Knowledge that Transforms

We use individual-level credit data to study how recent declines in Appalachian coal mining affected household finances between 2011 and 2018. Using exogenous variation in electricity sector demand for coal, we find declines in coal demand decreased credit scores and increased financial distress within two years of coal shocks. These effects cannot be explained solely by job losses in coal mine worker households. Credit score declines and financial distress were largest among older individuals and people with lower-middle credit scores. Our results suggest the transition away from fossil fuels may impose meaningful costs on other fossil fuel extraction communities.

To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. Consequently, domestic suppliers experience sizable losses in market capitalization, along with reductions in profitability, employment, and bank lending. Chinese firms are more proactive in reconfiguring supply chains, though not without costs. Overall, export controls impose larger costs on U.S. firms developing the very technologies these policies aim to protect.

We document implicit extrapolation in investment decision-making that exceeds the extrapolation inferable from stated expectations. Locally experienced returns predict individual real-estate investment decisions even conditional on an investor’s forecasted home-price growth and risk aversion. Moreover, estimates of this experience effect on investment are larger than implied by the combined effect of past returns on stated expectations and stated expectations on investment. We demonstrate that heterogeneous forecast confidence helps explain why many investors rely on past returns over their survey-elicited forecasts. As their rationale, such survey respondents frequently cite intentional extrapolation or a lack of confidence in other belief factors.

Using more than 4900 personality assessments, we study changes in the characteristics of CEOs and top executives since 2001. The same four factors explain roughly half of the variation in executive characteristics in this larger sample of assessments as in Kaplan and Sorensen (2021). In later years, CEO candidates have shown declining general ability, are increasingly execution-oriented, less interpersonal, less charismatic, and less creative-strategic, and many of these differences persist for hired CEOs. We find no evidence of increasing prevalence or importance of interpersonal and softer skills. Executives assessed for the same company have positively correlated abilities, suggesting that high-ability executives complement each other. Finally, we consider corporate objectives and CEO characteristics.

We develop a market-based methodology to assess banks’ resilience to climate-related risks and study the climate-related risk exposure of large global banks. We introduce a new measure, CRISK, which is the expected capital shortfall of a bank in a climate stress scenario. To estimate CRISK, we construct climate risk factors and dynamically measure banks’ stock return sensitivity (that is, climate beta) to the climate risk factor. We validate the climate risk factor empirically and the climate beta estimates by using granular data on large US banks’ loan portfolios. The measure is useful in quantifying banks’ climate-related risk exposure through the market risk and the credit risk channels.

UK government bond yields tend to drift upwards before scheduled news such as monetary policy announcements and labour market data releases. This effect is particularly pronounced during periods of UK bond issuance and is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows following issuance. The composition of liquidity providers also shifts: hedge funds buy a large share of the bond issuance outside pre-news windows, but more passive investors – such as foreign central banks and pension funds – provide liquidity in pre-news windows. We outline a simple model to rationalize these findings.

We show that financial constraints lead to spatial misallocation and contribute to racial disparities in housing and wealth accumulation. Using bunching and difference-in-differences designs, we document that down payment constraints disproportionately limit the ability of Black households to access housing in high-opportunity areas. We build a dynamic life-cycle model to examine the long-term wealth effects of these leverage distortions on group differences in wealth accumulation. Black households are more affected by financial and spatial frictions, limiting wealth building opportunities. Improving mortgage access and housing supply in high-opportunity areas helps reduce racial wealth disparities, emphasizing the need for access to geographic opportunities rather than homeownership alone.

When lenders screen borrowers using a menu, they generate a contractual externality by rendering the composition of their competitors’ borrowers worse. Using data from the UK mortgage market and a structural model of screening with endogenous menus, this paper quantifies the impact of asymmetric information on equilibrium contracts and welfare. Counterfactual simulations show that, because of the externality, there is too much screening along the loan-to-value dimension. The deadweight loss, expressed in borrower utility, is equivalent to an interest rate increase of 30 basis points (a 15% increase) on all loans.