2025 Theses Doctoral

Essays in Macro-Finance

Modi, Kosha

This dissertation focuses on three broad questions at the intersection of macroeconomics and finance which are (a) What are the sources of inflation? (b) What are the causes and implications of banks' information technology investments? (c) How do loan covenants transmit monetary shocks to firm investment?

Chapter 1 (joint with Emilio Zaratiegui) answers the first question by using high-frequency asset price movements around CPI announcement in the US to extract market-perceived sources of inflation. Chapter 2 (joint with Nicola Pierri, Yannick Timmer and Maria Martinez Peria Soledad) constructs a novel measure of banks' IT investment and studies its drivers and implications on monetary policy and mortgage markets. Chapter 3 merges covenant-level data from Dealscan with firm-level data from Compustat to study whether covenants interact with monetary policy to have heterogeneous effects on firm investment.

For the first question, I find that supply shocks played an increasingly important role since the pandemic. For the second question, I find that fintech competition had a causal impact on banks' IT investments and resulting in potentially more market power for high IT banks, and higher financial inclusion for lower-income borrowers. For the third question, I find that a firm that is farther away from violating its interest coverage covenant invests more with an expansionary monetary shock.