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I am an Assistant Professor of Finance at the MIT Sloan School of Management. My research focuses on macroeconomics, asset pricing, housing economics and econometrics. CONTACT INFORMATION Email: dlg (at) mit (dot) edu Mailing Address: 100 Main Street, Building E62 Office E62-641 Cambridge, MA 02142 |
WORKING PAPERS
The Mortgage Credit Channel of Macroeconomic Transmission (SSRN Version)
Abstract: I investigate how the structure of the mortgage market influences macroeconomic dynamics, using a general equilibrium framework with prepayable debt and a limit on the ratio of mortgage payments to income. This realistic environment amplifies transmission from interest rates into debt, house prices, and economic activity. Monetary policy can more easily stabilize inflation due to this amplification, but contributes to larger fluctuations in credit growth. A relaxation of payment-to-income standards appears essential to the recent boom. A cap on payment-to-income ratios, not loan-to-value ratios, is the more effective macroprudential policy for limiting boom-bust cycles.
Origins of Stock Market Fluctuations (VoxEU, MarketWatch)
with Martin Lettau and Sydney C. Ludvigson
Abstract: Three mutually uncorrelated economic disturbances that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the willingness to bear risk independently of macroeconomic fundamentals explain most of the variation in the market. In the long run, the market is profoundly affected by shocks that reallocate the rewards of a given level of production between workers and shareholders. Productivity shocks play a small role in historical stock market fluctuations at all horizons.
PUBLICATIONS
Rare Shocks, Great Recessions (Appendix)
with Vasco Curdia and Marco Del Negro.
Journal of Applied Econometrics, Vol. 29(7), pp. 1031-1052, November/December 2014.
Winner: 2016 Richard Stone Prize, awarded to the best paper with substantive econometric application in the 2014 and 2015 volumes of the Journal of Applied Econometrics.
Abstract: We estimate a DSGE model where rare large shocks can occur, by replacing the commonly used Gaussian assumption with a Student's t distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that 1) the Student's t specification is strongly favored by the data even when we allow for low-frequency variation in the volatility of the shocks, and 2) the estimated degrees of freedom are quite low for several shocks that drive U.S. business cycles, implying an important role for rare large shocks. This result holds even if we exclude the Great Recession period from the sample. We also show that inference about low-frequency changes in volatility -- and in particular, inference about the magnitude of Great Moderation -- is different once we allow for fat tails.
WORK IN PROGRESS
Financial Fragility with SAM?
with Stijn Van Nieuwerburgh and Tim Landvoigt
Labor-Capital Inequality and the Stock Market
with Sydney C. Ludvigson
Large BVARs with Stochastic Volatility
with Marco Del Negro and Domenico Giannone
DISCUSSIONS
The Equity Premium and the One Percent
by Alexis Toda and Kieran Walsh, AFA 2017 (Slides).
Household Debt and Monetary Policy: Revealing the Cash-Flow Channel
by Martin Floden, Matilda Kilstrom, Josef Sigurdsson, and Roine Vestman, AEA 2017 (Slides).
Regional Heterogeneity and Monetary Policy
by Martin Beraja, Andreas Fuster, Erik Hurst, and Joseph Vavra, AEA 2017 (Slides).
