Working papers

Money Talks: Information and Seignorage

This paper analyses the consequences for monetary policy arising from private, centralised digital currencies (PCDC) such as Facebook's Libra. Firms introduce PCDC to generate seignorage revenues and information on consumers. The paper develops a benchmark with two important results. First, information shapes the degree of currency competition: firms do not accept their competitors' currencies. Second, the central bank loses its policy autonomy. To maximise the sum of product profits and seignorage revenues, firms implement a variant of the Friedman rule. As a result, public currency is unable to compete unless the central bank sets their nominal interest rate to zero, resulting in deflation. Importantly, private currency market power breaks this benchmark: inflationary pressures arise if firms form currency consortia, but decision powers and seignorage claims are concentrated in the hands of one firm.

Measuring Bail-in Credibility, with George Pennacchi

We empirically investigate the credibility of bank recapitalization reforms using a structural model similar to Merton (1974, 1977). Bank liabilities are contingent claims on its assets so that bank equity and debt can be interpreted as options on asset values. In the data, credit spreads on bank debt are valued as the product of ‘no-bailout’ probabilities and expected loss rates in the absence of a bailout. We calculate the latter using equity and balance sheet data. The no-bailout probability is estimated by regressing credit default swaps (CDS) spreads on the model-implied no-bailout loss rates. Before the Lehman bankruptcy, we find significantly higher market-perceived bailout probabilities for US banks, particularly G-SIBs, relative to non-financial firms. Since the Great Financial Crisis, bailout probabilities have clearly declined, and no longer differ statistically significantly.

On the Equilibrium Maturity of Bail-in Debt, with Alkis Georgiadis-Harris

In a model with asymmetric information on asset returns, banks issue debt in order to finance projects. In equilibrium, the maturity of their debt shortens if the government has implemented a recapitalisation strategy in the form of bail-ins. Short maturity creditors respond more to news and subsequent runs on loss-absorbing debt render bail-ins ineffective. Controlling the maturity structure of debt has two benefits. First, it allows the government to avoid bailouts. Second, longer maturity debt increases market discipline as the average quality of projects financed ex-ante increases. The model provides an explanation why regulators impose a minimum maturity of one year for bail-in debt, and a motivation to treat short-term debt preferentially during intervention.

Work in progress

Bailouts, Bail-ins and Bagehot: New Principles for the Lender of Last Resort

Teaching

Teaching Fellow - LSE - Ec424 Monetary Economics and Aggregate Fluctuations

Syllabus 20/21

Teaching Evaluations (2017 - 2020)

Teaching Assistant - LSE - Ec210 Intermediate Macroeconomics

Teaching Evaluations 16/17

Tutor - University of Mannheim - Finance (Finanzwirtschaft)

Reference letter, incl. teaching evaluations for 2011 and 2012, available upon request