Essays on Financial Intermediation

This dissertation consists of two chapters that study how financial intermediaries pass through monetary policy and other macroeconomic shocks to households and small businesses in the real economy. In addition to documenting and quantifying the extent to which these economic shocks are transmitted by financial intermediaries, both essays examine how the transmission is done so heterogeneously, affecting different segments of the United States population differently.The first chapter of my dissertation is coauthored with Ulysses Velasquez. In this paper, we show evidence of monetary policy passthrough to rental tenants through the refinancing channel of monetary policy transmission. Although the refinancing channel has historically focused on homeowners and their residential mortgages, we examine whether commercial mortgage refinances by property owners have any effect on tenants in the form of rent prices. By employing a difference-in-differences framework and exploiting contractual restrictions on debt prepayment as an instrument, we find that rent prices fall by around 3% after a building refinances over the post-crisis period, a period over which interest rates fell to the zero lower bound. Moreover, we find greater effects on rent prices in buildings whose property owners experience a greater interest rate change after refinancing; a refinancing-induced 1 pp reduction in the mortgage rate is associated with around a 2% decline in rent prices, consistent with property owners passing through changes in interest expenses to rental tenants in the form of rent prices. As commercial property owners often have less control over when to refinance relative to homeowners, due to differences in contract terms, higher rates are more likely to be passed through to renters as higher housing costs than to homeowners during tightening periods. As households with certain demographics—racial minorities, young people, lower income—are more likely to be renters, such dynamics raise questions about how monetary policy may affect inequality. The second chapter of my dissertation is also coauthored with Ulysses Velasquez. Using the COVID-19 pandemic as the crisis setting, we investigate whether downturns in small business credit supply differ by the type of financial intermediary and the resulting implications on aggregate credit supply for areas with varying levels of nonbank reliance. We find that, after controlling for local demand shocks, fintech lenders reduce their supply of small business credit significantly, relative to both banks and nonfintech nonbanks, which is consistent with fintechs being more funding constrained during economic crises. Moreover, this reduction by fintechs is more severe in areas with high fintech entry. Finally, this decrease is not completely offset by corresponding increases in credit supply by either banks or nonfintech nonbanks, and thus, total credit supply falls in areas with high fintech entry, relative to other areas. As areas with lower incomes and higher minority shares have seen more pronounced increases in fintech presence over time, our results suggest that it is exactly these areas that experience more severe credit crunches during downturns.

Advisor: Sraer, David