“Spread the Word: International Spillovers from Central Bank Communication” with Hanna Armelius, Isaiah Hull and Xin Zhang (all at Sveriges Riksbank)
(This version: 05/2019; First version: 09/2018; Sveriges Riksbank Working Paper No. 357)

  • Abstract:

We construct a novel text dataset to measure the sentiment component of communications for 23 central banks over the 2002-2017 period. Our analysis yields three results. First, comovement in sentiment across central banks is not reducible to trade or financial flow exposures. Second, sentiment shocks generate cross-country spillovers in sentiment, policy rates, and macroeconomic variables; and the Fed appears to be a uniquely influential generator of such spillovers, even among prominent central banks. And third, geographic distance is a robust and economically significant determinant of comovement in central bank sentiment, while shared language and colonial ties have weaker predictive power. (JEL E52, E58, F42)

  • Keywords: communication, monetary policy, international policy transmission.


“Bank Misconduct and Online Lending” with Isaiah Hull (Sveriges Riksbank), Yingjie Qi (Stockholm School of Economics) and Xin Zhang (Sveriges Riksbank)

  • Abstract:

We introduce a high quality proxy for bank misconduct that is constructed from
Consumer Financial Protection (CFPB) complaint data. We employ this proxy to
measure the impact of bank misconduct on the expansion of online lending in the
United States. Using nearly complete loan and application data from the online lending
market, we demonstrate that bank misconduct is associated with a statistically and
economically signi cant increase in online lending demand at the state and county
levels. This result is robust to the inclusion of bank credit supply shocks and holds for
both broader and more narrowly-de ned bank misconduct measures. Furthermore, we
show that this e ect is strongest for lower rated borrowers and weakest in states with
high levels of generalized trust.

  • Keywords: financial development, consumer loans, bank misconduct, FinTech.


“Optimal Bank Capitalization in Crowded Markets” with Mike Mariathasan (KU Leuven)

  • Abstract:

We study banks’ optimal equity buffer in general equilibrium, as well as their ex-post response to under-capitalization. Developing a “pecking order theory” for private recapitalizations, our benchmark model identifies equity issuance as individually and socially optimal, compared to deleveraging, and conditions that invert the individually optimal ranking. Ex-ante, the imperfectly elastic supply of capital, incomplete insurance markets and costly bankruptcies give rise to inefficiently high capital shortfalls and excessive insolvencies. Abstracting from moral hazard and informational asymmetries, we therefore provide a novel rationale for macroprudential capital regulation emerges and a new set of testable implications about banks’ capital structure management.

  • Keywords: bank capital, macroprudential regulation, incomplete markets, financial market segmentation, constrained inefficiency.


“Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending” with Isaiah Hull (Sveriges Riksbank) and Xin Zhang (Sveriges Riksbank)
(This version: 05/2017; First version: 03/2016; Sveriges Riksbank Working Paper No. 319)

  • Abstract:

On December 16th of 2015, the Fed initiated “liftoff,” a critical step in the monetary normalization process. We use a unique panel dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates, demand, and supply in the online primary market for uncollateralized consumer credit. We find that credit supply increased, reducing the spread by 16% and lowering the average interest rate by 16.9-22.6 basis points. Our findings are consistent with an investor-perceived reduction in default probabilities; and suggest that liftoff provided a strong, positive signal about the future solvency of borrowers.

  • Keywords: monetary normalization, monetary policy signaling, consumer loans, credit risk.


“A wake-up call theory or contagion” with Toni Ahnert (Bank of Canada)
(This version: 05/2017; First version: 06/2012)

  • Abstract:

We offer a theory of contagion based on the information choice of investors after observing a financial crisis elsewhere. We study global coordination games of regime change in two regions with an unobserved common macro shock as the only link between regions. A crisis in the first region is a wake-up call to investors in the second region. It induces them to reassess the regional fundamental and acquire information about the macro shock. Contagion can even occur after investors learn that regions are unrelated (zero macro shock). Our results rationalize empirical evidence about contagious bank runs and currency crises after wake-up calls. We also derive new implications and discuss how these can be tested. (JEL D82, F3, G01)


“A detrimental feedback loop: deleveraging and adverse selection” 
(This version: 08/2015; First version: 09/2013)

  • Abstract:

Market distress can lead to a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection in opaque asset markets. A detrimental feedback loop emerges: investors reduce their reliance on opaque markets by decreasing their leverage which in turn amplifies adverse selection. In the extreme, trade breaks down. Asymmetric information together with incomplete markets is at the root of two inefficiencies: investors’ leverage choices are distorted and investors’ liquidity management exhibits under-investment in cash. I discuss policy implications and the ambiguous role of transparency.


