Welcome! I am an Assistant Professor of Finance in the Gies College of Business at the University of Illinois Urbana-Champaign.
My research interests are in macroeconomics, finance and empirical methods.
You can find my CV here.
Contact Information: asarto@illinois.edu.
“The Channels of Amplification: Dissecting the Credit Boom that led to the Global Financial Crisis”
Updated. Latest Version: June 2025.
Abstract: An unprecedented credit boom that began in the early 2000s was a central cause behind the global financial crisis. Both a housing boom and a relaxation of lending constraints that unlocked an aggressive channeling of funds to the mortgage market (the financial intermediary channel) were key determinants of the credit boom. However, little is known about the relative roles played by each factor. This paper provides a new empirical strategy to shed light on this issue. The strategy exploits the fact that both channels operate on different networks, with the housing channel being highly segmented compared to the financial intermediary channel. I show that both channels played a significant role in amplifying the rise in credit. In the preferred specification, the housing channel accounts for 51% of the observed amplification. Both the amount of amplification and the proportion explained by the housing channel are larger (66%) in areas with more inelastic land supply. Regions with very elastic land supply still display significant regional credit multipliers thanks to the financial intermediary channel, which accounts for 71% of the effects. The large role played by the financial intermediary channel implies that current macroprudential policies aimed at curbing future credit booms are insufficient.
Presentations (incl scheduled): PUC-Chile, AFA 2025, Macro Identification with Micro Data, IMF Macrofinancial seminar, UMBC, Chicago Fed, UC Davis, Purdue University, University of Houston, UIUC Gies, University of Florida, Chicago Booth, SED Copenhagen, the BSE Summer Forum, Toulouse Business School.
“The Secular Decline in Interest Rates and the Rise of Shadow Banks”, with Olivier Wang.
Updated. Latest version: October 2023.
Revise & Resubmit, Journal of Financial Economics.
Abstract: Over the past two decades, shadow banks have significantly expanded their share of residential mortgage lending, even surpassing pre-financial crisis levels. This surge is often attributed to post-crisis regulatory changes and improvements in shadow banks’ technology. In this paper, we document a new driving force: the persistent decline in interest rates. When interest rates are high, cheap deposit funding provides banks with a significant competitive advantage against shadow banks relying on wholesale funding. As interest rates plummet, banks lose this advantage, experience a squeeze in their net interest margin, leading to diminished profitability, weaker growth, and cost-cutting measures such as branch closures. By contrast, shadow banks are able to gain market share. We test this mechanism using a shift-share empirical design based on differences in historical bank balance sheet composition. We find that banks more vulnerable to falling interest rates contracted lending as a response to lower profitability while also scaling back non-interest expenses on their branches. This created a fertile environment for non-banks to expand in areas with banks exposed to declining interest rates.
Presentations (incl scheduled and co-authors): 16th annual conference of the LSE Paul Woolley Centre, SED (Barcelona), FIRS (Berlin), 1st UIC Finance Conference, Miami Herbert Business School, 15th Florida State University Truist Beach Conference, AFA 2024, SAET Conference, the NBER Summer Institute (Corporate Finance and Risks of Financial Institutions), the Rome Junior Finance Conference, the BSE Summer Forum, the 21st Macro Finance Society Workshop, the OFR Rising Scholars Conference on the Future of Financial Stability, the Swiss Winter Conference on Financial Intermediation, the UCLA-David Backus Memorial Conference, CUNY, NYU Stern, LSE.
“Estimating Credit Multipliers”, with Atif Mian and Amir Sufi.
Updated. Latest version: August 2023.
Revise & Resubmit, Journal of Finance. Revision submitted.
Abstract: This paper introduces a new approach for estimating credit multipliers, i.e. the amplification of credit supply shocks due to general equilibrium feedback effects such as the rise in collateral value. The approach is based on comparing the within-region estimate, that captures the partial equilibrium effects, with the across-region estimate, that captures the regional general equilibrium effects fenced-in by trade or transport costs. Applying our methodology to the 2000’s housing cycle, we find a large credit multiplier that more than quadruples the partial equilibrium effect. Regional credit multipliers are stronger in areas that are less open to trade, or have more inelastic land supply.
Presentations (incl by co-authors): European Finance Association 48th Annual Meeting, Society for Economy Dynamics 2022 Annual Meeting, NYU Stern, Princeton Macro Faculty Lunch, Central Bank of Chile, and Universidad Adolfo Ibáñez.
“Local Shocks and Internal Migration: The Disparate Effects of Robots and Chinese Imports in the US”, with Marius Faber and Marco Tabellini.
Updated. Latest version: January 2025.
Revise & Resubmit, European Economic Review.
Featured in Harvard Business School Working Knowledge.
Abstract: Do local labor markets adjust to economic shocks through migration? In this paper, we study this question by focusing on two of the most important shocks that hit US manufacturing since the 1990s: Chinese import competition and the introduction of industrial robots. Even though both shocks drastically reduced manufacturing employment, we find that only robots led to a sizable decline in population. We provide evidence that negative employment spillovers outside manufacturing, caused by robots but not by Chinese imports, can explain the different migration responses.
