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The research community at the Institute includes visiting scholars, consultants, economists, research analysts, and research assistants. These scholars bring varied backgrounds, interests, and expertise to research that deepens our understanding of economic opportunity and inclusion as well as policies that work to improve both.
When a nonfinance major steps into a Finance 101 class, that’s Jacelly Cespedes’ moment to shine.
“I have this romantic view that I can help,” said Cespedes. “Someone who is interested in marketing is probably not going to take another finance course, right? But if that person can understand the concept of compounding, Fed interest rates, the diversification concept—that is going to have a big effect on their financial decisions.”
This view is closely tied to Cespedes’ research passion: household finance. Cespedes knew she wanted to research the role of households in the economy after experiencing the 2008 financial crisis as an econ undergrad. Her next move, an MBA, would open her mind to a Ph.D. in finance.
The applied nature of finance drives her research agenda. For instance, research has shown that when given large sums of money (think lottery winners), households sometimes get into financial trouble. But Cespedes and her co-authors find that small business owners make rational business investments when faced with a “wealth shock.” Some invest in expansion. Some pivot to different industries that require higher startup capital but could offer higher margins. Others that have been less successful pivot to industries where they perform better. The research holds implications for policy on small business finance and barriers to entrepreneurship.
Of course, most households aren’t simply handed large sums of money—but they do apply for loans. Cespedes has explored how households interact with financial regulation, including the Community Reinvestment Act (CRA), a law enacted in 1977 to reduce inequality in lending.
For this project, Cespedes and her co-authors studied the effects of a CRA update in 1995 that eased the evaluation of banks below a $250 million asset threshold and increased regulation of banks above the threshold.
This change distorted bank behavior: Some banks resorted to reducing growth and increasing loan rejection rates to avoid crossing the asset threshold. These reductions impacted lower-income households, small businesses, and innovation.
A second paper on the CRA found that when banks close branches to circumvent the regulation, nonbanks fill the void in the mortgage market. This trend does not extend to small business lending, however, where nonbanks cannot easily replicate the practice of relationship lending.
The research prompts urgent questions about how CRA rules may reshape the lending landscape, nudging credit activity toward nonbank mortgage companies that aren’t subject to the CRA.
