Job Market Paper
Accounting for different types of capital flows, this paper studies whether monetary policy in emerging market economies should be prudential—i.e., deviate from price stability to induce agents to borrow less and hold more insurance during tranquil times. I develop a New Keynesian open economy model in which agents can trade a variety of international assets subject to a collateral constraint. I derive a set of theoretical results, then calibrate the model and conduct a quantitative analysis. I find that there is no scope for prudential monetary policy if either (1) the government can regulate both the level and composition of capital inflows or (2) commitment is not possible and the government can only regulate the volume but not the composition of flows. Otherwise, monetary policy should be prudential, though it is less effective than capital controls, especially without commitment. Compared with single-bond setups, having multiple securities further reduces monetary policy’s capability to act in a prudential manner due to portfolio rebalancing towards riskier assets. These results suggest that macroprudential instruments that target both the level and composition of capital inflows are an essential part of an optimal policy mix. When capital controls are not available, committing to a simple inflation targeting rule delivers higher welfare than discretionary prudential monetary policy.
Working Papers
International Monetary Policy Transmission Through Real Debt Revaluation
This paper shows that countries with a larger share of dollar-denominated external liabilities than the share of dollar-denominated goods in their consumption are more exposed to a US monetary policy shock, as they experience higher real debt revaluation. Employing an event-study methodology and using high-frequency Federal Reserve monetary policy shocks, I find that this real debt revaluation channel captures responses of the monetary policy rate, exchange rate, and currency premium to US monetary policy in the sample of 31 countries between 1995 and 2017. In the event of a contractionary US monetary policy, countries with a larger dollar share in external debt than in imports experience (1) a greater increase in domestic monetary policy rate, (2) more depreciation in their currencies, and (3) a higher currency premium. Then, to rationalize these findings, I develop a small open economy model with nominal rigidities and international financiers with limited risk-bearing capacity.
Work in Progress
Financial Stability and Optimal Policy with Heterogenous Agents (with Eric Young)
To what extent do income inequality and nonhomothetic preferences change optimal ex-ante (in tranquil times) and ex-post (in a financial crisis) policy design in open economies? We explore this question within the context of a small open economy model featuring heterogenous workers and financial intermediaries. The intermediaries borrow from abroad and are subject to a credit constraint. In the model, there are three types of policy instruments: monetary policy (exchange rate), fiscal policy (redistributive taxes), and macroprudential measures (capital controls). In a tractable version of the model, we first derive analytical results, then extend the model and conduct a quantitative analysis.
Infrequent Portfolio Adjustment and Global Financial Cycle
Spillovers from Sactions: Evidence from Turkey
Policy Papers
"Central Bank Digital Currencies and International Currency Configuration", joint with IMF SPR Strategy Unit, IMS Team (2021)
"Cross-country Analysis of Program Design and Growth Outcomes" joint with IMF IEO Unit, Background Paper for “Adjustment and Growth in IMF-Supported Programs” (2020)