Research
Research Papers:
“Foreign Exchange Risk Management Across the Production Network” with Jisu Hwang (Cornell) Job Market Paper
Awards: The Brattle Group Ph.D. Candidate Awards For Outstanding Research at WFA 2024
Selected Presentations: Insightful Minds in International Macro (IMIM) Rising Stars Seminar, 2nd Women in Central Banking Workshop (Dallas Fed, Norges Bank), 4th WE_ARE_IN Macroeconomics and Finance Conference (Banco de España, CEPR), Western Finance Association (WFA) Meeting 2024 (Honolulu, HI), North American Summer Meeting (NASM) of the Econometric Society 2024 (Vanderbilt Univ.), 2nd Cornell Economics Alumni Workshop, Eastern Economic Association (EEA) Annual Meetings 2024 (Boston, MA), ASSA/AEA Annual Meeting 2024 (San Antonio, TX), Macro lunch and Finance lunch at Harvard University, JIE Summer School in International Economics (Univ. of Crete, Greece), Inter-Finance PhD Seminar (x2)
Abstract: This paper uncovers the substantial foreign exchange risks faced by U.S. firms, despite most international trade being invoiced in U.S. dollars, due to spillovers through the production network and foreign demand fluctuations when exchange rate changes. Using new hand-collected data from firms’ annual reports, we document that U.S. firms actively hedge these foreign exchange risks using financial derivatives. We develop the first model of hedging in a production network to show that hedging by upstream or downstream firms can stabilize a firm’s performance due to shared risk exposures. This hedging positive spillover effect works through firms’ financial constraints. Hedging reallocates resources from good to bad states, stabilizing firms’ borrowing costs and the prices they charge connected firms. Therefore, firms’ hedging influences the performance of connected firms through the purchase-sales relationships. We use two major swings in the USD-Euro exchange rate to trace out this hedging spillover effect, finding that hedging by connected firms is as effective as a firm’s own hedging in stabilizing the firms’ performance. Additionally, firms at the production and trade network’s extremities are more likely to hedge. Our model, calibrated with U.S. data, shows that these positive spillover effects through the borrowing cost channel boost aggregate output and lower prices.
“The Power of Reserve Tiering: Financial Institution Heterogeneity and Monetary Policy Pass-Through” This version: March 2024
Awards: Peter Sinclair Prize (1st place) for Best Paper at 10th MMF Society PhD conference, Semi-Finalist for the Best Paper Award (Financial Intermediation & Markets) at FMA 2024
Selected Presentations: FMA Annual Meeting 2024 (Grapevine, TX), BIS-CEPR-SCG-SFI-Conference on Financial Intermediation 2024 (Gerzensee, Switzerland), AFA Annual Meeting 2024 (San Antonio, TX), Midwest Macroeconomics 2023 (Texas Tech Univ.), HEC Economics PhD Conference (HEC Paris, France), 10th Annual Money Macro and Finance (MMF) Society PhD Conference (The Univ. of Sheffield, UK), 21st Macro Finance Society Workshop (Scheller College of Business, Georgia Tech), 1st Cornell Economics Alumni Workshop, Inter-Finance PhD Seminar, Macro-Finance Research (MFR) Program (Univ. of Chicago)
Abstract: This paper investigates the impact of reserve tiering, which remunerates different reserve tiers at varying rates, on monetary policy transmission to the loan market. Data from Japan reveals a significant increase in low-interest-rate loans and a decline in medium-interest-rate loans. The analysis indicates that financial institutions’ diverse interest rate exposures to the tiered system drive these changes. Larger, more liquid, and less leveraged banks with lower deposit ratios hold a higher proportion of negative interest rate reserves, while non-depository institutions face de facto negative rates. This enables small banks to secure cheaper funding from non-depository institutions and larger banks through interbank trading, leading to lower-rate loans. Consequently, the loan market becomes riskier as small banks with lower negative rate ratios reduce loan rates, while larger banks with higher negative rate ratios engage in riskier lending practices. Using a heterogeneous agent model to link interbank and loan markets, the study decomposes reserve tiering transmission into liquidity, interest rate, bank interest margin, and loan risk channels, offering policy recommendations for effective transmission. The paper suggests that to cool an overheating economy, the central bank should implement reserve tiering with ascending interest rates, which proves more effective, less costly, and stabilizes the financial system compared to alternatives.
“Beyond the Fundamentals: How Media-Driven Narratives Influence Cross-Border Capital Flows” with Eswar Prasad (Cornell) and Isha Agarwal (UBC) This version: October 2024 [NBER WP #33159 ] [IZA] [SSRN] New!
Selected Presentations: The 1st Workshop on LLMs and Generative AI for Finance (NYU)
Coverage: Infopro Digital Central Banking, Devdiscourse, Allnews.ch
Abstract: This paper offers the first empirical evidence on how domestic media-driven narratives about a destination country shape cross-border institutional investment flows. Leveraging natural language processing techniques on over a million articles from 38 newspapers, we construct sentiment and risk indices based on media narratives about China across 15 economies between 2007 and 2022. Our findings reveal significant cross-country variation in these narratives, driven by differences in both topic coverage and within-topic sentiment. Crucially, media narratives significantly influence portfolio flows, even after controlling for macroeconomic and financial fundamentals. The impact of media narratives on flows is smaller for investors with greater familiarity or private information about China and more substantial during periods of heightened uncertainty. Political and environmental narratives influence investment flows as much as, or more than, economic narratives. These findings suggest that media narratives have a greater influence on investment flows when reliable market data is scarce or challenging to interpret. We also find that media narratives have an asymmetric impact on investment, with investors reacting more sharply to negative narratives than positive ones. These results underscore the important role of media-driven narratives in shaping global capital flows, particularly in an era of intensifying geopolitical and economic uncertainty.