“A Model of Liquidity Provision with Adverse Selection”
(This version: 12/2012; First version: 12/2010)

  • Abstract:

This paper analyzes a model of liquidity provision where liquidity risk is shared in two distinct spot markets. One of them is a market for asset sales prone to an adverse selection problem and the other is a collateralized credit market, which is not subject to an adverse selection problem. I find that the increased availability of collateralized credit (ex-post) may make the adverse selection problem in the asset market more severe. As a result, the relationship between the completeness of markets and equilibrium welfare, as well as efficiency, is non-monotone. Furthermore, I generate a financial crisis by introducing an aggregate liquidity or solvency shock, which amplifies the adverse selection problem, leading to a market failure. A central bank can address this market failure by using existing market institutions to re-allocate liquidity in the economy. Interestingly, the central bank has to be willing and able to incur a loss.

  • Keywords: liquidity, asymmetric information, open market operations.


Refereed publications

“Systematic bailout guarantees and tacit coordination” with Claudio Calcagno and Mark Le Quement, The B.E. Journal of Economic Analysis & Policy (Advances), Volume 15, Issue 1, Pages 1-36, December 2014. – Lead article –

  • Abstract:

Both the academic literature and the policy debate on systematic bailout guarantees and Government subsidies have ignored an important effect: in industries where firms may go out of business due to idiosyncratic shocks, Governments may increase the likelihood of (tacit) coordination if they set up schemes that rescue failing firms. In a repeated-game setting, we show that a systematic bailout regime increases the expected profits from coordination and simultaneously raises the probability that competitors will remain in business and will thus be able to ’punish’ firms that deviate from coordinated behaviour. These effects make tacit coordination easier to sustain and have a detrimental impact on welfare. While the key insight holds across any industry, we study this question with an application to the banking sector, in light of the recent financial crisis and the extensive use of bailout schemes.


Policy papers

“FinTech credit: Online lending platforms in Sweden and beyond” with Carl-Johan Rosenvinge (Sveriges Riksbank), The Sveriges Riksbank Economic Review 2019:2, October 2019.

  • Abstract:

New digital technologies in banking and finance, commonly referred to
as ‘FinTech,’ have the potential to transform established banking business models. This article studies online lending platforms, which are new players in the financial sector that allow individuals or firms to obtain loans directly from investors via the internet. To date, online lending is still small relative to total bank lending. However, online lending has expanded rapidly not only in China, the US and the UK, but also in Sweden. In 2018 Swedish platforms originated more than SEK 2bn of new loans – exceeding the 2017 volume by 51 per cent. We discuss how online lending platforms differ from commercial banks and how they are regulated. Moreover, we analyse market developments, such as the growing linkages between platforms and the banking sector. Against this backdrop, we review potential financial stability implications that may appear if online lending continues to grow in importance.

  • Keywords: FinTech credit, financial stability.

“Revisiting the role of central banks as liquidity providers – old and new challenges” with Johan Molin (Sveriges Riksbank), The Sveriges Riksbank Economic Review 2016:2, September 2016.

  • Abstract:

This article offers a review of the role of central banks as providers of public liquidity. Against the backdrop of the global financial crisis of 2007-2009, we discuss various challenges for public liquidity provision and the effectiveness of central bank lending facilities. These challenges help us identify potential gaps in existing mechanisms and frameworks governing liquidity assistance. We discuss how the available liquidity policy tool kit can be used to deal with the challenges. Furthermore, we highlight modifications to existing central bank facilities during and after the global financial crisis. We point at trade-offs faced by policy makers and describe potential pitfalls for public liquidity providers. Lastly, we attempt to look ahead and outline some specific challenges posed by more recent structural, regulatory, and technological developments in the financial system.

  • Keywords: central bank liquidity assistance, liquidity provision, liquidity policy, Great Financial Crisis.



I was a member of the Committee on the Global Financial System (CGFS) Working Group on Policy Challenges and Open Issues in Liquidity Assistance, which produced a report on “Designing frameworks for central bank liquidity assistance: addressing new challenges”, CGFS Papers No 58, April 2017.


Work in progress

Disclaimer: This is my private homepage.  The views expressed are my own and do not reflect the official views of Sveriges Riksbank.