Job Market Paper
The Expenditure Channel of Monetary Policy
I study the redistributive effects of monetary policy generated by differences in expenditure choices over goods. Necessities, which feature low expenditure elasticities, and are therefore consumed relatively more by poorer households, have a higher frequency of price adjustments relative to luxuries. I develop a multisector monetary model with incomplete markets to quantify the effects of monetary shocks on consumption for households with different levels of labor income and financial wealth. The model can replicate the allocation of expenditure over goods observed in the Consumer Expenditure Survey. Following an expansionary monetary shock, households that are borrowing-constrained and have low labor income experience an increase in consumption 15% lower than the increase predicted by a model that doesn't account for expenditure heterogeneity. This is because they buy goods whose inflation rates respond faster to the shock, and the incompleteness of financial markets precludes intertemporal smoothing for these poorer households.
Work in progress
Asset Pricing with Nonhomothetic Preferences (joint with Andrés Schneider)
Cash Hoarding and Fluctuations in Volatility
Firms that face higher idiosyncratic uncertainty have higher cash-to assets ratios. I propose a mechanism that operates through the incompleteness of financial markets. Firms will accumulate cash to reduce the risk of default. I show that an increase in the variance of the distribution of idiosyncratic productivities leads to an increase in firms' demand for cash. This precautionary motive amplifies the negative effects of uncertainty on misallocation and welfare.