“Monetary Policy Transmission in Euroized Countries: The Experience of Emerging European Economies” with Fazurin Jamaludin (IMF), Florian Misch (IMF), Alex Pienkowski (IMF), Mengxue Wang (IMF), and Zeju Zhu (IMF), forthcoming IMF Working Paper This version: November 2024
Presentations: International Monetary Fund (x2)
Abstract: This paper studies monetary policy transmission in European countries with a significant share of lending and deposits in foreign currency, referred to as ‘euroized economies’. We find that the impact of monetary policy shocks on both inflation and GDP diminishes with the degree of euroization across countries: the effects are twice as high in non-euroized countries compared to countries in our sample with the highest level of euroization. We further examine the exchange rate, credit and interest rate transmission channels which are typically less effective in euroized economies. We show that monetary policy has at best limited effects on the exchange rate. In addition, during the post-pandemic monetary tightening episodes, an increase in foreign-currency loans often softened the decline in overall credit growth, and rates of foreign-currency loans have followed the ECB policy rate rather than the domestic ones. By contrast, our analysis suggests that the pass-through to interest rates of domestic currency loans is similar across countries with different levels of euroization.
Selected Work in Progress:
Abstract: This research investigates the interconnected liquidity dynamics between the US Treasury securities market and the foreign exchange (FX) market, focusing on the effects of market stress events and central bank liquidity policies. Using high-frequency trading data for Treasury securities and the ten most traded currencies against the USD, the study employs an event study methodology to analyze liquidity changes during market stress events and central bank interventions. Preliminary findings indicate a significant pass-through of liquidity shocks from the Treasury market to the FX market, evidenced by declines in currency pair liquidity following Treasury market disruptions. This research underscores the importance of understanding liquidity interactions and provides guidance for policymakers to manage liquidity crises effectively.
Abstract: We study the role of the US dollar exchange rate in shaping the US domestic business dynamism through trade and multi-national production. In a heterogeneous firm trade model with a variable exchange rate, we show that a relatively strong dollar increases net imports and induces higher-productivity firms to operate overseas. Both forces expand the output gap between high-and-low productivity firms, contribute to the rise in mark-up and market concentration, as well as hinder firm entry and growth rate in the domestic market. We then fit our model to bilateral trade and price data for the last three decades to evaluate the impact of the dollar on domestic firm dynamics. Our results point to the important role of the dollar exchange rate in the decline of business dynamism in the US.
“Is Equity Market Liberalization Beneficial? A Close Look at the Qualified Foreign Institutional Investor Program”
Selected Presentations: Emerging Markets Theme PhD Research Day Conference, Third Year Seminar at Cornell University
Coverage: SC Johnson College Businessfeed
Abstract: In 2002, China introduced the Qualified Foreign Institutional Investor (QFII) program, allowing foreign institutional investors to trade RMB-dominated "A-shares." This study examines the micro-level impact of this equity market liberalization event. Using novel firm-level investment data, the analysis reveals that QFII promotes capital investment. Surprisingly, however, the study also reveals significant and enduring decreases in stock prices and earnings per share of firms that receive QFII investment compared to those that do not. Two channels contribute to this puzzling outcome. Firstly, QFII investment increases firms’ confidence, leading them to invest in research and development (R&D), which harms short-term profits. Secondly, the presence of an agency problem arises from QFII investors being less informed to participate in firm management. As a result, managers invest in riskier projects and misallocate funding, which is observed by the market, leading to the withdrawal of funding and a decline in stock prices.
Discussions:
"Market Stabilization through Credit Support: The Effects of the Federal Reserve’s Corporate Bond Purchases on Firm’s Security Insurance Costs'' (Diego Amaya, Madhu Kalimipall, Seyed-Erfan Sadeghi, and Aurelio Vasquez), FMA Annual Meeting 2024
"The Dollar in an Era of International Retrenchment'' (Ryan Chahrour and Rosen Valchev), Insightful Minds in International Macro (IMIM) 2024
"The Carbon Premium and Policy Risk Exposure: A Text-Based Approach” (Sarah Duffy), HEC Economics PhD Conference 2023
"Global Uncertainty and Exchange Rate Conditions: Assessing the Impact of Uncertainty Shocks in Emerging Markets and Advanced Economies" (Helena Glebocki Keefe and Sujata Saha), Eastern Economic Association (EEA) Annual Meetings 2024
Research Experience:
Research Institutions:
Fund Internship Program (FIP), European Department, International Monetary Fund (IMF), 2023
Economic Research Intern, Financing for Development Office, United Nations Department of Economic and Social Affairs (DESA), 2018
Graduate Capstone Consultant, Markets Group, Federal Reserve Bank of New York, 2017
Research Intern, Global Economy and Development Program, The Brookings Institution, 2016
Research Assistantships:
Prof. Ryan Chahrour, Cornell University, 2023
Prof. Eswar Prasad, Cornell University, 2016-2017, 2020-
Prof. Julieta Caunedo, Cornell University, 2020-2021
Prof. Andrew Schotter, New York University, 2019
Research Assistant, The University of Chicago Beijing Center, 2014
Pre-doc Policy Work:
"Negative interest Rates: A Comparative Study of Implementation and Effects across Four Central Banks", with Tara Pandalai, Cassidy Daly, Qiuyuan Huang, David Lowe and Frederik Hermann, Capstone Project for Federal Reserve Bank of New York, May 2017.
"Rebalancing Global Economic Governance: Opportunities for China and the G20 Beyond 2015", United Nations Development Programme (UNDP) Report, February 2015.
"Renminbi - from Refusing Appreciation to Refusing Devaluation", with Dongsheng Di (Renmin University of China), Global Times, February 2015.