Davide Porcellacchia
Research
- Division
Monetary Policy Research
- Current Position
-
Senior Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,Financial Economics
- Education
- 2013-2018
PhD in Economics, London School of Economics, London, UK
- 2011-2012
MSc in Economics, London School of Economics, London, UK
- 2008-2011
BSc in Economics and Management, Bocconi University, Milan, Italy
- Professional experience
- 2015
Summer intern - International Monetary Fund
- 2013-2015
Consultant - J.C. Flowers and Co.
- 28 November 2024
- RESEARCH BULLETIN - No. 125Details
- Abstract
- Negative economic shocks can cause waves of investor pessimism about the resilience of banks, which, in turn, generate additional adverse macroeconomic effects. This is commonly cited as an explanation for the economic havoc wrought by the global financial crisis of 2007-08. We introduce the notion of pessimism in a real business cycle model, which is a standard framework for business cycle analysis. The possibility of waves of pessimism generates countercyclical demand from banks for liquid assets (e.g., bank reserves). With the model, we study the macroeconomic effects of the government supplying liquid assets and find that a policy of accommodating banks’ demand is effective in stabilising the economy. Finally, we support this finding with empirical evidence.
- JEL Code
- E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 10 May 2024
- WORKING PAPER SERIES - No. 2939Details
- Abstract
- In financial crises, the premium on liquid assets such as US Treasuries increases alongside credit spreads. This paper explains the link between the liquidity premium and spreads. We present a theory of endogenous bank fragility arising from a coordination friction among bank creditors. The theory’s implications reduce to a single constraint on banks, which is embedded in a quantitative macroeconomic model to investigate the transmission of shocks to spreads and economic activity. Shocks that reduce bank net worth exacerbate the coordination friction. In response, banks lend less and demand more liquid assets. This drives up both credit spreads and the liquidity premium. By mitigating the coordination friction, expansions of public liquidity reduce spreads and boost the economy. Empirically, we identify high-frequency exogenous variation in liquidity by exploiting the time lag between auction and issuance of US Treasuries. We find a causal effect on spreads in line with the calibrated model.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 7 March 2023
- WORKING PAPER SERIES - No. 2793Details
- Abstract
- Climate change and the public policies to arrest it are and will continue reshaping the global economy. This Discussion Paper draws on economic research to identify some key medium- and long-run economic implications of these developments. It explores implications for growth, innovation, inflation, financial markets, fiscal policy, and several socio-economic outcomes. The main message that emerges is that climate change will cause income divergence across individuals, sectors, and regions, adjustment in energy markets, increased inflation variability, financial markets stress, intensified innovation, increased migration, and rising public debt. These challenges appear manageable for EU member states, especially under an early and orderly transition scenario. At the same time, the direction, scope, and speed of economic transformation is subject to large uncertainty due to two separate factors: the wide range of climate scenarios for a given trajectory of greenhouse gas emissions and the exact policy path governments choose, especially in the context of the ongoing Russian aggression in Ukraine.
- JEL Code
- D6 : Microeconomics→Welfare Economics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
F2 : International Economics→International Factor Movements and International Business
G2 : Financial Economics→Financial Institutions and Services
O1 : Economic Development, Technological Change, and Growth→Economic Development
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics - Network
- Discussion papers
- 7 March 2023
- DISCUSSION PAPER SERIES - No. 22Details
- Abstract
- Climate change and the public policies to arrest it are and will continue reshaping the global economy. This Discussion Paper draws on economic research to identify some key medium- and long-run economic implications of these developments. It explores implications for growth, innovation, inflation, financial markets, fiscal policy, and several socio-economic outcomes. The main message that emerges is that climate change will cause income divergence across individuals, sectors, and regions, adjustment in energy markets, increased inflation variability, financial markets stress, intensified innovation, increased migration, and rising public debt. These challenges appear manageable for EU member states, especially under an early and orderly transition scenario. At the same time, the direction, scope, and speed of economic transformation is subject to large uncertainty due to two separate factors: the wide range of climate scenarios for a given trajectory of greenhouse gas emissions and the exact policy path governments choose, especially in the context of the ongoing Russian aggression in Ukraine.
- JEL Code
- D6 : Microeconomics→Welfare Economics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
F2 : International Economics→International Factor Movements and International Business
G2 : Financial Economics→Financial Institutions and Services
O1 : Economic Development, Technological Change, and Growth→Economic Development
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 15 February 2023
- WORKING PAPER SERIES - No. 2783Details
- Abstract
- We develop a model of financial intermediation with remunerated Central Bank Digital Currency (CBDC) as consumers’ alternative to bank deposits and an endogenous risk of bank runs. Echoing widespread concerns, higher CBDC remuneration raises bank fragility by increasing consumers’ withdrawal incentives. On the other hand, it also induces banks to offer more attractive deposit contracts in order to retain funding, thereby reducing fragility. This results in a U-shaped relationship between bank fragility and CBDC remuneration. We evaluate policy proposals aimed at mitigating the financial-stability risks of CBDC, such as holding limits and contingent CBDC remuneration.
- JEL Code
- D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 31 October 2022
- RESEARCH BULLETIN - No. 100Details
- Abstract
- Central banks around the world are exploring the case for central bank digital currency (CBDC) – essentially a digital version of cash. In this article, we provide an overview of the economics of CBDC (Ahnert et al., 2022a). First, we outline the economic forces that shape the rise of digital money and motivate the current debate. We then look at the implications for monetary policy and financial stability before discussing policy issues and challenges. Finally, we highlight several areas where our understanding of digital money could be improved by further research.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 16 August 2022
- WORKING PAPER SERIES - No. 2713Details
- Abstract
- This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Discussion papers
- 16 August 2022
- DISCUSSION PAPER SERIES - No. 20Details
- Abstract
- This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 11 January 2022
- WORKING PAPER SERIES - No. 2636Details
- Abstract
- Does the level of deposits matter for bank fragility and efficiency? By augmenting a standard model of endogenous bank runs with a consumption-saving decision, we obtain two novel results. First, depositors’ incentives to run are a function of the level of savings held as bank deposits. Second, a saving externality emerges in that individual depositors do not internalize the effect of their saving decisions on the bank-run probability. As a result, the economy features an inefficient level of savings and bank liquidity provision as well as excessive bank fragility. These results are robust to different sources of bank fragility, as they emerge both when runs are panic- and fundamental-driven.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 14 October 2021
- RESEARCH BULLETIN - No. 88Details
- Abstract
- Policy rates in advanced economies are unusually low. What effect does this have on bank stability? I identify two competing effects. On the one hand, low rates harm bank profits by squeezing interest margins. On the other hand, they boost the value of long-term assets held by banks. Using a standard banking model, I determine the policy rate level at which these two forces cancel each other out, i.e. the tipping point. Past this tipping point, the net effect of low rates on bank capital is negative. Applying the model to the US economy, I quantify the tipping point in August 2007 as a policy rate of 0.55%.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Research Task Force (RTF)
- 21 July 2020
- WORKING PAPER SERIES - No. 2447Details
- Abstract
- This paper studies how interest rates impact bank stability in a standard banking model. There are two opposite effects. While higher rates widen banks’ interest margins, they also reduce the value of their long-term assets. First, the paper characterizes conditions under which an effect dominates. Second, it shows that banking crises are triggered by interest rates crossing a tipping point. Quantitatively, I find that the effect on interest margins is dominant. Hence, low rates are the threat to bank stability. Moreover, I estimate the tipping point at 0.32% for the US economy in the decade before the Global Financial Crisis.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages