Working Papers

BigTech Credit and Monetary Policy Transmission: Micro-level Evidence from China, with Yiping Huang, Xiang Li, Han Qiu. 

• Abstract: This paper studies monetary policy transmission through BigTech and traditional banks. By comparing business loans made by a big tech bank with traditional banks, we find that BigTech loans tend to be smaller, and BigTech bank grants credit to more new borrowers than conventional banks responding to expansionary monetary policy. Advantages in information,  monitoring and risk management of BigTech banks are the potential mechanisms.  On the other hand, BigTech and traditional bank credits to firms that have already borrowed from these banks respond similarly to monetary policy changes. Overall, BigTech credit amplifies monetary policy transmission mainly through this extensive margin. In addition, monetary policy has a stronger impact on the real economy through BigTech lending than traditional bank loans.

The US as the Global Equity Safe Haven, with Zefeng Chen, Yintao He, Zhiquan Shao (CICF Xiyue Best Paper Award 2026)

• Abstract: We systematically document a flight-to-US phenomenon in the global equity market when global volatility soars, using portfolio holdings of globally investing active equity mutual funds with total size of over 2 trillion USD. We find that at the fund-stock level, a fund would on average rebalance to a US stock by 2% of this position relative to a non-US stock contemporaneously under one unit increase of the log VIX index, before reaching its peak of 9.1% after 4 quarters. The rebalance to US is mostly offset by withdraw from the emerging markets. Funds experience better ex-post return by engaging in rebalancing than hypothetically not rebalancing in the short run, but this effect diminishes after 8 quarters. We interpret the empirical findings using a stylized model featuring asymmetric balance sheet capacity between US and non-US liquidity providers that generate a convenience value of US stocks. When volatility rises, mutual funds rebalance to US to lower their potential fire sale cost, thanks to the better balance sheet capacity of US liquidity providers leading to a lower haircut for US stocks.

Banking in Production Networks: Evidence and Theory from Supply Chain Finance, with Wukuang Cun, Dongmei Guo, Junjie Xia

• Abstract: This paper investigates how coordination between lenders influences the loan supply to firms within industrial chains. Utilizing Chinese firm-level data, we demonstrate that the financing activities of firms within the same industrial chain are more highly correlated when these firms are connected to the same bank, compared to when they are connected to different banks. Firms that share a common bank with their business partners along the industrial chain tend to borrow more frequently and exhibit higher leverage. Additionally, using granular loan-level data for supply chain finance from a major commercial bank in China, we provide evidence on how banks coordinate loan supply to their customers within industrial chains through internal management processes. To explain our findings, we propose a model of industrial chains with relationship banking that aligns with the empirical evidence. We show that when lenders are branches of the same bank and coordinate their lending decisions, they extend more credit to firms, leading to a more stable loan supply. Our paper offers new insights to the discourse on how credit supply can facilitate industrial supply chains. 

Monetary Policy and Endogenous Crisis Contagion across Borders, with Frédéric Boissay and Guangyu Nie, HKIMR WP No. 17/2025

• Abstract: This paper studies a two-country monetary model with an endogenous financial crisis. The financial crisis is induced by a domestic credit crunch, which is tied to the real return on capital in a country. In an open economy environment, we find that exchange rate movements and pass-throughs, the degree of international risk sharing, trade openness, and monetary policy stance in a country significantly affects crisis contagion across borders. A negative supply-side shock in the home country reduces the price of foreign goods, which in turn lowers capital returns in the foreign country, and consequently a crisis may follow. A lower degree of trade openness reduces crisis contagion. A more aggressive ‘leaning against wind’ monetary policy may result in a crisis in both countries due to a demand contraction and exchange rate movements. International risk sharing could hedge moderate shocks but may also generate financial contagion. Limited exchange rate pass-through under LCP may lead to a crisis spillover as well. 

The Power of Commitment and Optimal Capital Controls, with Guangyu Nie and Yunxiao Zhao

• Abstract: This paper examines whether governments strategically use capital controls to influence the intertemporal terms of trade, i.e., the rates of return on cross-border lending and borrowing. We develop a two-country dynamic model to compare optimal capital control policy under commitment versus discretion. Under discretion, the planner over-manipulates intertemporal prices by aggressively linking capital controls to net foreign assets, generating welfare losses relative to laissez-faire. In contrast, a Ramsey planner with commitment balances current and future price management; the resulting controls are less responsive to asset positions and deliver welfare gains, even though they are time-inconsistent. Using political constraints as a proxy for commitment power, we find that capital controls co-move strongly with net foreign assets only in countries with high policy discretion. Our results suggest that a lack of commitment drives strategic financial competition and produces inefficient global capital allocations.

Trade War Shocks, Inflation Compensation, and Price Stability, with Muhammad Ali Nasir and Xinxin Wei

• Abstract: The U.S.-China trade war has crucial, yet less understood and underexplored implications for price stability. This paper analyses the effects of U.S.--China trade-war shocks on market-based inflation compensation and price stability. We identify trade-war shocks using event day heteroskedasticity, exploiting the rise in the variance of financial-market innovations on major trade-war announcement days relative to non-event-days. Using daily U.S. data from January 2016 to February 2026, we estimate a structural system including inflation compensation, equity returns, the ten-year Treasury yield, the VIX, and credit spreads. The identification results are consistent with a strong rank-one shift in the residual covariance matrix, supporting the presence of a dominant structural trade-war shock. We further examine how these effects vary with policy uncertainty, shock persistence, the sign of trade-war news, political regimes, and the decomposition of inflation compensation into expected-inflation, TIPS-liquidity, and residual-premium components. Trade-war shocks lower inflation compensation, depress equity prices, reduce long-term nominal yields, raise volatility, and widen credit spreads. The decomposition evidence suggests that the decline in inflation compensation is driven mainly by expected-inflation and residual-premium components, while the estimated TIPS liquidity component plays only a minor role. This joint pattern suggests that financial markets interpret trade-war shocks primarily through weaker growth expectations and higher risk premia rather than persistent cost-push inflationary pressure. Overall, our results highlight how trade policy uncertainty shapes inflation compensation and the broader macro-financial environment.