Research

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1. Information about Climate Transition Risk and Bank Lending [Job Market Paper] (SSRN link)

​Abstract: Do banks price their borrowers' exposure to climate transition risk? I find that in the E.U., firms negatively exposed to climate transition risk face higher lending rates by banks specialized in their borrowers' industry. However, I also find evidence of lower lending rates to more exposed firms after an oil supply news shock relevant for energy-intensive firms, especially during periods of high aggregate financial stress. Interpreting bank specialization as a source of heterogeneity in costs of private information acquisition, I develop a bank lending model with competitive lending, costly information acquisition, and non-Bayesian belief updating. Because of screening, specialized banks can better distinguish between borrowers' risk exposure, resulting in relatively higher lending rates to more exposed firms. However, this interest rate differential decreases in favor of more exposed borrowers when banks underreact to relevant public information. This effect is more pronounced during periods of poor borrower quality or increased financial stress. These results imply that lowering banks' cost of acquiring firm-level transition-risk exposure information is crucial to reduce green firms' financing costs, even when there is high quality public information and communication about decarbonization.​

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2. How climate-awake are financial markets? (with Dr. Galina Hale and Dr. Anirban Sanyal)

​Abstract: Climate risks are now acknowledged by policymakers, financial market practitioners, and academics as a potentially material threat to financial markets and financial stability.  As physical manifestations of climate change become more apparent, shall we expect massive asset repricing and financial destabilization?  The answer to this question crucially depends on whether climate risks are properly priced-in already in different asset classes.  Climate-related events are unique in that they are drawn from a distribution that shifts and becomes more disperse over time, making belief formation a crucial component of asset pricing. We simulate the response of asset prices to climate disasters using the rare events asset pricing framework based on Gabaix (2012) to quantify "fully priced in'' response in various structures of subjective belief formation. We survey the empirical literature on the pricing of physical climate risk in equity and fixed income markets to evaluate whether the estimates imply fully priced-in response across different belief formation structures.

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3. How much is a formal job worth? Evidence from Mexico (with Dr. Brenda Samaniego de la Parra)

Abstract: The marginal willingness to pay for a formal job for the average household in Mexico is MXN$1,013 pesos ($51 USD) or 19.4 percent of the average monthly wage. This valuation encompasses the various social benefits granted by a formal job, differences in pay and job stability, and any other attributes that make a formal job desirable. We obtain this estimate using a partial equilibrium model of joint labor supply with informal and formal contracts and search frictions estimated using simulated method of moments. We validate our structural estimates for the value of a formal job using an employer-employee-household matched panel dataset and exogenous variation in access to a formal job from over 300,000 work-site inspections. Model and reduced-form approach yield consistent estimates for the changes in labor supply and wages of a spouse after their partner receives a formal job offer. Household’s valuation of a formal job is 40% higher than the fiscal cost to the firm.​