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Working papers

[1.] "Shocks and Technology Adoption: Evidence from Electronic Payment Systems," with
Apoorv Gupta and Filippo Mezzanotti.
June 2022.
Revise and resubmit (first round), Journal of Political Economy.

Abstract: We provide evidence on the importance of coordination frictions in technology adoption, using data from a large provider of electronic wallets during the Indian Demonetization. Exploiting geographical variation in exposure to the Demonetization, we show that adoption of the wallet increased persistently in response to the large but temporary cash contraction, consistent with the predictions of a technology adoption model with complementarities. Model counterfactuals indicate that adoption would have been 60% lower without complementarities. Our results illustrate how large but temporary interventions can help overcome coordination frictions, though we caution that such interventions may also exacerbate initial differences in adoption.

[2.] "The Economics of Intangible Capital,"
with Janice Eberly, Andrea Eisfeldt, and Dimitris Papanikolaou.
May 2022.
In preparation for the Journal of Economic Perspectives.
Abstract: Intangible assets are a large and growing part of firms’ capital stocks. Intangibles are accumulated via investment — foregoing consumption today for output in the future — though they lack a physical presence. But rather than stopping with this ”lack”, we instead focus on the actual properties of intangibles that follow — in particular, non-rivalry and the need for storage. We model these properties in a simple way to demonstrate the economic implications, such as scalability and appropriability, that are often associated with intangibles. These implications coincide with a number of important issues and trends in macroeconomics and finance, including measurement of productivity, inequality, investment and valuation, rents and market power, and financing.

[3.] "Can the Cure Kill the Patient? Corporate Credit Interventions and Debt Overhang,"
with Fabrice Tourre.
June 2021.
Revise and resubmit (first round), Journal of Finance.
Abstract: Interventions in corporate credit markets were a major innovation in the policy re- sponse to the 2020 recession. This paper develops and estimates a model to quantify their impact on borrowing and investment. Even during downturns, credit interventions can be a bad policy idea, because they exacerbate debt overhang and depress invest- ment in the long run. However, if the downturn is accompanied by financial market disruptions, they initially help forestall inefficient liquidations. These short term benefits quantitatively dominate the long run overhang costs. Additionally, constraining share- holder distributions, and targeting high-leverage firms substantially increases the "bang for the buck" of credit interventions.

[4.] "Default, Debt Maturity, and Investment Dynamics."
December 2017.
Abstract: This paper studies the optimal maturity structure of debt in a standard investment model. Firms operate long-term assets, and may want to use long-term debt to reduce short-term refinancing risk. However, long-term financing may lead to debt overhang and distort investment. The maturity structure of debt should trade off these two forces. In numerical calibrations of the model, however, debt maturity is much shorter than observed among US firms. Firms shun long-term debt because debt overhang costs are large, and the benefits from long-term financing small. Potential reconciliations of the model with the data include investment irreversibility and debt covenants.

Refereed publications

[1.] "Rents and Intangible Capital: a Q+ Framework," with Janice Eberly.
September 2021.
Forthcoming, Journal of Finance.
[Slides] [Online Appendix] [Older version]

Abstract: In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations --- reflected in average Q --- and investment --- reflected in marginal q --- can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles.

[2.] "Intangibles, Markups, and the Measurement of Productivity Growth," with Janice Eberly.
Journal of Monetary Economics, 124: S92-S101, November 2021.
[Slides] [Online appendix] [Replication material]
Abstract: In recent years, measured TFP growth in the US has declined. We argue that two forces contributed to this decline: the mismeasurement of intangible capital, and rising markups. Markups affect input shares, while intangibles omitted from measures of investment affect measured capital growth, each potentially generating downward bias in measured TFP growth. Most importantly, when both forces are simultaneously present, their effects reinforce each other and amplify the downward bias in measured TFP growth. Using input-output data, we estimate that this mechanism could account for one-third to two-thirds of the decline in measured TFP growth.

[3.] "Credit Disintermediation and Monetary Policy."
IMF Economic Review, 69 (1): 1-67, March 2021.
[Slides] [Replication material]
[Old version, circulated as "Firm Investment and the Composition of Debt."]
Abstract: Since the early 1990s, the share of loans in total debt of US firms appears to have declined. This paper explores the implications of this trend toward ``disintermediation" for the transmission of monetary policy shocks. Empirically, investment among firms with high loan shares is significantly more responsive to monetary policy shocks. Moreover, this pass-through has declined since the early 1990s, when disintermediation started. A model where firms choose debt structure by trading off the flexibility of loans against the lower cost of bonds can account for the higher sensitivity of more bank-dependent firms to monetary shocks. In this model, disintermediation also leads to a decline in the overall pass-through of monetary shocks to investment.

