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Working Paper
Why Does Structural Change Accelerate in Recessions? The Credit Reallocation Channel.
The decline of the U.S. manufacturing share since 1960 has occurred disproportionately during recessions. Using evidence from two natural experiments—the collapse of Lehman Brothers in 2008 and U.S. interstate banking deregulation in the 1980s—I document a role for credit reallocation in explaining this phenomenon. Specifically, I show that losing access to credit disproportionately hurt manufacturing firms, and that the creation of new credit disproportionately benefited nonmanufacturing firms. These results arise endogenously from a model with technology-driven structural change and ...
Working Paper
Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment
While investment in most sectors declines in response to a contractionary monetary policy shock, investment in the manufacturing sector increases. Using manually digitized aggregate income and balance sheet data for the universe of U.S. manufacturing firms, I show this increase is driven by the types of firms that are least likely to be financially constrained. A two-sector New Keynesian model with financial frictions can match these facts; unconstrained firms are able to take advantage of the decline in the user cost of capital caused by the monetary contraction, while constrained firms are ...
Journal Article
Inflation in 1972: A Cautionary Tale
The path of inflation over the past two years looks strikingly similar to the path observed during the 1970s,when the Federal Open Market Committee shifted its focus away from fighting inflation before pricepressures were fully under control. Although policymakers in both the 1970s and today have facedextraordinary challenges, future perceptions of current policy will likely be defined primarily by theoutcome of the Committee’s attempts to curb inflation, rather than the circumstances surrounding it.
Journal Article
Monetary Policy and Intangible Investment
Cooper Howes and Alice von Ende-Becker provide a simple framework to explain how the financing structure and depreciation rate of intangible investment cause it to respond differently to changes in interest rates and then analyze what these properties imply for the efficacy of monetary policy. Building on the findings of Döttling and Ratnovski (2021), they show that monetary policymakers may need to adjust their approach to managing the economy as the share of intangible investment continues to grow.