Research

Working papers

Markups, Markdowns and Bankrupcty in the Banking Industry (Job Market Paper)

I develop a new structural approach for the joint estimation of markups on lending rates and markdowns on deposit rates for all US depository institutions between 1992 and 2019. Markups (markdowns) are wedges between the observed price for the output (input) good and the price that would realize if the bank was a price taker on that market. Gross markups have been generally decreasing over time with some procyclical variation, with an average value of 2. Gross markdowns do not display a trend, but feature strong countercyclical variation. When the economy is at the zero lower bound, the average gross markdown is 1.5. The Herfindahl-Hirschman Index and the Boone indicator are significantly different measures. I show that higher markups are associated with a lower bankruptcy probability, which is in contrast with previously known results. Instead, markdowns correlate positively with default probabilities. When considered jointly, markups and markdowns both correlate negatively with the probability of bankruptcy.

The Drivers of EU Unemployment during the Great Recession (joint with D. Comin, R. Franceschin and A. Trigari)

We explore the role of Stochastic Discount Factors (SDF) in explaining variation in European unemployment. We write a standard Diamond-Mortensen-Pissarides (DMP) labor market model where we allow for an exogenous, time-varying SDF. We externally estimate SDF shocks using data on government bond yields and stock market returns. We calibrate the model to four European countries (Germany, France, Spain and Italy) individually and we feed the model with the externally estimated SDF and productivity shocks. We present three findings. First, in accordance with Hall (2017, AER), variation in the SDF has the potential to account for most of the variation in unemployment. Second, we find that differences in Labor Market Institutions (LMI), as captured by different country-specific calibrations, matter for explaining cross-country differences in unemployment. Finally, we observe that timing of variation in unemployment caused by SDF shocks does not match the data. In particular, our counterfactuals anticipate observed variation by one to two quarters, depending on the country. Motivated by these findings, we augment the DMP model with Fixed-Term Contracts (FTC) and Open-Ended Contracts (OEC). Matches between workers and firms are heterogeneous because of match-specific productivities. Workers and firms only imperfectly observe the productivity, which they then learn as the match survives over time. In our model, workers and firms use FTCs because they provide an extended probationary period, while OECs provide stability to the match. OECs also differ from FTCs because of fixed firing costs. Our model endogenously supports the co-existence of these two contracts. We are currently calibrating the model to Italy. In doing so, we are paying particular attention to the wage distribution.

Work in progress

Bank Heterogeneity, Market Power and Optimal Bank Size
An Introduction to GPU Computing for Economists (joint with G. Battiston)

Publications

An Entropy-Based Early Warning Indicator for Systemic Risk (joint with M. Billio, R. Casarin and M. Costola)

2016 - Journal of International Financial Markets, Institutions and Money

Abstract: We analyze the time evolution of systemic risk in Europe by using different entropy measures and construct a new early warning indicator for banking crises. The analysis is based on the cross-sectional distribution of systemic risk measures such as Marginal Expected Shortfall, Delta CoVaR and network connectedness. These measures are conceived at a single institution level for the financial industry in the Euro area and capture different features of the financial market during periods of stress. The empirical analysis shows the forecasting ability of entropy measures in predicting banking crises.