We study macroprudential policy aimed at domestic debt denominated in different currencies. We model a small open economy with entrepreneurs and workers who save and borrow in domestic and foreign currency. Financial frictions make dollar debt on entrepreneurs' balance sheets especially disruptive when the exchange rate depreciates. Falling output causes additional depreciation; this amplification provides a rationale for de-dollarization. On the other hand, de-dollarization is costly because the dollar savings of domestic workers provide them with insurance. We characterize the social marginal benefits and costs of de-dollarization in this context. The social marginal costs are associated with a deterioration in risk-sharing and can be expressed in terms of the interest rate premium on domestic currency assets. We find that these costs are of second order around the unregulated equilibrium but play a role for optimal policy.

Using detailed loan-level data from Chile, we document significant geographic differences in interest rates for firm loans. Firms in cities with high borrowing costs pay around 280 basis points more than firms in low-cost cities. While these estimates account for differences in firm and loan characteristics across cities, we find evidence that they are related to the level of concentration in the local loan market. We examine the pass-through of monetary policy to lending rates and find that banks with higher local market shares exhibit stronger pass-through, aligning with models of oligopolistic branch competition.

A salient aspect of sectoral booms—prevalent in commodities, construction, or tech—is that the end of the boom phase is difficult to predict. I study how this uncertainty shapes labor mobility across sectors during the boom phase. Using a model of sector-specific human capital accumulation, I show that workers can exhibit risk-loving attitudes towards duration, leading to ambiguous effects of uncertainty on labor supply. Then, I turn to an empirical investigation of the effects of duration uncertainty during the boom in mineral prices of 2011–2018, driven by a construction boom in China. I estimate the model using financial data and novel administrative micro-data from Australia, an exporter of mineral products to China. I use the quantified model to study a counterfactual perfect foresight economy in which the mining boom was temporary and duration certain. I find that the mining share of employment in Australia would have increased from 3.7% to 4.4%, and the relative wage in the sector would have been substantially lower, leading to a decrease in labor income inequality. Changes in the age composition of the mining sector indicate heterogeneous attitudes towards risk across age groups.

How does the spatial distribution of bank branches shape the allocation of capital across cities? Using data from Chile, we show that localized deposit shocks lead to an increase in lending and a reduction in interest rates for banks with branches in the exposed areas, indicating that the boundary of the bank matters. We develop a novel quantitative spatial model with frictions in interbank lending and oligopolistic local credit markets that rationalizes our empirical findings. In our quantitative model, interbank frictions increase the spatial dispersion of the marginal product of capital and reduce GDP by 0.3 percent. Local market power in lending reduces aggregate GDP by 6.9 percent. Bank mergers improve financial integration across cities at the cost of reduced competition in the banking industry. The welfare effects of mergers range between -5.7% and +0.6%, depending on the geographic footprint of the merging banks. 

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