Publications

“Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle” - Journal of International Economics, V. 136, May 2022
with Anusha Chari and Kristin Forbes

“Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows” - Review of Financial Studies, V. 34, Issue 3, Mar. 2021
with Anusha Chari and Christian Lundblad

Working Papers

“Unconventional Monetary Policy and the (In)convenience of Treasuries” (early stage - available on request)
with Andrew Hanson

Using high frequency data, we find that spillovers to the U.S. yield curve from the European Central Bank (ECB) increased following the Global Financial Crisis, and strengthened when the U.S. normalized policy out of sync with other advanced economies. We show that these spillovers, which chiefly affect term premia, were amplified by a contemporaneous waning in the ``convenience'' of Treasuries that heightened their substitutability with European sovereign bonds. Among drivers of the convenience yield, higher Treasury issuance, lower intermediation capacity, and deviations of expected inflation from target are all associated with larger spillovers. These findings provide evidence for a portfolio balance channel of transmission that is time-varying based on the nonpecuniary characteristics of Treasuries. We rationalize these facts using a two-country model of preferred habitat investors, where time-varying price-elasticity in demand for Treasuries gives rise to time varying spillovers.

“How High Does High Frequency Need to Be? A Comparison of Daily and Intradaily Monetary Policy Surprises” - FRBKC RWP 25-03
with Phillip An and Amaze Lusompa

This paper investigates the usefulness of daily data in measuring high-frequency monetary policy surprises, comparing various announcement-day asset price changes with their intradaily (30-minute) counterparts. We find that both frequencies are similarly distributed and often highly correlated, particularly for longer-horizon measures. In testing daily shocks for systematic contamination from non-monetary policy news, we find no evidence to suggest that contemporaneous news releases bias their measurement. Empirical applications, including high-frequency passthrough to Treasury yields and proxy SVAR models, suggest that daily shocks produce results comparable to those obtained with intradaily data. These findings suggest that although intradaily data remains invaluable for certain applications, daily data offer a practical and robust alternative for assessing monetary policy shocks, particularly when the event or reaction extends beyond a narrow window or when intradaily data is unavailable or infeasible.

“Global Fund Flows and Emerging Market Tail Risk” - NBER WP 27927
with Anusha Chari and Christian Lundblad

This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the tails of the distribution. Further, while there are some differences in the effects across bond vs. equity markets and flows vs. asset returns, the effects associated with the worst realizations are generally larger than that on the median realization. We apply our methodology to the COVID-19 shock to examine the pattern of flow and return realizations: the sizable risk-off nature of this shock engenders reactions that reside deep in the left tail of most relevant emerging market quantities.

“Risk-On Risk-Off: A Multifaceted approach to Measuring Global Investor Risk Aversion” - FRBKC Research WP 24-12
with Anusha Chari and Christian Lundblad

The concept of "risk-on risk-off" (RORO), frequently referenced since the global financial crisis, remains ambiguous. In this paper, we more precisely define RORO as an indicator of variation in global investor risk aversion. By creating a comprehensive high-frequency index, we capture variation in risk appetite across multiple dimensions, including advanced economy credit risk, equity market volatility, funding conditions, and currency dynamics. Our RORO index exhibits risk-off skewness and pronounced fat tails, which amplify the potential for extreme and destabilizing events, as observed during the global financial crisis and the COVID-19 pandemic. When compared with the conventional VIX measure, our RORO index encompasses a broader spectrum of risk factors, the significance of which change over time. This underscores the multifaceted nature of risk and highlights the diverse origins of investor sentiment. Additionally, we demonstrate practical applications of the RORO index, highlighting its significance in international portfolio reallocations and return predictability. RORO Index Dataset

spillovers.

“Central Banker to the World: Foreign Reserve Management and U.S. Money Market Liquidity” - FRBKC Research WP 22-08

We develop a model in which U.S. money market spreads respond to foreign central banks' exchange-rate management decisions. Foreign central banks remove liquidity from U.S. money markets and cause spreads to widen by selling Treasuries to supply liquidity to their financial systems. Our analysis focuses on the major oil exporting countries with fixed exchange rates because their foreign-exchange market interventions are straightforward to characterize. Our regression analysis shows that shifts in the central banks' demand for dollar liquidity related to oil price volatility are associated with significantly higher overnight spreads in domestic money markets. A one-standard deviation increase in the demand for dollar liquidity by a central bank in an oil-exporting country leads, on average, to three billion dollars of Treasury sales and a two to six basis point increase in U.S. money market spreads. At the same time, deposits held with the Federal Reserve increase in response to this higher oil-price volatility, which is consistent with the model's predictions. This evidence indicates that the widespread use of the U.S. dollar as a reserve currency acts as a channel that can propagate funding shocks from the rest of the world to the United States.

“Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve” - FRBKC Research WP 19-09

This paper examines unconventional monetary policy (UMP) spillovers between advanced economies, exploiting the asynchronous timing of policy normalization to shed light on the term structure implications of UMP divergence. Using high frequency data to identify monetary policy and contemporaneous news, I find that spillovers increase during UMP and strengthen during asynchronous normalization. Using a shadow rate term structure model, I find that international spillovers manifest through term premia, particularly at the effective lower bound. Identifying target, forward guidance, and Quantitative Easing (QE) shocks suggests term premium effects arise from QE and forward guidance, while target shocks do not generate

Works in Progress

“US Monetary Policy and Equity Markets: Evidence from Security Level Data”
with Ricardo Correa, Horacio Sapriza and JC Gozzi Valdez