Abstract: I study the role of bank heterogeneity in the transmission of monetary policy to the real economy via bank lending. I use the novel approach of pass-through impulse response functions (PT-IRFs), introduced in Nikolaishvili (2023), to quantify and estimate the dynamic response of output attributed to changes in community and noncommunity bank lending as a result of a monetary policy shock. By leveraging a large panel of quarterly bank-level lending series, I estimate a structural hierarchical factor-augmented monetary vector autoregression with externally identified monetary policy shocks. I use the model to estimate and conduct inference on PT-IRFs. My results show evidence that (1) an unexpected monetary tightening indeed contributes negatively to output through changes in bank lending both in the short-to-medium run, as well as (2) community and noncommunity banks in the United States differ in the extent to which their lending behavior allows for the pass-through of monetary policy shocks to output. These findings suggest that considering the composition of the commercial banking sector is crucial in understanding the potency and timing of the effects of monetary policy shocks.
Abstract: Impulse response functions (IRFs) offer little insight regarding the channels through which a shock propagates through a dynamical system. I formulate the concept of a pass-through impulse response function (PT-IRF), which measures the passage of a structural shock through specific sets of variables in a given system. I demonstrate the applicability of the PT-IRF by performing inference on the effect of a monetary policy shock on unemployment through various channels of the monetary transmission mechanism using a structural vector autoregression.
Abstract: I find that the community banking sector in the United States has become more interconnected since the global financial crisis, which implies greater exposure to systemic risk and increased vulnerability in future financial crises. I estimate a hierarchical dynamic factor model using a Bayesian approach to extract posterior distributions of national, regional, and state-level latent drivers of quarterly fluctuations in state-average community bank return-on-equity for all 50 US states. The resulting estimates show evidence of both considerable national comovement and state-specific idiosyncrasy with no signs of significant regional comovement. Furthermore, the results show a decrease in the intensity of idiosyncratic dynamics of state-level community bank profitability since the crisis, along with an increase in national comovement across most states.
(with David Evans)
Abstract: We suggest a new method of approximating temporary equilibria in heterogeneous agent models. Our approach offers a significant speedup without a notable drop in accuracy relative to established methods. We demonstrate the effectiveness of our procedure by applying it to a model with heterogeneous boundedly rational agents, and comparing its performance to that of alternative methods.
 (with Philip Economides) Economics Letters (2023)
Works in Progress
“Monetary Pass-Through via Inflation Expectations” (with Edder Martínez Lazo)
“Estimating Large Bayesian Hierarchical Dynamic Factor Models”
“Model Uncertainty and Agent Survival” (with David Evans)
Julia package for simulating and estimating multi-level/hierarchical dynamic factor models (HDFMs).
Julia package for estimating pass-through impulse response functions (PTIRFs).