Working Papers 

The World's Banker: On the Rise in U.S. Wealth Inequality  [Job Market Paper] 

The U.S. economy is often referred to as the "banker to the world," due to its unique role in supplying global reserve assets and funding foreign investment. This paper develops a general equilibrium model to analyze and quantify the contribution of this role to rising wealth concentration among American households. I highlight the following points: 1) financial globalization raises wealth inequality in a financially-developed economy initially due to foreign capital pressing up domestic asset prices; 2) much of this increase is transitory and can be reversed as future expected returns on domestic assets fall; and 3) despite the low-interest-rate environment, newly accessed foreign capital provides incentives for affluent households to reallocate wealth toward risky assets while impoverished households increase their debt. Wealth concentration ensues only if this rebalancing effect is large enough to counteract diminished return on domestic assets. Quantitative analysis suggests that global financial integration alone can account for 34% to 55% of the observed increase in the current top one percent wealth share in the U.S., but indicates a possible reversal in the future.

Multinationals as Global Financiers (with Casey Kearney, Redacted Draft Available Upon Request)  

U.S. multinational companies (MNCs) play a prominent role in raising capital abroad and investing in high-yield global business opportunities. Using administrative data collected by the U.S. Bureau of Economic Analysis on foreign funding and investment activities of U.S. multinational firms at the affiliate level, we estimate the impact of MNC operations on the persistent spread between the return on assets (ROA) and the interest rate payments of firms. Our evidence indicates MNCs enjoy a 0.9% larger spread between ROA and average interest rate compared to when these firms did not have large ownership holdings in foreign affiliates. We then introduce a model of MNC activity to disentangle potential mechanisms to explain the spread such as risk premium and cross-country return differentials. Our structural estimation of this model suggests some of the variations can be accounted for by the return differential channel due to the incomplete integration of global financial markets. Our results highlight the role of U.S. multinationals as global arbitrageurs in addition to being global risk-takers.

Research in Progress

Currency Mismatch, Bank Fragility and the Design of a Global Reserve System (with Gita Gopinath and Jeremy Stein) 

We develop a theory of the global reserve system under the dominant currency paradigm. Our model highlights two main points. First, from an individual country's perspective, dollar reserve accumulation allows the central bank to implement bailouts at lower fiscal costs. A small open economy can achieve the first best allocation on its own by means of bank regulation and dollar reserves. Paradoxically, however, the best response of each central bank drives down dollar interest rates at the global level, thereby inducing banks in other countries to further increase dollar borrowings. This causes a negative spiral of reserve accumulation and reduces global welfare. We use this framework to account for the observed trends in currency mismatch on private sector, and study the optimal design of a global reserve system.