• Financial Frictions, Monetary Policy, and Consumption Inequality

with Chetan Subramanian (Job Market Paper)

Abstract: This paper examines the aggregate and distributional effects of monetary, fiscal and productivity shocks within an incomplete markets framework featuring financial frictions. Applying the data-derived shocks to a rich monthly dataset of Indian households from April 2014 to April 2021, using the local projections framework, we find that contractionary monetary policy, expansionary total factor productivity, and fiscal shocks increase consumption inequality. Furthermore, we develop an augmented version of the Two-Agent New Keynesian (TANK) model, which incorporates financial frictions and features both constrained and unconstrained agents. Constrained agents are at their borrowing limit but have access to illiquid assets. The financial sector operates under an endogenous leverage constraint in our framework due to agency costs. Monetary, fiscal and productivity shocks affect income distribution through three primary channels: (a) the interest rate exposure channel, wherein changes in policy rates asymmetrically impact savers (unconstrained) and borrowers (constrained); (b) the income distribution channel, reflecting how fluctuations in returns from illiquid assets redistribute income across households; and (c) the financial friction channel, capturing how variations in the financial sector's leverage constraint influence income distribution via movements in the term premium. Calibrated to Indian data, our model substantiates the empirical findings for the three aggregate shocks. Additionally, although unconventional monetary policy (term premium targeting) can enhance welfare in the face of monetary and productivity shocks, it may worsen welfare in the case of a fiscal expenditure shock. Term premium targeting intensifies cross-sectional consumption disparities for monetary and productivity shocks, but dampens them for fiscal expenditure shocks.

• Fiscal-Monetary Interaction and the Business Cycle

with Abhinav Anand, Jalaj Pathak and Srinivasan Murali

Abstract: Using speeches from central banks and fiscal authorities, we develop two novel text-based indices, namely monetary-led and fiscal-led measures, to quantify the degree of fiscal-monetary interaction. Our analysis yields four important results. First, there is a substantial thematic commonality between the public information received from governing management of each policymaker, even though central banks discuss their stated objectives of monetary policy and financial markets, and fiscal authorities examine fiscal policy and macroeconomic conditions. Second, fiscal-monetary interaction, measured using either of our measures, increases during recessions, consistent with a greater need for coordinated policy action during downturns. Third, using a panel VAR framework, we find that fiscal-monetary interaction intensifies in response to shocks to inflation expectations and government debt, and this effect is amplified during recessions. Fourth, the optimal measure of fiscal-monetary interaction depends on the discount factor. When agents are forward-looking, monetary-led interaction yields higher welfare, whereas fiscal-led interaction proves to be more beneficial when agents are relatively myopic.

• Does emotional empathy from teachers work better than tracking in improving students’ comprehensive outcomes?

with Soham Sahoo

• Emancipation from Gender-based Discrimination in Workplaces through Identity mechanics - Experimental evidence from the USA 

with Vivek Kandimalla and Sabhya Rai

• Is legally backed Minimum Support Price in Indian Agriculture tenable?

• Misallocation of Bank Credit - Indian MSME Perspective