Working papers
Working papers
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Abstract: This paper studies how exogenous changes in the level and maturity structure of US public debt supply impact asset prices and the macroeconomy. Leveraging a novel combination of high-frequency futures price changes around Treasury auction announcements and variations in their volatility across announcement subsets, I separately identify shocks to the level and maturity of public debt supply. An increase in both debt level and maturity raises bond returns and yields, consistent with the preferred habitat theory. In an SVAR-IV framework, results show that a rise in debt levels reduces output and employment, while increased debt maturity boosts output and employment.
Abstract: We develop a heterogeneous agent New-Keynesian model featuring endogenous non-normal labour income risk that we use to explain the moments and dynamics of equity and bond returns. Within our framework, frictional labour markets introduce the possibility of employed individuals experiencing job loss and significant, uninsurable declines in their labour income. Adverse shocks not only decrease dividends but also elevate the risk of endogenous job loss, rendering equity a risky asset as it performs poorly during periods of heightened idiosyncratic labour income risk. Consequently, our model generates a realistic equity premium in general equilibrium for reasonable levels of risk aversion, while maintaining the smoothness of aggregate consumption observed in the data. The risk-free rate is also low in equilibrium due to the strong precautionary saving motive of households, avoiding the risk-free rate puzzle. Finally, we also demonstrate the model's ability to replicate empirical findings attributing the majority of the stock market's response to a monetary policy shock to changes in discount rates rather than cash flows.
Abstract: This paper investigates the cyclical behaviour observed in the US nominal yield curve across business cycles and proposes a novel explanation. I empirically establish that variation in the nominal yield curve is mainly driven by fluctuations in the real component of yields. Employing a real business cycle model with time-varying disaster risk, I demonstrate that during recessions, the yield curve steepens due to the perception of short-term real bonds being relatively safer than long-term bonds. As the likelihood of a disaster event increases, short-term yields fall as short-term bonds become more valuable, aligning with higher marginal utility. Over time, the probability of disaster reverts to its long-term average, leading to stabilized future expected short-term yields and a decline in long-term yields on impact, albeit to a lesser extent. This process results in a steepening of the yield curve during economic downturns and a flattening during periods of expansion. I analytically characterize intertemporal elasticity of substitution (IES) values compatible with empirical observations. Contrary to prior assumptions, an IES greater than 1 is neither necessary nor sufficient to generate the facts. Overall, this study provides insights into the mechanisms driving yield curve behavior and sheds light on the implications of disaster risk for bond market dynamics.
Works in progress
Works in progress
1. Inference for Macroeconometric Counterfactuals (with Daniel J. Lewis)
Abstract: Recent papers by McKay and Wolf (2023) and Barnichon and Mesters (2023) have generated considerable interest in using macroeconometric tools to compute policy counterfactuals. We provide methods for frequentist inference on the counterfactual responses of macroeconomic variables under alternative policy parameters. We illustrate how the parameters governing the counterfactual responses may be weak identified. We provide a bias-based test for weak identification. Under strong identification, confidence intervals for the responses may be constructed using the delta method. Under weak identification, we show how robust confidence intervals may be constructed. We illustrate the performance of these inference methods in simulations.
Pre PhD publication
Pre PhD publication
Regime changes in India's monetary policy and tenures of RBI governors (with Rajeswari Sengupta). Economic and Political Weekly, Issue on Money Banking and Finance. Vol. 55, Issue No. 13, 28 Mar, 2020
Policy papers
Policy papers
Time for a Neo-Tobin tax. Economic and Political Weekly. Vol. 52, Issue No. 1, 07 Jan, 2017
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