Ongoing Research

Abstract: We propose an empirical strategy based on a shift-share approach to identify bank-level institutional funding shocks in the collateralized loan obligations (CLO) market. We apply our methodology to study the effects of CLO funding on bank riskiness. We find that bank riskiness decreases for two quarters in response to a positive shock to CLO funding. Banks increase the origination of institutional loans, while retaining lower amounts of loans on their balance sheets. This reduces exposure to credit risk. At the same time, banks use resources more efficiently, as the generation of non-interest income and the overall income generation process strengthen. The performance of the retained loans also marginally improves, further strengthening banks' financial positions. 

Abstract: We estimate the effects of unconventional monetary policy on firms' labor demand. Using two policy discontinuities of the Secondary Market Corporate Credit Facility (SMCCF), we show the SMCCF increased vacancies by 42% for fallen angels, and was associated with a 23% and 19% increase for BBB and A firms. Every $1 million purchase implies a 7.1%, 3.9%, and 2.7% increase, respectively, implying approximately $5,000 purchase per additional vacancy. Eligible firms experienced increases in borrowing, expenditure, and market value without being liquid constrained, consistent with the SMCCF providing liquidity to the firms.

Abstract: We study the interactions between cryptocurrencies, stock markets, and economic policy uncertainty (EPU) by means of a Factor-Augmented Vector Autoregressive (FAVAR) framework. We rely on two market factors to model the comovements of returns within cryptocurrencies and stock markets. We document a greater heterogeneity across cryptocurrencies than stocks, with a fragmentation of the market by functional characteristics of the projects. We then use a structural analysis to explore cross-market spillover effects and how EPU affects the two markets. We find that stock returns positively respond to crypto shocks, but not vice versa. We also find that the effect of EPU on crytpo returns depends on the originating region of the policy uncertainty, with cryptocurrencies providing a safe haven against the Chinese, but not the U.S., EPU. 

Abstract: Central Banks around the globe are researching, developing, and even deploying digital currencies that have the power to foster economic growth and prosperity for citizens while preserving monetary value and maintaining flexible governance.  Compared to other digital currency proposals, the CBDC design proposed by Algorand in this report is simpler and more economical to implement and manage for central banks at scale. Building on their 2021 research report, experts from across the Algorand ecosystem have come together again to share their latest findings on CBDCs and educate public leaders facing the reality of blockchain. Notably, this report includes a new section focused on the benefits of Central Bank digital currency in the digital age. 

Abstract: In many developing countries, rapid urbanization often led to an urban expansion pattern that exhibit the sprawling patterns observed in developed country. However, we know little about the determinants of urban sprawl in developing countries. We study the determinants of urban sprawls in Indonesia between 2000 and 2010. We combine a new spatial dataset on urban built-ups in East Asia produced by the World Bank with Indonesia's village census and other satellite data on climate, geographic characteristics, and agricultural yields. We study the role of geographic and climatic factors, as well as socio-economic variables and amenities in determining the pattern of urban expansion and sprawling. Interestingly, we find significant differences in the determinants of sprawl between regions at different stages of economic development within Indonesia. 

Abstract: This paper presents an international real business cycle model with endogenously determined portfolio allocations under incomplete markets. It jointly studies the properties of the portfolio side of the economy, which includes the valuation effects, asset returns and portfolio allocations, along with the more typical international macro variables. The model generates a substantial portfolio home bias because, for small values of the elasticity of substitution between domestic and foreign goods, home assets provide a good hedge against movements of international prices, which make home physical capital lose value in response to productivity shocks. The model generates also an adequate amount of assets' valuations, but does not resolve the Backus-Smith puzzle for standard parameterizations. 

Abstract: Previous studies on the inflation globalization hypothesis have examined this question primarily at the individual-country level. However, a panel approach seems quite appropriate as globalization measures, such as trade openness, often exhibit considerable cross-sectional variation. We investigate the relationship between inflation and globalization, under an open-economy Phillips Curve framework, for a panel of OECD countries with the dynamic panel GMM methodology developed in Arellano and Bond (1991). Using this framework, we find strong evidence in favor of including global factors, represented by the foreign output gap, in the domestic inflation process. We further augment the dynamic panel model with a threshold component (Hansen, 1999), and so are able to identify regions of stronger responsiveness of inflation to global factors. Based on our non-linear analysis, we show that trade openness acts as a threshold variable for the effects of domestic and foreign slack on inflation. Importantly, the switch in the output gap slopes from one regime to the other is consistent with the key predictions of the inflation globalization hypothesis, so that in more open economies the foreign output gap replaces the domestic output gap as the key determinant in the domestic inflation process. 

Abstract: This paper presents a laboratory experiment that directly tests the theoretical predictions of consumption choices under rational inattention. Subjects are asked to select consumption when income is random. They can optimally decide to reduce uncertainty about income by acquiring signals about it. The informativeness of the signals directly relates to the cognitive effort required to process the information. We find that subjects' behavior is largely in line with the predictions of the theory: 1) Subjects optimally make stochastic consumption choices; 2) They respond to incentives and changes in the economic environment by varying their attention and consumption; 3) They respond asymmetrically to positive and negative shocks to income, with negative shocks triggering stronger and faster reactions than positive shocks.