faculty: research, publications and news

Mark A. Aguiar, Walker Professor of Economics and International Finance

Faisal Z. Ahmed, Assistant Professor of Politics

Yacine Ait-Sahalia, Otto A. Hack 1903 Professor of Finance and Economics

Roland Bénabou, Theodore A. Wells 1929 Professor of Economics and Public Affairs

Alan S. Blinder,* Gordon S. Rentschler Memorial Professor of Economics and Public Affairs

Markus Brunnermeier,* Edwards S. Sanford Professor of Economics; Director, Bendheim Center for Finance

Miguel Centeno, Executive Vice Dean, SPIA; Musgrave Professor of Sociology; Professor of Sociology and International Affairs

Natalie Cox, Assistant Professor of Economics Amaney A. Jamal,* Dean, SPIA; Edwards S. Sanford Professor of Politics; Professor of Politics and International Affairs

Harold James,* Claude and Lore Kelly Professor in European Studies; Professor of History and International Affairs; Director, Program in Contemporary European Politics and Society

Jakub Kastl, Professor of Economics

Nobuhiro Kiyotaki, Harold H. Helm 1920 Professor of Economics and Banking

Henrik J. Kleven, Professor of Economics and Public Affairs

Moritz Lenel, Assistant Professor of Economics

Ernest Liu, Assistant Professor of Economics

Burton G. Malkiel, Chemical Bank Chairman’s Professor of Economics, Emeritus Alexandre Mas, William S. Tod Professor of Economics and Public Affairs

Adrien Matray, Assistant Professor of Economics

Nolan McCarty,* Vice Dean, Strategic Initiatives, SPIA; Susan Dod Brown Professor of Politics and Public Affairs

Atif Mian,* Director, JRCPPF; John H. Laporte, Jr. Class of 1967 Professor of Economics, Public Policy and Finance

Ashoka Mody, Charles and Marie Robertson Visiting Professor in International Economic Policy

Layna Mosley, Professor of Politics and International Affairs

Jonathan Payne, Assistant Professor of Economics

Stephen J. Redding, Harold T. Shapiro 1964 Professor in Economics; Professor of Economics and International Affairs

David Schoenherr, Assistant Professor of Economics

Eldar Shafir, Class of 1987 Professor in Behavioral Science and Public Policy; Professor of Psychology and Public Affairs; Director, Kahneman-Treisman Center for Behavioral Science and Public Policy

Christopher A. Sims, John F. Sherrerd 1952 Professor of Economics

Leonard Wantchekon, James Madison Professor of Political Economy; Professor of Politics and International Affairs

Arlene Wong, Assistant Professor of Economics

Wei Xiong,* Hugh Leander and Mary Trumbull Adams Professor for the Study of Investment and Financial Markets

Motohiro Yogo, Professor of Economics

Owen Zidar, Professor of Economics and Public Affairs

The Center supports empirical research at the intersection of public policy, financial markets and the macroeconomy. Leveraging the increasing availability of microeconomic data and using sophisticated microeconomic techniques, this research addresses macrofinancial questions, including the influence of financial intermediaries in the real economy, the impacts of fiscal and monetary policy, and the role of households and firms in credit supply and debt demand. Over the past year, the Center supported the work of eight faculty affiliates.

Natalie Cox, Assistant Professor of Economics. Cox’s research interests span household finance, industrial organization, mechanism design, and public economics. Her current work explores how government interventions in consumer credit markets—such those for student loans, small business lending, retirement savings, and credit cards—affect the supply of credit as well as household and firm finances. Her research combines reduced-form and structural modeling to create a tight link between theory and data, and yield policy-relevant findings. Other strands of her work examine student loan markets, the long-run labor market consequences of increasing student debt, and the college-applicant matching process. Cox earned her Ph.D. in Economics from the University of California at Berkeley and she joined the Princeton faculty in the fall of 2018.

Moritz Lenel, Assistant Professor of Economics. Lenel’s research interests are in macroeconomics and finance. His current work studies how portfolio differences across households, institutions, and countries matter for the transmission of macroeconomic shocks and policy. Lenel holds a Ph.D. in Economics from Stanford University. He joined the Princeton faculty in the fall of 2019 after spending a year as the Pyewacket Research Fellow with the Bendheim Center for Finance.

