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The findings provide empirical support to the idea that extremely low interest rates and the rise of superstar firms are connected. All three of these effects also snowball as the interest rate approaches zero. There are multiple channels through which falling rates disproportionately benefit industry leaders: (i) the cost of borrowing falls more for industry leaders, (ii) industry leaders are able to raise more debt, increase leverage, and buyback more shares, and (iii) capital investment and acquisitions increase more for industry leaders. Falling rates raise the valuation of industry leaders relative to industry followers and this effect snowballs as the interest rate approaches zero. Our results suggest a potential downside of using household credit as stimulus in emerging markets.ĭo low interest rates contribute to the rise in market concentration? Using data on firm financials and high frequency monetary policy shocks, we find that falling interest rates disproportionately benefit industry leaders, especially when the initial interest rate is already low. We trace the impact of credit stimulus on borrowers’ consumption through the 2011-16 business cycle, and find that the credit stimulus resulted in higher consumption volatility and lower average consumption over the cycle. Using administrative data on individual-level borrowing and spending, we find that the program led to a substantial rise in borrowing by government employees, especially those with low financial literacy. New: Household Credit as Stimulus? Evidence from Brazilįrom 2011 to 2014, the Brazilian government conducted a heavily advertised major credit expansion program through government banks as part of its effort to stimulate the economy. Calibrating the model, we find little space for “free lunch” policies for the United States in 2019, but ample space for Japan. A rise in income inequality expands fiscal space outside the ZLB, but contracts it at the ZLB. Both high and low deficits can increase debt, as the latter weaken demand and reduce nominal growth at the ZLB. With the ZLB, the relationship between deficit and debt can become non-monotone. However, debt need not explode: When R < G – f, where f is the sensitivity of R – G to debt, a modest permanent increase in the deficit can be sustained forever, a policy we call “free lunch”. Without the ZLB, a greater primary deficit unambiguously raises debt. This paper proposes a tractable framework to analyze fiscal space and the dynamics of government debt, with a possibly binding zero lower bound (ZLB) constraint. New: A Goldilocks Theory of Fiscal Deficits He joined the Chicago Booth faculty in 2005.
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He earned a PhD in economics from the Massachusetts Institute of Technology, where he was awarded the Solow Endowment Prize for Graduate Student Excellence in Teaching and Research. His research on household debt and the economy forms the basis of his book co-authored with Atif Mian: House of Debt: How They (and You) Caused the Great Recession and How We Can Prevent It from Happening Again, which was published by the University of Chicago Press in 2014. Professor Sufi's research focuses on finance and macroeconomics.
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Professor Sufi was awarded the 2017 Fischer Black Prize by the American Finance Association, given biennially to the top financial economics scholar under the age of 40. He serves as an associate editor for the American Economic Review, the Journal of Finance, and the Quarterly Journal of Economics. He is also a Research Associate at the National Bureau of Economic Research.
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Amir Sufi is the Bruce Lindsay Professor of Economics and Public Policy at the University of Chicago Booth School of Business.