I am an Assistant Professor of Finance at the Kelley School of Business, Indiana University. My research studies the macroeconomic implications of financial conditions, especially how a financial crisis becomes an economic recession. This agenda brings together research from financial institutions and banking, household and small business finance, applied macroeconomics, and real estate finance. While my work is developed from macroeconomic and financial theory, all papers share an empirical focus on micro-level data.
I completed my PhD at Duke University and also hold a BS and MS in Mathematics from North Carolina State University. As a PhD student I also completed Dissertation Internships with the New York Federal Reserve and the Federal Reserve Board.
We evaluate if credit supply frictions can (i) affect household borrowing and (ii) result in real economic outcomes, namely further foreclosures. Our identification strategy depends on following an exogenous balance sheet shock on a bank in one housing market to all bank branches outside the area. We find that bank health significantly impedes the borrowing abilities of households, especially if the loan cannot be sold to government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. In addition, due to the long horizon of mortgage lending relationships, these shocks impact household refinancing and modification opportunities years after the initial real estate purchase and can lead to an increase in foreclosures. We find that healthy banks (top quartile) are 6-10% more likely to approve a primary mortgage application than an unhealthy bank (bottom quartile) in 2009 and the credit supply channel explains 13% of the increase in foreclosures between 2007-2009.
The real estate market has been at the center of the debate on the causes and consequences of the rise in unemployment during 2007-2009, yet the mechanism that links these factors remains elusive. We propose a simple explanation: since small firms are highly dependent on collateral to access external financing, balance sheet shocks can affect financing availability and impact real outlays. Our channel directly explains 8 -16% of the decline in national employment during 2007-2009 and as much as 20-37% for areas worst hit by the housing crisis.
Assets such as real estate, large transportation equipment, and luxury artwork sell infrequently and are not interchangeable. As a result traditional price indices, such as the Case-Shiller Index for Metropolitan House Prices, are the dominant method to measure price fluctuations of these illiquid and heterogeneous assets. We first argue that changing financial constraints affect the market composition and demand, resulting in mismeasured traditional price indices. Second, we correct for this bias by introducing the locally-weighted repeat sales technique, a novel estimation procedure for estimating a distinct price index for any given asset. As a result of these changing market conditions, Case-Shiller overstates the peak of the housing bubble by 20% in the Los Angeles Market and understates the decline by nearly half in Cleveland.
We examine the use of home equity for small businesses and the effect of real estate price growth on entrepreneurial financing. Using a new micro-level dataset, we find that during the housing boom one-quarter of large US start-ups depended on home equity as a source of initial capital. In response to an exogenous shock to real estate price growth, entrepreneurs increase reliance on home equity financing relative to firms with minimal financing needs. In our preferred specification we find that a 100% increase in real estate price growth is responsible for an 11% increase in home equity financing among all entrepreneurs and a 21% increase for large start-ups.