A vast theoretical literature claims that increasing interest rates reduce bank leverage, making banks safer. Validating this empirically is key to understanding monetary policy transmission and its impact on financial stability. I show that raising interest rates increases bank leverage. I propose and validate the loan-loss mechanism: contractionary shocks increase loan losses, reduce profits and equity, thus raising leverage. I document why existing models cannot account for this and develop a model of bank risk transformation where floating-rate loans convert interest rate risk to credit risk, leading to loan losses. Empirical evidence from microdata is consistent with the model’s predictions.
- Young Economist Prize (Runner-Up)
- Southern Economic Association Graduate Student Prize
- Rady School of Management Libby Award
- Walter Heller Memorial Prize (Best 3rd Year Paper)

We propose a model to study the consequences of including financial stability among the central bank’s objectives when market players are strategic, and surprises compromise their stability. In this setup, central banks underreact to economic shocks, a prediction consistent with the Federal Reserve’s behavior during the 2023 banking crisis. Moreover, policymakers’ stability concerns bias investors’ choices, inducing inefficiency. If the central bank has private information about its policy intentions, the equilibrium forward guidance entails an information loss, highlighting a trade-off between stabilizing markets through policy and communication. A “kitish” central banker, who puts less weight on stability, reduces these inefficiencies.

This paper analyzes food inflation trends in Sub-Saharan Africa (SSA) from 2000 to 2016 using two novel datasets of disaggregated CPI baskets. Average food inflation is higher, more volatile, and similarly persistent as non-food non-fuel inflation, especially in low-income countries in SSA. We find evidence that food inflation became less persistent from 2009 onwards, related to recent improvements in monetary policy frameworks. We also find that high food prices are driven mainly by non-tradable food in SSA and there is incomplete pass-through from world food and fuel prices and exchange rates to domestic food prices. Taken together, these finding suggest that central banks in low-income countries with high and persistent food inflation should continue to pay attention to headline inflation to anchor inflation expectations. Other policy levers include reducing tariffs and improving storage and transport infrastructure to reduce food pressures.