Research

Working Papers

Global Portfolio Network and Currency Risk Premia 

Peter Sinclair Price for Best Paper at MMF PhD Conference

The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable financial assets. Currency risk premia decrease as network centrality increases. Asset pricing tests confirm that the centrality risk factor is priced in the cross-section. Further, negative global shocks appreciate central countries' currencies and depreciate peripheral ones. In a consumption-based capital asset pricing model, central countries experience lower consumption growth in high marginal utility states, 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.

Exchange Rate Responses of Emerging Markets to Expected Protectionist U.S. Trade Policies (with Stefan Eichler)

This paper analyzes how expectations about US protectionist trade policies affect the cross section of emerging market exchange rates, using intraday data from US presidential TV debates in the period 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. High foreign exchange reserves, capital controls, and low capital account openness mitigate depreciation, while high bilateral US equity holdings, and smaller financial systems amplify it. Regionally, Latin American currencies experience significant depreciation, highlighting the region's vulnerability to trade policy uncertainty.