Research
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Research Interests
Macro-Finance, Macroeconomics, Econometrics, Chinese Development, Replication in Economics
Publications
Li, D., Chen, X., Wohlfarth, P. (2022). Public Participation, Investment Networks, and China's Outward FDI: Evidence from 58 Countries along the Belt and Road. Emerging Markets Review. https://doi.org/10.1016/j.ememar.2022.100887
Abstract: We estimate the effect of public participation in host countries on Chinese outward FDI (OFDI) for a panel of 58 countries along the Belt and Road from 2004 to 2019 in a Heckman selection model. Our model captures effects along both, extensive and intensive margins. We find that public participation, and the differences between public participation in home and host countries, significantly affect Chinese OFDI. Effects are sensitive to the presence of access to local investment networks and change after the introduction of the Belt and Road Initiative.
Chen, X., Wohlfarth, P., Smith, R.P. (2021). China's Money Demand in a Cointegrating Vector Error Correction Model. Journal of Asian Economics Vol. 75 (August 2021). https://doi.org/10.1016/j.asieco.2021.101338
Abstract: This paper estimates open-economy macroeconomic models of the Chinese economy allowing for the structural change caused by the 1992 reforms. Unrestricted vector autoregressions, VARs, and cointegrating vector error correction models, VECMs, are estimated on quarterly data for the early reform period 1980-1992, and the late reform period, 1993-2018. Two long-run cointegrating vectors are identified, which can be interpreted as a long-run, money demand function and a long-run IS type income equation driven by export demand. The 1992 reforms involved a move to a more market oriented system and a transformation of financial institutions and this seems to be responsible for a change in the direction of effect of interest rates in both the IS and LM relationships.
Wohlfarth, P. (2018). Measuring the Impact of Policy Attention on Global Asset Volatility Using Search Data. Economic Letters. Volume 173 (December 2018). https://doi.org/10.1016/j.econlet.2018.08.009
Abstract: We study monetary policy introducing a novel index for policy attention based on daily Google Trends data. This index is used in a high-frequency analysis of volatility spill-overs on US and European fixed income markets. Policy attention contains significant information on asset variances and the international transmission of policy.
Working Papers
Wohlfarth, P. and Chen, X., (2024). Limits to Arbitrage and the Term Structure of CIP Violations. (revise and resubmit, Journal of International Financial Markets, Institutions and Money)
Abstract: We investigate the existence of a term structure in cross-currency swap bases, a measure for CIP violations, to identify limits to arbitrage in foreign exchange swap markets. Based on estimates from a multivariate model of USD cross-currency bases for G10 currencies that caters for a number of known intermediary constraints as well as linkages between currency pairs our findings highlight the importance of two-tiered arbitrage, risk aversion, regulation, and policy in explaining this term structure of CIP violations.
Lei, Z., Chen, X., Wohlfarth, P. (2024). Green Bonds and Bank Competition in China (under review, Emerging Markets Finance and Trade).
Abstract: We propose a parsimonious theoretical framework wherein bank competition (BC) can impact green bond returns via influencing investors’ green preferences. We argue that bank competition has the potential to mitigate information asymmetry linked to green investments, particularly in terms of addressing risks associated with the lack of transparency in green bond markets. We obtain empirical estimates based on daily frequency trading data in the Chinese green bond market using GARCH models, that cater for conditional volatility and asymmetry of the shocks. Our results show that an increase in bank competition increases green bond returns by reducing its variance. These results carry crucial implications for green bond pricing, investor portfolio diversification and policy making.
Li, X., Chen, X., Wohlfarth, P. (2022). Determinants and Spatial Dependencies of Financial Inclusion along the Silk Road Economic Belt (under review, Journal of Asian Economics).
Abstract: We investigate the development of inclusive finance in central and western China along the Silk Road Economic Belt (SREB). For this, we develop an inclusive financial development index for 30 Chinese provinces and 43 prefecture-level cities in the 9 provinces along the silk road economic belt for data from 2007-2017. Overall we find mixed effects of a number of supply and demand factors on financial inclusion that suggest the presence of crowing-out effects of fiscal expenditure and highlights the importance of the wider financial services industry for financial inclusion. Using time and spatial treatment indicators, we find significant positive effects following the announcement of the Belt and Road Initiative. Results from a number of spatial correlation models suggest that financial inclusion reduces poverty and is subject to direct spill-over as well as diffusion effects. The relationship between poverty and financial inclusion is u-shaped, with most prefectures being above the minimum.
Chen, X., Wohlfarth, P. (2019). Drivers of Bank Loan Growth in China
Abstract: We analyse the effect of monetary policy on dynamic covariances on global fixed income markets, using a novel measure for monetary policy attention based on Google Search data. We filter covariances using a Dynamic Conditional Correlation model as baseline case and a BEKK model as well as a long-memory exponential smoother proposed by RiskMetrics for robustness. We find evidence for direct impact of policy on both asset variances and covariances domestically and internationally, supporting both signalling and portfolio rebalancing channels in the context of international policy transmission.
Abstract: This is a partially successful replication of an empirical test on the Tiebout Hypothesis by Spencer Banzhaf and Randall Walsh (2008). Although I was not able to fully replicate their findings, Banzhaf and Walsh’s conclusion is not called into question.