We propose a model with local spatial markets and heterogeneous agents to understand and evaluate the geographic expansion of bank branches after banking deregulation in Thailand. The model features heterogeneity in financial frictions across regions, with the costs of accessing credit and deposits depending on the distance from the nearest branch. Disciplined by micro estimates of the effects of branch openings, the model reproduces salient regional and aggregate patterns concerning occupational choice, financial access, and inequality. We apply the model to study two counterfactual financial sector policies in distant markets, one subsidizing branches and the other subsidizing household deposits.

Little is known about optimal policy in the face of global supply chain disruptions. Should governments promote resilience by subsidizing backup sources of input supply in multiple countries? Should they encourage firms to source from safer domestic suppliers? We address these questions in a model of production with a critical input and exogenous risks of supply disturbances. With constant elasticity of substitution preferences, a subsidy for diversification achieves the constrained social optimum. When the demand elasticity rises with price, private investments in resilience may be socially excessive and the social planner may wish to discourage diversification while favoring sourcing from abroad.

We formulate a reputational model in which the type of government is time varying and private information. Agents adjust their beliefs about the government’s type (i.e., reputation) using noisy signals about its policies. We consider a debt repayment setting in which reputation influences the market’s perceived probability of default, which affects sovereign spreads. We focus on the 2007–12 Argentine episode of inflation misreport to quantify how markets price reputation. We find that the misreports significantly increased Argentina’s sovereign spreads. We use those estimates to discipline our model and show that reputation can have long-lasting effects on a government’s borrowing costs.