Presentations (incl by co-authors): European Research Workshop in International Trade (ERWIT) 2021, CEPR Annual Symposium in Labour Economics 2021, EEA Virtual Congress 2020, UEA Summer School 2019, UEA Virtual 2020, NYU Stern, WWZ Basel Economics Lunch.
Heat map of micro-global multipliers that compose the aggregate fiscal multiplier in the US.
"Recovering Macro Elasticities from Regional Data"
Updated. Latest version: August 2024.
Revise & Resubmit, Journal of Political Economy Macroeconomics. Revision submitted.
Abstract: I propose a new approach for estimating the aggregate effects of government policies directly from regional time series variation. The method relies on regions displaying enough heterogeneity in their response to aggregate macro shocks. With only mild restrictions on regional parameters, it combines SVAR methods with factor analysis to estimate the underlying structural shocks. In particular, it shows it is possible to identify the aggregate SVARs implied by the regional time series without any restrictions on the contemporaneous effects. Hence, the approach substantially weakens the identification assumptions imposed in typical SVARs. An application that estimates the aggregate fiscal multiplier in the U.S. flips the estimate of the contemporaneous effect from negative (under OLS) to positive, and renders a multiplier of approximately 0.82.
Presentations: NBER Summer Institute (Micro Data and Macro Models), NYU Stern, Boston College, Georgetown, Fed Board, San Francisco Fed, Rochester, Boston Fed, Richmond Fed.
“Monetary Policy and Financial Stability”, with Nicolas Caramp, Jinyoung Seo and Dejanir Silva
“Shadow Banks and the Dynamic Effects of Monetary Policy on Small Business Lending”, with Manasa Gopal, Dominik Supera and Olivier Wang
Abstract: We study the dynamic effects of interest rate shocks on small business lending by banks and non-banks, through the lens of three channels affecting banks at different horizons: core deposits, time deposits, and bank profitability. Using a shift-share design within a dynamic panel setting, we show that rate cuts stimulate bank lending relative to non-bank lending in the first year, in part through an inflow of core deposits, but migration effects towards non-banks arise after three years of net interest income compression and time deposit outflows induced by low rates, and get stronger thereafter. Our results bridge the gap between the expansionary short-run effects and contractionary long-run effects of low interest rates on bank lending. We highlight that substitution towards non-banks can take place at business cycle frequencies, and should thus be taken into account in the conduct of monetary policy.
Presentations (incl scheduled and co-authors): 2024 ECB-FRBNY Workshop on Non-Bank Financial Institutions, 2024 Federal Reserve Stress Testing Research Conference, Adam Smith Workshop 2025, SFS Cavalcade 2025.
“The Rise of Shadow Banks among Large Corporates”, with Sebastian Hillenbrand and Olivier Wang
Abstract: During the last two decades, the market share of nonbank lenders in the syndicated loan market has experienced a dramatic surge. Even though there are some shared traits with the consumer mortgage market, in which regulatory changes have played a significant role, other contributors such as technological trends are less relevant for the syndicated market. In this paper we provide evidence that low interest rates have contributed to the increase in nonbank participation. Prolonged periods of low interest rates compress the spread between market rates and deposit rates and thus reduce the funding advantage of banks relative to non-banks. Using a shift-share design at the level of the syndicate, we show that syndicates with banks more exposed to a fall in rates before the start of these trends experience larger nonbank shares in subsequent deals during this period. Our results are robust to computing the exposure measure based on lead arrangers or entire loan syndicates.
“Financial Development, Cheap Credit and Growth”
Abstract: I study the relationship between government intervention in the banking sector and long-run growth for different levels of financial development. I use an endogenous growth model in which entrepreneurs invest in R&D and physical capital. They can lend or borrow from each other but only through a banking system and, in doing so, they face a collateral constraint. I show that for economies with a high degree of financial development, where collateral constraints are not so tight, there is an increase in subsidies to banks’ loans that always increases the economy’s long-run growth rate. For less financially developed economies, cheap credit can be harmful for the economy’s growth rate when entrepreneurs can’t use their technology as collateral: lower interest rates make them substitute away from technology in favor of physical capital in order to obtain more funds from banks. A sufficient condition for this to happen is derived.
“Connecting Micro Elasticities with Macro Elasticities in Non-Linear Economies”
Abstract: I provide identification results for macro elasticities in non-linear economies. I assume the econometrician observes data from a recursive competitive equilibrium but remain agnostic about many features of the economy, such as whether markets are complete or incomplete. This setup leads to outcomes with nonseparable unobservable errors and endogenous regressors. The starting point for the analysis is that the econometrician has identified what I call a micro-local elasticity, which measures the average regional response to a regional policy change, via a control variable approach. I first show that the micro-local elasticity holds the distribution of the aggregates fixed when analyzing the policy change, and thus it is not useful for approximating the macro elasticity. Then, I offer a set of extra assumptions under which the macro elasticity is identified, and show, by means of an example, that the extra assumptions might be very weak. Moreover, I show that the macro elasticity is a known function of the micro-global elasticities, which measure the average regional response to an aggregate policy shift, allowing the aggregates to adjust accordingly. Finally, I discuss the advantages of using regional variation in this setup, in comparison to using only aggregate time series variation. I also contrast the identification assumptions required for the results to those of linear economies in which aggregate macro shocks and policies have heterogeneous effects.