We develop a new method to construct instruments in a broad class of economic environments. In the economies we study, a few large firms, industries, or countries account for an important share of economic activity. Idiosyncratic shocks to these large players significantly affect aggregate outcomes and are valid instruments. We provide a methodology to extract these idiosyncratic shocks to create granular instrumental variables (GIVs), which are size-weighted sums of idiosyncratic shocks. We show how GIVs enable us to estimate causal parameters, such as elasticities and multipliers, and are applicable in a broad range of empirically relevant settings.

Will stock exchanges innovate to address latency arbitrage and the arms race for speed? This paper models how exchanges compete in the modern electronic era and how this shapes incentives for market-design innovation. In the status quo, exchange trading fees are competitive, but exchanges earn economic rents from selling speed. These rents create a wedge between private and social incentives to innovate and support the persistence of an inefficient market design in equilibrium of a market-design adoption game. We discuss implications for policy and insights for the literatures on market design, innovation, and platforms.

We develop a novel methodology for disentangling the demand and cost drivers of firm heterogeneity when firms sort themselves into different markets, and we apply it to export status differences. Our methodology results in joint estimates of firm-level productivity and of markups in every market, without imposing functional form restrictions on demand. We find that exporters, relative to nonexporters, (i) have flatter domestic demand curves—thicker domestic markets—and (ii) have higher demand conditional on productivity. Finally, (iii) these demand advantages translate to foreign markets, thereby leading to export status differences.

We build a bridge between relationship lending and transactions lending—investigating relationship effects on contract terms for credit cards, a relatively pure transactions-lending technology. Using more than 1 million accounts, we find that during normal times, consumers with relationships obtain better terms but small businesses with relationships do not. Both groups obtain improved terms during COVID-19, consistent with intertemporal smoothing—relationship borrowers obtain more favorable terms during crises, paid for by worse terms in normal times. Among other findings, CARES Act impediments to reporting consumer delinquencies to credit bureaus, designed to protect customers, reduced informational value of credit scores, penalizing safer consumers.