Ernest Liu, Assistant Professor of Economics. Liu’s research explores the implications of weak financial institutions for economic growth, allocation of resources, and economic development. One strand of his work uses production network theory to understand industrial policies, specifically the strong government support for upstream industries that is widely adopted in developing economies. Another strand of work shows how low, longterm interest rates affect market concentration and productivity growth; how banks with market power respond to interest rate ceilings in small business lending; and, how financial market imperfections not only distort economic allocations via underinvestment but may greatly amplify effects due to interactions across economic sectors or because the relationships between borrowers and lenders create under-development traps. He received his Ph.D. in Economics from MIT and joined Princeton’s faculty in 2019.

Adrien Matray, Assistant Professor of Economics. Matray’s research spans corporate finance, entrepreneurship, innovation, misallocation, banking, and financial inclusion. One strand of research looks at aspects of financial inclusion for low-income households and minorities both in the US and in developing countries. A second strand of his work investigates the frictions affecting entrepreneurship, SME growth, and technology adoption and how new technologies affect SME productivity, employment, and income growth. Ongoing work (with Johan Hombert) studies how different types of asset bubbles (technological bubbles vs. house prices bubbles for instance) affect worker allocation and can distort the economy. Matray earned his doctorate from HEC Paris and joined Princeton’s faculty in 2016.

Atif Mian, Director, JRCPPF; John H. Laporte, Jr. Class of 1967 Professor of Economics, Public Policy and Finance. Mian’s work explores the connections between finance and the macroeconomy. His 2014 book, House of Debt, with Amir Sufi describes how excessive household debt precipitated the Great Recession. Building on the themes raised in the book, his current research uses county-level data on household borrowing and employment to look at the impact of indebtedness on labor allocation across geographical areas and industries. Another strand of his work investigates the link between household debt and business cycles worldwide and the role of credit supply shocks. Mian’s research has appeared in top journals, including the American Economic Review, Econometrica, Quarterly Journal of Economics, Journal of Finance, Review of Financial Studies and Journal of Financial Economics. Before joining Princeton in 2012, he taught at the University of California, Berkeley, and the University of Chicago’s Booth School of Business. He holds a Ph.D. in Economics from MIT.

Jonathan Payne, Assistant Professor of Economics. Payne’s research has four main threads. One studies the introduction of banking frictions into macroeconomic models, including work on how covenants to long-term bank-firm loans allowed banks to disrupt credit during the 2007–9 financial crisis and how deposit contracts could be redesigned to avoid future bank runs. A second thread studies 19th-century US financial history, estimating the yield curve on US debt from 1800–2020 and testing the impact of bank regulation following the Civil War. The third thread develops new tools for solving macroeconomic models with financial frictions, using neural networks to solve continuous-time, non-linear, heterogeneous agent models. A final thread studies the future of the financial sector including the role of digital currencies and the potential opportunities for green finance. Payne earned his Ph.D. from New York University and he joined the Princeton faculty in 2020 after spending a year as a Pyewacket Fellow at the Bendheim Center for Finance. Payne currently teaches the undergraduate/master’s course “416/516: FinTech” and the 1st year Ph.D. course “Macroeconomics.” He also runs student reading groups on macrofinance and green finance.

David Schoenherr, Assistant Professor of Economics. Schoenherr’s research interests include financial contracting, labor economics, political economy and the interaction between law and finance. He is particularly interested in how the design of bankruptcy law affects security prices and investors’ incentives. His work also examines how limited access to credit affects labor market opportunities for low-income households, and the role of social and political connections on economic outcomes in different contexts, as well as how informal labor markets affect the incentives of workers in response to changes in unemployment insurance benefits. Schoenherr joined the Princeton faculty in 2016 after completing his Ph.D. in finance at the London Business School.

Motohiro Yogo, Professor of Economics. Yogo’s fields of expertise are financial economics, insurance and econometrics. He has published in various economics and finance journals including American Economic Review, Econometrica, Journal of Political Economy, Journal of Finance, Journal of Financial Economics and Review of Financial Studies. Recognition for his work includes the GPIF Finance Award and the Swiss Finance Institute Outstanding Paper Award. Yogo earned his Ph.D. from Harvard in 2004. Before joining Princeton’s faculty in 2015, he was a research economist at the Federal Reserve Bank of Minneapolis.

