Working Papers

Cash Flow-Based Lending, Bankruptcy Resolution, and the Macroeconomy
(New Version Coming Soon)

Creditors limit lending against future cash flows if they expect the borrower to be liquidated under financial distress. This puts small and medium-sized firms at a disadvantage since high reorganization costs often force the liquidation of these businesses. I study the general equilibrium effects of this mechanism in a heterogeneous firms model, calibrated to the U.S. economy. The limited access to cash flow-based debt experienced by small, but productive firms suppresses entry and yields credit misallocation and significant productivity losses. These results suggest that recent policy efforts to streamline the reorganization process for small firms, such as the Small Business Reorganization Act of 2019, can incentivize entry and raise aggregate productivity, by improving small firms' access to external finance.

Funding for Lending Schemes Should Prioritize SME Lending 

In the aftermath of the sovereign debt crisis, the Central Bank of Hungary implemented a great-scale fund-ing-for-lending scheme designed specifically to subsidize Small and Medium Enterprises' (SMEs) access to external finance. I identify this policy in the SVAR framework as asymmetric credit supply shocks specific to SME lending. During the post-crisis recovery, such shocks had a substantial, positive effect on lending conditions and the real economy. For a unit of lending, these shocks had a larger and more persistent effect on output than general credit supply shocks. Moreover, rather than supplanting lending to large enterprises, the program had considerable positive spillover effects on this sector as well. These results are robust to different proxies of economic performance and alternative identification strategies. I conclude that under tight lending conditions funding for lending schemes are more effective if concentrated to SMEs.

A Model-Based Comparision of Macroprudential Tools  (With Eyno Rots)

We develop a DSGE model to analyze a macroprudential policy framework. We use it to describe the Hungarian economy and the key regulatory constraints implemented there: the loan‐to‐value and the debt‐service‐to‐income caps imposed on mortgage borrowers and the minimum capital requirement imposed on banks. Our model is novel in the way it treats the borrowing caps as soft constraints, which makes it easy to analyze multiple non‐redundant borrowing constraints. We also show an estimation strategy that involves a variation of impulse‐response matching and accounts for the lack of historical data concerning the conduct of macroprudential policy, a common problem.