The Effect of U.S. Monetary Policy on Foreign Firms: Does the Debt Maturity Structure Matter? with Sebastiao Oliveira and Pedro Simon
Revise and Resubmit, Journal of International Economics
We provide novel evidence that corporate debt maturity plays an important role in transmitting U.S. monetary policy to foreign firms. Using the ex-ante maturity structure of long-term debt to predict firms' financial position in a given year, we show that firms with a high proportion of long-term debt maturing right after a contractionary shock experience a more pronounced decrease in investment and sales than other firms. We find that firms in emerging economies are more affected by these shocks than those in advanced economies, and the amplification effect of U.S. monetary policy shocks by financing constraints is present only in emerging economies. We confirm these results using a new dataset that includes firms' balance sheet data and detailed bond information. Our findings suggest that refinancing constraints significantly amplify the international transmission of U.S. monetary policy.
Local Currency Debt and Sovereign Rollover Risk
(with Jaewon Choi , Sebastiao Oliveira, and Josef Zechner)
Using granular bond-level data for emerging-market sovereign debt, we construct country-specific maturity structures and document four novel stylized facts: (1) a negative relationship between average maturity and the share of local currency debt; (2) a sustained decline in average local-currency debt maturity; (3) a rise in rollover risk with substantial cross-country and time variation; and (4) a significant negative relation between rollover risk and corresponding bond and CDS spreads. Using plausibly exogenous capital flow shocks, we show that their effects on exchange rates, bond prices, and CDS spreads are significantly amplified in high rollover-risk countries, underscoring the lasting effects of “original sin”.
Spillover of US Monetary Policy to Asian Economies via Production Networks Channel
This paper studies the impact of US monetary policy on a group of open economies' stock returns through the lens of production networks. The empirical analysis of this paper is motivated by a simple conceptual framework of a static model of a multi-country, multi-sector economy in which firms at the country-sector level use intermediate inputs as a factor of production. From the model's solution, I motivate using the Spatial Autoregression model as an empirical tool to decompose US monetary policy shock on Asian countries' stock markets into the direct and production network effect. I find that production networks among Asian countries and the US are a significant channel of US monetary policy transmission to Asian economies. Specifically, I find the production network effect can explain 64% of the portion of the movement that I can explain.
Intergenerational effect of education on health behavior: Evidence from mass school construction in Indonesia (with Siho Park)