Asset Supply and Liquidity Transformation at St. Louis Fed
Piotr Żoch visited Federal Reserve Bank of St. Louis on 9.01-13.01 2023 and gave a talk on "Asset Supply and Liquidity Transformation in HANK", joint work with Yu-Ting Chiang. They study the role the financial sector plays in shaping responses to macroeconomic policies by focusing on two sets of elasticities of liquid asset supply: own-price (this one says by how much deposit supply responds to changes in interest rates on deposits) and cross-price (this one measures the response of deposit supply to changes in returns on loans). The cross-price elasticity controls the strength of the link between the goods market and the financial sector. It matters quantitatively - output responses to a debt-financed transfer program are three times larger when it is zero (which is the case for a standard two-asset heterogeneous agent New Keynesian model) rather than infinity
The stay at the Fed allowed Piotr to get great feedback from the team of brilliant research economists working there. It was full of insightful discussions that will, without a doubt, improve the quality of the paper.