Research

Working Papers

Global Portfolio Network and Currency Risk Premia, R&R at Journal of International Economics

Peter Sinclair Price for Best Paper at MMF PhD Conference

I derive a measure of network centrality, where central countries are those highly integrated with key suppliers of tradable financial assets. The position of countries in a network of external portfolio investments serves as a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. Currency risk premia decrease as network centrality increases. Asset pricing tests show that the centrality risk factor is priced in the cross-section. Furthermore, negative payoff shocks appreciate (depreciate) central (peripheral) currencies. In a consumption-based model, central countries experience lower consumption growth in bad times, leading to currency appreciation.

FX Dealer Constraints and External Imbalances (with Stefan Eichler) 

We empirically test Gabaix and Maggiori (2015)'s prediction that currencies are repriced by the country's external capital dependence when financial constraints of FX intermediaries change. Using solvency indicators, we develop a novel intermediary constraints index capturing risk-bearing capacity. We find that constraints are a priced risk factor in currency portfolios sorted by countries' net foreign assets. Portfolios of external debtors (creditors) have higher (lower) intermediary risk premia, but pay lower (higher) returns when constraints tighten. Tightening constraints are associated with a depreciation of countries with low net foreign assets, particularly emerging markets with high net debt and low FX reserves.

Protectionist U.S. Trade Policies and the Cross-Section of Emerging Market Currency Returns (with Stefan Eichler), R&R at Emerging Markets Review

This paper analyzes the impact of expected US protectionist trade policies on the cross-section of emerging market exchange rates, using intraday data from US presidential TV debates from 1996 to 2016 as exogenous shocks. Currencies depreciate when the protectionist candidate wins the debate, with stronger effects for countries with more exports to the US. We investigate the cross-sectional heterogeneity in exchange rate responses using a comprehensive set of macroeconomic fundamentals and policy instruments. Large and segmented financial markets, as well as limited bilateral financial ties to the United States, help reduce exposure to protectionist shocks. Suggestive evidence indicates that substantial foreign exchange (FX) reserves, FX interventions, and active capital account management can mitigate adverse exchange rate effects in response to protectionist shocks. There are no significant differences across geographic regions in the exposure to protectionist shocks.

The Impact of Eurozone Exit Risk on Banks and Non-Financial Firms (with Stefan Eichler and Ingmar Rövekamp)