Alessandro Lavia

This paper investigates the role of information heterogeneity in driving equity flows throughout the global financial cycle. In periods of heightened uncertainty, investors retrench from most of foreign markets while maintaining investment in information-advantaged economies, particularly in the United States. We develop a multi-country model with endogenous information acquisition and heterogeneous learning costs, which generates three key predictions in uncertain times: (i) domestic investors become relatively better informed; (ii) aggregate foreign equity inflows fall where domestic agents hold an informational advantage; and (iii) investors reallocate toward markets they understand better. We validate these predictions using Consensus Economics forecasts and both aggregate and bilateral equity inflows. Higher uncertainty widens information asymmetries and leads to weaker foreign inflows where domestic precision improves, while capital shifts toward destinations that are easier to learn about.

Managers face strong pressure to meet analysts’ earnings forecasts, but the effects on firms and consumers are ambiguous. In the data, firms that just meet earnings forecasts raise markups by 1.3 percent and report weaker customer sentiment than those that just miss, consistent with short-term incentives distorting both short-run pricing decisions and long-run customer acquisition. We develop a dynamic general equilibrium model with heterogeneous firms and endogenous customer accumulation, where short-term incentives emerge endogenously as an optimal mechanism to discipline managers’ private benefit. We estimate that short-termism leads the average firm to raise markups by 20 basis points and annual profits by 1.2 percent. Consumers experience a 7-basis-point annual increase in consumption and a 1.2 per-cent gain in lifetime utility, as income effects outweigh the welfare costs of higher prices.

The cost of debt for firms more exposed to transition risk has been shown to be higher than the one of less exposed firms.  To explain this difference, we develop a general equilibrium model featuring firms, banks and households. Firms are connected by a production network. Their input choices are rigid, in the sense that their decisions cannot be fully adapted to the actual risk realization.  As a consequence of rigidity, default may occur. Interest rates on corporate debt are determined by banks, taking into account possible defaults. Without connections, brown firms would face higher costs because of transition exposure. In a network, the exposure depends also on each firm's connections. Even low-emission firms are penalized when they depend on brown suppliers, as upstream risks are transmitted through the supply chain. Debt costs depend on the overall exposure to transition risks. Empirically, we proxy firms' exposure to transition risk using sectoral CO2 emissions and construct a network-based measure of total, embodied emissions that is fully consistent with the theoretical framework. Combining U.S. firm-level financial data with EPA emissions and input--output linkages, we show that lenders price both direct emissions and, crucially, network-adjusted carbon exposure, in line with the model's predictions. Evidence surrounding the Paris Agreement confirms the relevance of these mechanisms and supports a causal interpretation of the results. 

We study how import price shocks propagate through domestic production networks and affect firm-level pricing behavior in Sweden. Leveraging a novel network-based measure of effective import prices that accounts for both direct and indirect exposure via input-output linkages, we show that pass-through to domestic prices is gradual: a one percent increase in import costs leads to roughly one-to-one price adjustments over a 12-month horizon. This highlights the importance of incorporating production-network heterogeneity to accurately quantify cost transmission. We then examine within-industry heterogeneity, documenting an inverted U-shaped relationship between market share and pass-through. Smaller firms adjust prices less in response to imported cost shocks, while medium-sized firms exhibit stronger responses, and the largest firms show diminishing marginal pass-through, reflecting strategic considerations, pricing frictions, and competitive constraints. Finally, we explore across-industry variation and find that sectors characterized by higher market concentration and those producing intermediate goods experience stronger and more persistent pass-through. These findings underscore the role of structural industry characteristics in shaping the transmission of international cost shocks and demonstrate that aggregation and coarse measures of import prices can substantially understate the true inflationary impact of global price changes.

This paper examines the conflict that arises from frictions between private, fiscal, and monetary sectors in shaping inflation dynamics. When agents misperceive individual and aggregate shocks, competing claims over income shares can trigger persistent inflationary pressures. We study how these tensions interact with fiscal policy and how monetary policy ultimately acts as the last line of defense in stabilizing the system. The model highlights that the effectiveness of monetary interventions depends on how the expansion of central bank balance sheets is transmitted through banks and government finances. We then confront these mechanisms with data to assess the empirical relevance of the theoretical predictions.

This paper examines how a prolonged period of low and stable interest rates shaped banks’ maturity and liquidity risk exposures, contributing to the 2023 U.S. regional banking turmoil. Using an overlapping generations (OLG) framework, we link the secular decline in interest rates and post-crisis regulation, which focused primarily on credit rather than interest rate risk, to banks’ incentives to hold long-term fixed-rate assets financed by uninsured deposits. The model quantifies the macroeconomic consequences of this behavior and evaluates alternative policy responses, including liquidity facilities and capital regulation.