Research

Publication

• Bu, Chunya, John Rogers, and Wenbin Wu (2021). "A Unified Measure of Fed Monetary Policy Shocks " . Journal of Monetary Economics, 118, 331-349.     [Data: BRW Shock Series]

Abstract: We develop a U.S. monetary policy shock series that stably bridges periods of conventional and unconventional policymaking, is largely unpredictable, and contains no significant central bank information effect. We attribute differences between our measure and often-used alternatives to our econometric procedure, a partial least squares approach, and our using the full maturity spectrum of interest rates in estimating the shock. We find that shocks to our monetary policy series have particularly large effects on maturities in the middle of the term structure and produce conventionally-signed impulse responses of output and inflation.

Working Papers

• Bu, Chunya (2023). "Firm Default Risks and Exchange Rate Puzzles".  

Abstract: Imperfect international risk sharing stems from imperfectness in the financial market.  This paper introduces micro-founded financial frictions into a standard international real business cycle model to quantify their effects on risk-sharing with micro-level data. One empirical evidence of frictional consumption risk sharing is the Backus-Smith puzzle (Backus & Smith, 1993)      --- real exchange rates is negatively correlated with cross-country consumption growth. In my model, demand effects induced by firm-level financial frictions are able to account for the puzzle. Moreover, I derive a novel empirical moment from the micro-foundation to quantify the transmission of financial frictions. I estimate the moment from bond-level data. Disciplined with my estimations and moments of macro variables, the model is consistent with international business cycle properties, and resolve the Backus-Smith puzzle.  

• Bu, Chunya, John Rogers, and Wenbin Wu (2020). "Forward-Looking Monetary Policy and the Transmission of Conventional Monetary Policy Shocks," Finance and Economics Discussion Series 2020-014. Board of Governors of the Federal Reserve System (U.S.).

Abstract: Standard structural VAR models and estimation using Romer and Romer (2004) monetary policy shocks show that, in samples after the 1980s, a contractionary conventional monetary policy shock generates smaller and sometimes perversely-signed impulse responses compared to earlier samples. Using insights from the central bank information effects literature, we show that the analyses producing these results suffer from an omitted variables problem related to forward-looking information emanating from Federal Reserve forecasts. Transmission of conventional monetary policy shocks takes on the standard signs, and is typically significant, once Fed forward-looking information is taken into account. This reconciliation does not follow from adding private sector forecasts to the estimation frameworks.

Work in Progress

• Bu, Chunya (2023). "Sovereign Risks Priced in Corporate Bonds".

Abstract: This paper provides evidence of "Twin Ds" - rise of sovereign risks followed by currency depredations - for the Euro-area. We propose a new measure of sovereign risks as the spread premium of EU firms over the average spreads in the US dollar bond market. Firm credit risks are carefully eliminated by focusing on EU firms issuing bonds in both USD and EUR, and controlling the firm fixed effect. This sovereign risk measure is closely correlated with the bilateral spot exchange rate. USD appreciates against EUR when the EU sovereign risks are high. A structural VAR model shows that a 100 basis-point positive country risk shock leads to around 200 basis-point decreases in the 1-month ahead spot exchange rate of USD to one EUR.

Policy Work

•  World Economic Outlook (2021, October). International Monetary Fund.