A recent working paper by Natalie Cox, “Do Peer Preferences Matter in School Choice Market Design?,” co-authored with Ricardo Fonseca and Bobak PakzadHudson, uses information on peer preferences to design a new mechanism for finding stable matches between colleges and applicants. New work with Motohiro Yogo and Dan Whitten, “Financial Inclusion Across the United States,” uses IRS data to document new facts about participation in bank and retirement accounts. In a working paper with Ernest Liu and Dan Morrison, “Market Power in Small Business Lending,” Cox applies a two-dimensional bunching approach to evaluate the efficiency of the Small Business Administration’s loan guarantee program. Another working paper with Arlene Wong and Titan Alon, “Debt, Human Capital Accumulation, and the Allocation of Talent,” studies the long-term labor market consequences of rising student debt and how debt affects human capital accumulation and occupational choice.

In a recent paper, “The Flight to Safety and International Risk Sharing,” Moritz Lenel and his co-author Rohan Kekre study the business cycle implications of a time varying demand for safe dollar bonds for the global economy. In their current project, “Monetary Policy, Segmentation, and the Term Structure,” Kekre and Lenel develop a segmented markets model which rationalizes the effects of monetary policy shocks on the term structure of interest rates. Both papers continue their research on the role of portfolio heterogeneity for the transmission of business cycle shocks and macroeconomic policy. In 2021, Lenel and Kekre received a National Science Foundation grant to support their current research agenda over the next three years.

In a recent working paper, “Investing with the Government: A Field Experiment in China,” Ernest Liu and co-authors Emanuele Colonnelli and Bo Li run an experimental survey of China’s venture capital and private equity market to evaluate the demand for government participation. The findings suggest that while government capital is not attractive to private firms, private investors may view government co-financing as an implicit guarantee. Another project, “Falling Rates and Rising Superstars,” with Thomas Krön, Atif Mian and Amir Sufi, examines the links between low interest rates and increasing market concentration. A third working paper with Song Ma, “Innovation Networks and Innovation Policy,” uses data on 30 million global patents to find the optimal allocation of R&D investment to support knowledge spillovers between sectors.

In a new working paper on the limits of government debt, “A Goldilocks Theory of Fiscal Deficits,” Atif Mian with co-authors Amir Sufi and Ludwig Straub explore the conditions under which governments can sustain borrowing. Other work with Sufi and Straub evaluates whether rising income inequality or demographic shifts are behind the decline in real interest rates. A new working paper, “Household Credit as Stimulus? Evidence from Brazil,” with Gabriel Garber, Amir Sufi and Jacopo Ponticelli, evaluates the effectiveness of increasing households’ access to credit. Another paper with Sufi and Nasim Khoshkhou, “Partisan Bias, Economic Expectations, and Household Spending,” is forthcoming in The Review of Economics and Statistics.

In a recent working paper, Adrian Matray and Julia Fonseca *19, study the Brazilian Banks for All program and find evidence that expanding access to financial services may be more important than capital deepening for boosting economic development. Another working paper, “Misallocation and Capital Market Integration: Evidence from India,” joint with Natalie Bau, shows that foreign capital liberalization reduced capital misallocation and increased aggregate productivity in

India. Another paper, “Higher Dividend Taxes and Capital Allocation,” with Charles Boissel, presents evidence from France suggesting that a tax-induced increase in liquidity actually relaxes firms’ credit constraints and can reduce capital misallocation. The paper is forthcoming in The American Economic Review. A paper with Maryam Farboodi, Laura Veldkamp and Venky Venkateswaran, “Where Has All the Big Data Gone?” is forthcoming in The Review of Financial Studies.

In a recent paper, “The Corporate Supply of (Quasi) Safe Assets,” Lira Mota studies the role of corporate bonds as safe assets. Using the CDS-bond basis to derive a measurement of the safety premium of corporate bonds, she documents substantial cross-sectional variation in the safety premium of corporate bonds. She shows that a high safety premium leads to a marked increase in debt issuance by relatively safer firms. These debt proceeds have a small impact on real investment and are largely used instead for equity payouts. This mechanism can explain why, in the aftermath of the financial crisis, non-financial investment-grade companies significantly increased their debt issuance and equity payout while investment remained weak. Another paper, “The Role of Inelastic Investors for Unconventional Monetary Policy,” together with Melina Papoutsi (ECB), shows that holdings heterogeneity is an important driver of the differential impact of ECB corporate purchase on the cross-section of corporate bonds’ yields.

