Rashad Ahmed - Research

Stablecoins are money-like tokens residing on distributed ledgers that promise par convertibility to a sovereign unit of account, largely the US dollar. We model the strategic interaction between stablecoin holders and a stablecoin issuer, focusing on the role of transparency and public information about the reserves stablecoin issuers hold to lend credibility to their promise, as well as the perceived volatility of those reserves. The effect of public disclosure on run risk is ambiguous: Greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about collateral quality or transaction costs of conversion to fiat. If the distribution of collateral assets is fat-tailed, reserves are highly volatile and the stablecoin can enter a "ripe for run" region: par convertibility is resilient to small shocks to collateral value but breaks down in the face of large negative public shocks, even for high initial collateral values. Using a synthetic control approach to address endogeneity concerns and several case studies, we find empirical support for the testable implications of the model.

Foreign-borne Interest Rate Risk: Effects of Foreign Deposits on Monetary Policy and Bank Balance Sheets

Foreign deposits are a key funding source for US commercial banks but subject to a different degree of interest rate risk than domestic deposits. Specifically, foreign deposit betas are significantly larger than domestic deposit betas, implying that the former has shorter effective duration. Rising foreign deposit shares therefore increase the pass-through of monetary policy to bank funding costs and shorten the duration of bank liabilities. Causal evidence exploiting granular bank-level foreign deposits suggests that banks respond to duration mismatch from rising foreign deposit shares by reducing holdings of US Treasuries and Agency MBS. As a result, foreign deposit dynamics jointly affect monetary policy transmission, duration absorbing capacity of the bank sector and aggregate demand for long duration assets.

Sectoral Debt and Global Dollar Cycles in Developing Economies, with Joshua Aizenman, Bada Han and Yothin Jinjarak

We explore the role of sectoral debt dynamics in shaping business cycles in a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs) from 2005 to 2021. Higher household debt levels and growth are associated with significantly slower GDP growth in more developed EMEs but not in less developed EMEs and FMEs. We also examine the relationship between US dollar cycles, sectoral debt levels and growth, and economic activity. Among developed EMEs, higher expected household debt growth magnifies the impact of US dollar fluctuations on economic activity, with significant but less persistent effects on consumption and more persistent effects on investment. Our empirical findings highlight the important role of household debt dynamics in relatively developed EMEs.

Policy Reports and Other Papers

"Sectoral Debt Capacity and Business Cycles: Developing Asia and the World Economy", with J. Aizenman, B. Han, and Y. Jinjarak (2023), Report prepared for the Asian Development Bank
"What happens when Affordable Housing comes to my Back Yard: Evidence from Los Angeles", with A. Aristidou, M. Kahn, and E. Kwon (2018), Report prepared for the City of Los Angeles