Research

Unveiling the Ripple Effect: US Monetary Policy and Firm Markups in Emerging Markets (Job Market Paper)

Abstract: This paper studies the spillovers of US monetary policy on firm markups in emerging market economies (EMEs). Using firm-level data from 22 EMEs spanning 2000 to 2018 and applying the local projections method, I find that contractionary US monetary policy shocks lead to significant and persistent reductions in firm markups in EMEs. The decline is more pronounced in economies with greater export exposure to the US while attenuated in those more integrated to backward global value chains, consistent with the demand channel. Exporting firms in economies with higher dollar invoicing ratios experience larger markup reductions, reflecting the competitiveness pressure from the exchange-rate pass-through. In contrast, firms with higher dollar leverage reduce markups in a smaller magnitude, reflecting the liquidity hoarding behavior under tighter financial conditions. Notably, exporters, who benefit from the natural hedge through dollar revenues, exhibit muted markup movements compared to non-exporters. The results highlight distinct roles of the demand, competitiveness, and financial channels in shaping EME firm markup responses to US monetary policy.

Bond Currencies in the Eurobond Market 1964-1989 (in progress), with Nathan Sussman, Sebastian Alvarez, and Marco Molteni

Abstract: This paper uses a newly digitized dataset of more than 6,000 Eurobonds (1964–1989) to examine how global investors perceived the fall and subsequent rise of the U.S. dollar after the collapse of Bretton Woods. Exploiting the multi-currency issuance of European Coal and Steel Community bonds, we isolate currency risk from credit risk to recover market expectations of USD–DM dynamics. We show that dollar weakness in the 1970s—driven by inflation and policy uncertainty—was priced directly into Eurobond yields, while the Volcker disinflation reversed these expectations, reestablishing the dollar’s dominance in global finance.

Monetary Policy and Innovation: Evidence from the Euro Area (in progress)

Abstract: This paper studies the effect of monetary policy on firm innovation. I construct a partial equilibrium model of innovation under borrowing constraints and show that for the same interest rate, firms facing higher degree of competition have higher innovation intensity when they are not credit constrained. By contrast, the degree of competition does not affect innovation intensity of firms that are credit constrained. Firm’s production cost, as a measure of profit margins, has a negative effect on innovation regardless of whether the firm is credit constrained or not. I then test the model implications using the euro area firm-level data at the time of the ECB targeted longer-term refinancing operations (TLTRO) program, and show that in line with the model, expansionary monetary policy shock can trigger a stronger innovation response by firms facing higher degree of competition provided that these firms are not credit constrained. It triggers a weaker innovation response by firms having higher production cost, with the response even weaker when these firms are credit constrained.

International Transmission of Emerging Market Central Bank Unconventional Monetary Policies (in progress)

Abstract: I evaluate the international transmission of the unconventional monetary policies by four major emerging market central banks (Brazil, China, Russia and India) to the financial markets of emerging market economies. I apply an event study to examine the impact of central bank policy announcements on the national stock markets, the long-term government bond yields and the exchange rates using daily data and find that emerging market central bank policy announcements have significant spillovers to the financial markets of the emerging market economies, especially for the stock markets. I also provide evidence that the spillovers are heterogeneous depending on countries’ geographical locations and economic funda- mentals. The evidence shows that emerging countries having stronger connections with the originator countries are more affected by the policy announcements of the originator country central banks. In particular, emerging countries having tighter export linkages with China are more affected by the Chinese central bank unconventional monetary policy announcements.