[4.] "Small and Large Firms Over the Business Cycle," with Neil Mehrotra.
American Economic Review, 110 (11): 3549-3601, November 2020.
[Online appendix] [Replication material]
Abstract: This paper uses new confidential Census data to revisit the relationship between firm size, cyclicality, and financial frictions. First, we find that large firms (the top 1% by size) are less cyclically sensitive than the rest. Second, high and rising concentration implies that the higher cyclicality of the bottom 99% of firms only has a modest impact on aggregate fluctuations. Third, differences in cyclicality are not simply explained by financing, and in fact appear largely unrelated to proxies for financial strength. We instead provide evidence for an alternative mechanism based on the industry scope of the very largest firms.
[5.] "On the Effects of Restricting Short-Term Investment," with Ian Dew-Becker and Charles
Review of Financial Studies, 33 (1): 1-43, January 2020.
Lead article and editor's choice.
[Online appendix]
Abstract: We study the effects of policies proposed for addressing “short-termism” in financial markets. We examine a noisy rational expectations model in which the exposures of investors and their information about fundamentals endogenously vary across horizons. In this environment, taxing or outlawing short-term investment has zero effect on the information in prices about long-term fundamentals. However, such a policy reduces the profits and utility of short- and long-term investors. Limiting the release of short-term information helps long-term investors (an objective of some policymakers) at the expense of short-term investors, but it also makes prices less informative and increases costs of speculation.
[6.] "Aggregate Implications of Corporate Debt Choices."
Review of Economic Studies, 85 (3): 1635-1682, July 2018.
[Online appendix] [Replication material]
Abstract: This paper studies the transmission of financial shocks in a model where corporeate credit is intermediated via both banks and bond markets. In choosing between bank and bond financing, firms trade off the greater flexibility of banks in case of financial distress against the lower marginal costs of large bond issuances. I find that, in response to a contraction in bank credit supply, aggregate bond issuance increases, but not enough to avoid a decline in aggregate borrowing and investment. Retiring bank loans while keeping total leverage constant would expose firms to a larger risk of financial distress; they offset this by reducing total borrowing. A calibration of the model to the Great Recession indicates that this precautionary mechanism can account for one-third of the total decline in investment by firms with access to public debt markets.
[7.] "What Do Inventories Tell Us About News-Driven Business Cycles?," with Hyunseung Oh.
Journal of Monetary Economics, 79:49-66, May 2016.
[Online appendix] [Replication material] [Older version] [Older online appendix]
Abstract: There is widespread disagreement regarding the quantitative contribution of news shocks to business-cycle fluctuations. This paper provides a simple identifying restriction, based on inventory dynamics, that tightly pins down the contribution of news shocks to business-cycle volatility. We show that finished-good inventories must fall when there is an increase in consumption and investment induced by news shocks. A structural VAR with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility. Since inventories comove positively with consumption and investment in the data, shocks that generate negative comovement cannot account for the bulk of fluctuations.

Non-refereed publications

[1.] "Understanding Weak Capital Investment: the Role of Market Concentration
and Intangibles,"
with Janice Eberly.
Proceedings of the 2018 Jackson Hole symposium, 87-148, May 2019.
[Published version] [Online appendix] [Replication material]

Abstract: We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as “intangible capital,” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features compared to physical capital. For example, they are scalable (e.g., software) though some also have legal protections (e.g., patents or copyrights). These characteristics may have enabled the rise in industry concentration over the last two decades. Indeed, we show that the rise in intangibles is driven by industry leaders and coincides with increases in their market share and hence, rising industry concentration. Moreover, intangibles are associated with at least two drivers of rising concentration: market power and productivity gains. Productivity gains derived from intangibles are strongest in the Consumer sector, while market power derived from intangibles is strongest in the Healthcare sector. These shifts have important policy implications, since intangible capital is less interest-sensitive and less collateralizable than physical capital, potentially weakening traditional transmission mechanisms. However, these shifts also create opportunities for policy innovation around new market mechanisms for intangible capital.
[2.] "Intangibles, Investment and Efficiency," with Janice Eberly.
American Economic Review, Papers and Proceedings, 108: 426-431, May 2018.
[Online appendix] [Replication material]
Abstract: Recent work on macroeconomic trends has emphasized slowing capital investment, but strong business profits and valuations. The retail sector is a microcosm of these trends, and accounts for a large share of the increase in aggregate business concentration also observed in recent years. We show that, in that sector, weak investment and rising concentration are associated with rising productivity. Additionally, stronger productivity is correlated with intangible investment, both over time and across sub-industries. Intangible investment may thus provide a joint explanation for rising productivity, weak capital investment and increasing industry concentration.