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

“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”
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 (latest update 10/11/2023)

“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 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.

Works in Progress

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