Karsten Müller’s paper with Emil Verner *18, “Credit Allocation and Macroeconomic Fluctuations,” was awarded the 2021 Ieke van den Burg Prize and the 2021 FMA Best Paper Award. Using a historical dataset going back to 1940, the paper shows that the sectoral allocation of credit—who in the economy is borrowing—is key for understanding why some credit booms go bad while others do not. In a sample of close to 120 countries starting in 1940, they show that credit expansions among firms in non-tradable industries are systematically followed by economic downturns, lower productivity growth, and a higher risk of financial crises, while lending to tradable sectors is linked to more positive outcomes. Another recent working paper, “Interacting Anomalies,” with Simon Schmickler *22, shows that double-sorted equity portfolios have historical returns similar to those produced by more complex machine learning techniques, suggesting that simple combinations of portfolio characteristics can capture a similar amount of variation in expected return. The website (interactinganomalies.com) provides an interactive visualization.

In a recent working paper, “Costs of Financing US Federal Debt: 1791–1933,” with George Hall, Tom Sargent and Bálint Szőke, Jonathan Payne estimates the historical yield curve faced by the US federal government. Another working paper, “Platforms, Tokens, and Interoperability,” with Markus Brunnermeier, looks at the regulation of private digital tokens and the introduction of Central Bank Digital Currency (CBDC). A third working paper, “Covid-19: Inflation and Deflation Pressures,” with Brunnermeier, Sebastian Merkel and Yuliy Sannikov, looks at how the interactions between possible pandemic pathways and redistributive policies may affect inflation.

Motohiro Yogo’s paper, “Inspecting the Mechanism of Quantitative Easing in the Euro Area” with Ralph S.J. Koijen, François Koulischer and Benoît Nguyen, was published in The Journal of Financial Economics. Another paper, “The Evolution from Life Insurance to Financial Engineering,” with Ralph S.J. Koijen, was published in The Geneva Risk and Insurance Review. “The Fragility of Market Risk Insurance,” also with Koijen, is forthcoming in The Journal of Finance. He and co-author Ralph Koijen are currently working on a graduate-level book, The Financial Economics of Insurance, to be published with the Princeton University Press in 2022.

Mark Aguiar’s book, The Economics of Sovereign Debt and Default, written with Manuel Amador, examines the economics and frictions behind sovereign debt markets. The book highlights the lack of strong legal enforcement as a key friction behind sovereign debt, as well as other crucial forces. Aguiar and Amador then analyze how each friction impacts the equilibrium outcome and the differences between a constrained efficient allocation and a competitive equilibrium outcome. From this, the authors present a cogent analysis of the impact of equilibrium prices on the decisions made by governments on debt and default.

Markus Brunnermeier’s book, The Resilient Society, explores the role of resilience in a modern, risk-filled global economy. The book discusses resilience more specifically in the contexts of pandemic and economic shocks. Brunnermeier also examines what happens when societies lack resilience, making them unable to rebound and recover from severe shocks. The Resilient Society received the German Business Book Prize in 2021 and was named one of the best business books of 2021 by The Financial Times.

Harold James’s latest book, The War of Words: A Glossary of Globalization, provides a deep investigation of the words and concepts that dominate contemporary political debate. James argues that current political discourse centers around several 19th-century words—like nationalism, conservatism, liberalism, socialism and communism—that have lost meaning beyond serving as oversimplified buzzwords. The book unravels their origin to understand how they are being misused in contemporary debate and how to return these concepts to the realm of productive debate.

The Handbook of China’s Financial System, edited by Wei Xiong with Marlene Amstad and Guofeng Sun, provides readers with a comprehensive and thorough look at the Chinese economy. With chapters from academics, experts and policymakers in relevant fields, the book breaks down key elements of the Chinese economy and the manner in which it operates. The book also provides a nuanced understanding of the development of the Chinese economy and the potentials for reform.

y Markus K. Brunnermeier was elected vice president of the American Finance Association

y Nobuhiro Kiyotaki was awarded the Frontiers of

Knowledge Award from the BBVA Foundation y Atif Mian was awarded a Guggenheim Fellowship y Roland Bénabou was awarded the Jean-Jacques

Laffont Prize from the Toulouse School of Economics

y Alexandre Mas and Atif Mian were named Fellows of the Econometric Society y Lira Mota was awarded the AQR Top Finance Graduate

Awarded by AQR Capital and the Copenhagen

Business School

y Karsten Müller received the Ieke van den Burg Prize by the European Systemic Risk Board and the FMA

Best Paper Award in the area of Financial Markets & Institutions from the Financial Management

Association