Research

Publications

Shock amplification in an interconnected financial system of banks and investment funds (with Matthias Sydow et al.), Journal of Financial Stability, 2024

This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and granular data set for the euro area. Based on the economic shock caused by the Covid-19 outbreak, we model three sources of exogenous shocks: a default shock, a market shock and a redemption shock. Our contagion mechanism operates through a dual channel of liquidity and solvency risk. Our analysis reveals that adding the fund sector to our model for banks leads to additional losses through fire sales and a further depletion of banks’ capital ratios by around one percentage point. The main driver of additional bank losses are endogenous market losses generated by investment funds’ asset liquidation.

On the Choice of Central Counterparties in the EU (with Gabrielle Demange), Journal of Financial Markets, 2023

We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP reveals that fees, CCPs’ robustness and activity, dealers’ risk, and market volatility are significant. Dealers’ positions indicate that saving on collateral costs is secondary relative to the benefits of dual membership and quality. 

Working papers

Firms' foreign exchange hedging (with Nicolas Hommel), 2025

This paper combines evidence from 1.5 million foreign exchange derivatives contracts with a dynamic risk management model to propose a new view of currency hedging by Eurozone firms. We find that (i) firms facing more currency risk hedge a larger fraction of that risk, (ii) firms rarely post collateral and when they do, it is small, (iii) trading costs are small, and (iv) cash positions are uncorrelated with hedging. These facts are inconsistent with standard models in which firms hedge to manage financing needs but are constrained by collateralization. To understand what financial frictions explain currency hedging, we build and estimate a dynamic risk management model. Our estimation implies that dividend smoothing explains most of hedging demand, while hedge adjustment costs limit hedging. 

FX hedging, currency choice, and dollar dominance (with Martina Fraschini and Tammaro Terracciano), 2025

Exporters pricing their goods in a foreign currency are exposed to foreign exchange (FX) risk. However, they can hedge this risk by underwriting a FX forward contract. This paper shows how the cost of FX hedging influences exporters’ currency choice by exploiting an exogenous increase in the trading costs of FX forward contracts. We find that higher FX trading costs lead hedging firms to lower the probability of pricing in dollars and in local currency. We also document that hedging firms price more in dollars than in local currency, and FX hedging is associated with lower levels of exchange-rate pass-through.

Habitat Sweet Habitat: the Heterogeneous Effects of Eurosystem Asset Purchase Programs (with Moaz Elsayed, Dorian Henricot, and Julien Idier), 2023

The impact of central bank asset purchase programs depends on the investment habitat of investors owning the assets purchased. Using granular data on the Eurosystem central bank purchases over 2014-2020, and on detailed securities holdings by financial institutions, we show that banks were the largest euro area counterparts to purchases of sovereign securities and bank covered bonds, while investment funds accommodated the bulk of corporate securities purchased. We also show that investors’ rebalancing patterns depend on their habitat. Purchasing securities from banks will spur bank lending, while investment funds may increase their demand for riskier securities if they have the required mandate.

CDS Trading Strategies and Credit Risk Reallocation (with Dorian Henricot), Banque de France working papers, 2022

We study how Credit Default Swaps (CDS) reallocate credit risk between investors. Using data on granular holdings of debt and CDS referencing non-financial corporations, we propose a methodology to disentangle CDS positions between three strategies: hedging, speculation, and arbitrage. In our dataset, arbitrage remains anecdotal and the bulk of net positions are speculative, which implies that CDS increase total exposures at default. Hedgers purchase CDS to shed off their most concentrated exposures, while speculators sell them as a complement to debt to gain synthetic leverage. CDS also facilitate risk-taking by speculators and allow hedgers to cover their riskiest exposures.

Secured and Unsecured Interbank Markets: Monetary Policy, Substitution and the Cost of Collateral (with Dilyara Salakhova), Banque de France working papers, 2019

We study the substitution between secured and unsecured interbank markets. Banks are competitive andsubject to reserve requirements in a corridor rate system with deposit and lending facilities. Banks face counterparty risk in the unsecured market and incur an opportunity cost to pledge collateral. The model provides insights on interest rates, trading volumes and substitution between the two markets. Using transaction data on the Euro money market, we provide new empirical findings that the model accounts for: (i) borrowing banks are active on both markets even when their collateral constraint is not binding, (ii) secured interest rates may fall below the deposit facility rate. We derive and empirically test predictions on how "conventional" and "unconventional" monetary policies impact interbank markets, depending on whether marketable collateral is purchased or not.