Central Bank Digital Currency and Quantitative Easing (2021), with M. Fraschini and T. Terracciano
We study how the introduction of a central bank digital currency (CBDC) interacts with ongoing monetary policies. We distinguish two policies: standard policy, where the central bank holds treasuries, and quantitative easing, where the central bank holds risky securities. In each scenario, we introduce an interest-bearing CBDC, and study the equilibrium allocations. We reach three main conclusions. First, the equilibrium impact of a CBDC depends on the ongoing monetary policy. Second, when the central bank conducts quantitative easing, the introduction of a CBDC is neutral under two conditions: the cost of issuing a CBDC is equal to the interest on reserves, and the demand for CBDC deposits is smaller than the amount of excess reserves in the system. Third, the introduction of a CBDC might render quantitative easing a quasi-permanent policy, as commercial banks optimally use their excess reserves to accommodate retailers' demand for switching from bank to CBDC deposits.
Presentations: AEA/ASSA 2022 (poster), 14th Financial Risks International Forum, Swiss Finance Institute Research Days 2021, GFRI University of Geneva
We document abnormal correlations between the performance of hedge funds' managers with an elite socio-economic background. In particular, Columbia, Harvard, University of Pennsylvania, Stanford, and NYU alumni are highly correlated among themselves. We take steps toward linking this phenomenon to a shared information pool with a quasi-natural experiment: the 2009 Galleon Capital insider trading scandal. The difference-in-difference analysis shows a significant reduction in returns of the elite managers following the scandal. Finally, we present evidences suggesting that investors recognize this pool's value, as funds with access to elite information are associated with 55\% higher assets under management at launch.
CBDC and Banks: Threat or Implicit Subsidy? (2021), with M. Fraschini
We use a partial-equilibrium dynamic model of the banking industry to estimate the impact of the introduction of a retail central bank digital currency (CBDC) on the banking sector. We consider different possible CBDC designs --account-based, token-based, and hybrid-- and we look at the response of the banking sector and at deposit dynamics. We introduce different features: CBDC interest rate, technological preferences, and direct funding from the central bank. We find that banks are willing to offer higher interest rates to compete against the new technological features, but that their ability to compete against a remunerated CBDC is limited. With direct central bank funding, banks push depositors towards the CBDC, as they are able to increase their profitability by exploiting the household preference for the new technology.
The Government as Venture Capitalist (2021), with A. Maino, and M. Fraschini
We study the role of Government Venture Capital (GVC) in the European Union. We investigate GVC investment style, the impact on target firms, and the aggregate effects on the VC industry, as opposed to Private Venture Capital (PVC) investments. We find that GVCs invest more in specific economic sectors such as healthcare and industrial, and outside of VC hubs. We look at EU-granted patent data to draw the link between GVCs and innovation, and we find that GVC investments correlate with higher numbers of patents registered after the investment. Moreover, GVCs exit fewer investments than PVCs, suggesting lower performance. These findings indicate that GVCs can identify innovative companies and prioritize positive externalities over profit maximization. We use an asset pricing model with heterogeneous tastes to study the role of GVCs in catalyzing PVC investments. We find that PVCs invest less in startups previously funded by GVCs, in line with empirical evidence. At aggregate level, public investments can crowd-in private ones if they focus on ``mainstream" startups. Finally, it exists an optimum amount of GVC investments to catalyze PVC ones.
The real effects of capital and liquidity requirements (2019)
In this paper, I study the effects of capital and liquidity requirements in terms of credit to the economy, loans riskiness, and the probability of a bank run. To this end, I build, solve and calibrate a model of banking, where a representative bank receives insured deposits, borrows runnable debt, issues loans and purchases risk-free securities. The bank’s creditors can withdraw their credit when the fundamentals of the bank are weak. The bank faces unregulated, price-taker, shadow banks which decrease its profitability while increasing the return of the borrower. I find that high capital requirements decrease lending, increase the riskiness of loans and increase the market share of the shadow banking sector. On the other hand, liquidity requirements have little real effects. They do, however, mitigate the impact of tight capital requirements by significantly reducing the probability of runs when raised above 110%.
Consumers might have some benefits from lower transaction costs, faster payments, and increased competition.
A CBDC would change the relationship between the BoE and the banking sector, with the latter becoming even more dependent on the BoE.
The BoE would have a direct channel with consumers, thus being able to implement more effective and targeted monetary policies.
A CBDC might blur the line between monetary and fiscal policy, gradually shifting responsibilities from HM Treasury to the BoE.
Whether to introduce a CBDC is mainly a political decision over the role and powers of the BoE.
We propose a framework for regulating stablecoins as a new asset class. We de- fine stablecoins as those digital currencies which are centrally managed and backed by other assets. We compare stablecoins and ETFs under the principle that similar risks should be treated in a similar fashion (FINMA 2019). Hence, we propose to lock stablecoins into an ETF-like structure, along with restrictions on the basket composition, would significantly reduce regulatory concerns. Stablecoin providers would be functionally similar to ETF sponsors and stablecoins would be a new vehicle for traditional fiat currencies.
Finally, we address common macroeconomic concerns in light of our proposed frame- work.