantially amplify the aggregate effects of the CBDC policy rate, both in response to transitory shocks as well as regarding its long-run welfare effects. This contrasts them with policies directed at the banking sector which are weakened by a less competitive deposit market.

Central Bank Digital Currency with Collateral-constrained Banks
Joint with Maria Elena Filippin [Paper]

Abstract: We analyze the risks to bank intermediation following the introduction of a central bank digital currency (CBDC). The CBDC competes with commercial bank deposits as the household’s source of liquidity. We revisit the result in the literature regarding the equivalence of payment systems by introducing a collateral constraint for banks when borrowing from the central bank. When comparing two equilibria with and without the CBDC, the central bank can ensure the same equilibrium allocation and price system by offering loans to banks. However, to access loans, banks must hold collateral at the expense of extending credit to firms, and the central bank assumes part of the credit-extension role. Thus, in the equivalence analysis, while the CBDC introduction has no real effects on the economy, it does not guarantee full neutrality as it affects banks’ business models. In a dynamic model extension, we analyze the effects of an increase in the CBDC and show that the CBDC not only does not cause bank disintermediation or crowd out of deposits but may foster an expansion of bank credit to firms.

Money and Banking in the Shadows: Monetary Policy and (Non)bank Finance
[Paper]

Abstract: I study the transmission of monetary policy through banks and nonbank financial intermediaries (NBFIs) in the United States. First, I construct a measure of nonbank lending that takes into account the complex linkages within the NBFI sector. Then, I show empirically that following a surprise monetary policy tightening the households substitute away from bank deposits and towards nonbank-created liquidity. Bank lending to firms contracts while NBFIs’ provision of credit expands. Thus, the households’ portfolio rebalancing diminishes the impact of monetary policy on economic activity. To rationalize these findings, I build a New-Keynesian model with banks and investment funds that provide liquidity to households and lending to firms. The model captures the two channels of monetary policy transmission where the households’ portfolio choices take the central stage: the deposits and the shadow banking channels. Through these channels, the model replicates the portfolio shifts and increased nonbank finance observed in the data, and the presence of investment funds dampens the efficacy of monetary policy.

Work in progress

Competitive Dynamics of CBDC and Bank Deposits: Implications for Monetary Policy and Welfare (with Maria Elena Filippin)
The Deposits Channel of Monetary Policy in the Euro Area (with Maria Elena Filippin)