Selected Working Papers


Screen More, Sell Later: Screening and Dynamic Signaling in the Mortgage Market (with Manuel Adelino and Feng Zhao) [PDF]

We build on previous work and provide a dynamic model of asset markets with asymmetric information where higher originator screening effort leads to more signaling through delay of sale. We test this theoretical prediction using the mortgage market as a laboratory and processing time as a measure of screening. Our findings are threefold: First, and in line with the theory, mortgage processing time and the delay of sale after origination are strongly positively related in the data. Second, processing time is longer for mortgages with higher ex ante credit risk, i.e., observably riskier loans are processed slower. Finally, both processing time and delay of sale are negatively related to conditional mortgage default, indicating that more screening effort leads to unobservably higher quality loans that are also sold with a longer delay.


Forward Guidance and Its Effectiveness: A Macro-Finance Shadow-Rate Framework? (with Junko Koeda) [PDF]

Forward guidance provides monetary policy communication for an economy at the effective lower bound (ELB). In this paper, we consider both calendar- and outcome-based forward guidance about the timing of liftoff. We develop a novel macro-finance shadow rate term structure model by introducing unspanned macro factors and an outcome-based liftoff condition. We estimate the model using the maximum likelihood method with extended Kalman filter. Based on the estimation results, we show that outcome-based forward guidance is indeed effective and has significant monetary easing effects on the real economy in both ELB periods of the global financial crisis (GFC) and the COVID-19 pandemic. In particular, we find that the overall impact on the unemployment rate is about 0.8% during both the GFC and the pandemic, but outcome-based forward guidance contributes more in the former than in the latter ELB period (about 0.30% versus 0.15%).


Quantifying Forward Guidance and Yield Curve Control (with Junko Koeda) [PDF]

This paper evaluates the effectiveness of Japanese unconventional monetary policies over the past quarter century within a unified term structure framework. Forward guidance accounted for most of the policy impact in the early stages of unconventional monetary policies and remained influential throughout. YCC, since its introduction in 2016 until March 2022, contributed to over a third of the policy impact.


Quantifying "Quantitative Tightening" (QT): How many rate hikes is QT equivalent to? [slides]

In this paper, we examine the question of quantifying how many interest rate hikes “quantitative tightening” (QT) is equivalent to. We estimate that a $2.2 trillion passive roll-off of nominal Treasury securities from the Federal Reserve’s balance sheet over 3 years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times, but 74 basis points during crisis periods. 


The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF (with Simon Gilchrist, Vivian Z. Yue, Egon Zakrajsek) [PDF] 

We evaluate the efficacy of the Secondary Market Corporate Credit Facility (SMCCF), a program designed to stabilize the corporate bond market in the wake of the Covid-19 shock. The Fed announced the SMCCF on March 23 and expanded the program on April 9. Regression discontinuity estimates imply that these announcements reduced credit spreads on bonds eligible for purchase 70 basis points. We refine this analysis by constructing a sample of bonds—issued by the same set of companies—which differ in their SMCCF eligibility. A diff-in- diff analysis shows that both announcements had large effects on credit spreads, narrowing spreads 20 basis points on eligible bonds relative to their ineligible counterparts within the same set of issuers across the two announcement periods.The March 23 announcement also reduced bid-ask spreads ten basis points within ten days of the announcement. By lowering credit spreads and improving liquidity, the April 9 announcement had an especially pronounced effect on “fallen angels.” The actual purchases lowered credit spreads by an additional five basis points and bid-ask spreads by two basis points. These results confirm that the SMCCF made it easier for companies to borrow in the corporate bond market. 


Ambiguity, Long-Run Risks, and Asset Prices 

We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences and time-varying ambiguity. The generalized LRR model matches reasonably well key asset pricing moments, particularly those of the variance premium , with risk aversion under 5.