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Please find my research statement here.
A copy of my dissertation can be downloaded here. It contains the three articles summarized below. A summary of my dissertation was published in The Journal of Economic History 79, no. 2 (2019): 507-542.
A Historic(al) Run on Repo: Causes of Bank Distress during the Austro-Hungarian Gründerkrach of 1873 (This paper won the EHS New Researcher Prize.)
In this paper, I draw on newly compiled archival data sets to show that bank failures during the Austro-Hungarian crisis of 1873 followed mainly from the break-down of a large repo (repurchase agreement) market on the Viennese stock exchange. Repos served the purpose of addressing concerns about after-market liquidity known to be important in IPO underpricing. Credit institutions granted repo loans against securities that turned into highly illiquid and depreciated collateral after a prime brokerage house and major repo borrower filed for bankruptcy in May 1873. Banks that were forced to sell repossessed collateral in response to heavy funding withdrawals had to write-off substantial portions of their repo portfolios and thus incurred heavy losses. I use semi-parametric survival analysis as well as stratification techniques new to the literature on bank distress to identify the causes of bank failures. This paper constitutes the first study examining a historical repo market crisis and its consequences using microdata. The Austro-Hungarian experience of 1873 suggests that repo markets with short maturities, in which lenders themselves are susceptible to experience rapid funding withdrawals, are prone to sudden break-downs of lending flows. My findings resonate with work which emphasizes the role of market microstructure in explaining the varying degrees of resilience to distress of modern day short-term funding markets.
Haunting the Specter of Credit Rationing: Unconventional Last Resort Lending during the Austro-Hungarian Gründerkrach of 1873
Although central banks may be first-best candidates for the role of a lender of last resort (LLR) during financial crises, they can also face constraints which obviate an elastic supply of liquidity in times of distress. Some of these constraints may be ideational, institutional or technical. Others are driven by market characteristics: quantity rationing can be the result of asymmetric information problems in financial markets. Credit rationing by the central bank can have severe macroeconomic consequences if it leads to illiquidity-induced mass failures of banks. In this paper, I study a historical experiment implemented to overcome the specter of a credit rationing LLR during the Austro-Hungarian crisis of 1873. I explore unique bank-level information on treatment by a LLR mechanism designed as a public-private partnership between the central bank and market players. Drawing on inverse probability weighted regression adjustment (IPWRA) to tease out the causal effect of liquidity support, I show that this unconventional LLR was effective in mitigating bank distress. By addressing institutional constraints and adverse selection problems inhibiting “free lending”, this mechanism worked as a remedy for the under-provision of a good particularly desirable in times of crises: central bank liquidity.
Moral hazard is a central issue in the literature on last resort lending. In this paper, we provide a new explanation for how central banks dealt with moral hazard historically. We focus on one specific component of central banks’ counterparty risk frameworks: credit limits for discount window customers. We argue that credit limits as operationalized by the Austro-Hungarian Bank (OeUB) after 1878 constituted the backbone of an early form of microprudential regulation that was designed to check moral hazard in normal times. Credit limits empowered the Austro-Hungarian Bank to enforce minimum liquidity and capital standards for its counterparties at the discount window. Rather than contradicting the tenet of free lending in times of distress, credit limits functioned as “contingent rules”: enforced in normal times, limits were increased or lifted during liquidity crises perceived as exogenous. Moreover, even during crises, the Bank did not simply relax limits for all credit institutions: it differentiated between banks depending on their fundamentals prior to the crisis. This study provides the first economic interpretation and empirical analysis of the credit limit frameworks employed by central banks in the past.
Other Working Papers
Mechanics and Effects of Central Bank Credit Rationing: Quasi-experimental Evidence from the Bank of England’s Lending Policies during the Crisis of 1847 (with Mike Anson, David Bholat and Thomas Ryland, all Bank of England)
Central banks are in a natural position to act as lenders of last resort, but they sometimes face constraints which thwart an elastic supply of liquidity during financial crises. These constraints can be legal/institutional (e.g. reserve requirements) or ideational (e.g. beliefs about optimal balance sheet size). Due to adverse selection dynamics, the central bank cannot use the interest rate to clear the market when demand for its funds exceeds its ability/willingness to supply liquidity. Just as in other credit markets, quantity rationing results. The limited amount of central bank credit available is unlikely to be randomly allocated: the central bank will favor those counterparties whose illiquidity-induced default would otherwise induce the largest blow to its loss function. Depending on the nature of the loss function, constraints on last resort lending can thus have differential, potentially persistent effects on the financial system and financial stability. In this paper, we seek to understand the mechanics and effects of central bank credit rationing in a unique empirical environment. We use a quasi-experimental setting to examine how the Bank of England allocated liquidity when it was constrained by gold reserve rules during the crisis of 1847. Drawing on loan-level data from central bank archives, we exploit variation in the bindingness of the reserve constraint in a regression discontinuity setting in time (RDiT) to shed light on how the Bank allocated its limited funds and how this allocation shaped London’s financial market thereafter.
In this project, we seek to investigate the existence and economic importance of a “farm channel” to the Great Depression in the United States. We bring to bear a novel data set on farm real estate transfers. Produced as a joint project of the Bureau of Agricultural Economics (BEA) and the Work Progress Administration (WPA) between 1936 and 1937, this unique data set contains detailed annual data on both voluntary and involuntary transfers of farm real estate at the county-level between 1900 and 1935. This source provides us with a consistent, clear and very granular measure of agricultural distress: it contains data on the number and acreage of farm real estate foreclosed, subject to bankruptcies, or assigned to a creditor. We exploit this county-level variation in combination with instrumental variable techniques to investigate the importance of farming distress in the run-up to the Great Depression. Preliminary evidence suggests an economically and statistically significant role for the farm channel in explaining banking sector instability at the county level during the 1920s. (Currently under revision)
Ongoing Research Projects
The Vienna Real Estate Market, 1868-1990: The first long-run real estate price index for Austria (running 2018-2020, with Markus Lampe, WU Vienna, Clemens Jobst, University of Vienna, and Karin Wagner, Oesterreichische Nationalbank)