Inflation and Treasury Convenience (Nov 2023)
with Anna Cieslak and Carolin Pflueger
How does inflation interact with Treasury convenience yield? We find that Treasury convenience comoves positively with inflation during the inflationary 1970s and 1980s, but negatively in the pre-WWII period and the pre-pandemic 2000s. We explain these changes with an interplay of the "money channel" and the "New Keynesian demand channel", revisiting the general debate between Friedman's monetarist view and Keynes' demand view in the context of convenience yield. We argue that the experience of the past century is inconsistent with a direct effect of inflation depressing Treasury convenience.
SSRN link
with Anna Cieslak and Carolin Pflueger
How does inflation interact with Treasury convenience yield? We find that Treasury convenience comoves positively with inflation during the inflationary 1970s and 1980s, but negatively in the pre-WWII period and the pre-pandemic 2000s. We explain these changes with an interplay of the "money channel" and the "New Keynesian demand channel", revisiting the general debate between Friedman's monetarist view and Keynes' demand view in the context of convenience yield. We argue that the experience of the past century is inconsistent with a direct effect of inflation depressing Treasury convenience.
SSRN link
Firm Quality Dynamics and the Slippery Slope of Credit Intervention (Jan 2023)
revise & resubmit at Review of Economic Studies
with Ye Li
In a dynamic model, we demonstrate that the mispricing of government credit support generates a downward bias in the firm quality distribution that is self-perpetuating. As a result, intervention in the current crisis necessitates future interventions of greater scales, which in turn cause more distortions in firm quality dynamics. However, the slippery slope of intervention is a necessary evil: when carefully designed, credit support still improves welfare.
SSRN Link, Presentation Slides
revise & resubmit at Review of Economic Studies
with Ye Li
In a dynamic model, we demonstrate that the mispricing of government credit support generates a downward bias in the firm quality distribution that is self-perpetuating. As a result, intervention in the current crisis necessitates future interventions of greater scales, which in turn cause more distortions in firm quality dynamics. However, the slippery slope of intervention is a necessary evil: when carefully designed, credit support still improves welfare.
SSRN Link, Presentation Slides
Intermediary Balance Sheets and the Treasury Yield Curve
Journal of Financial Economics, 2023
with Wenxin Du and Benjamin Hébert
For a quick summary, see this Liberty Street Economics Blog Post
Coverage by Wall Street Journal
Also see my NBER LTAM presentation
SSRN link, NBER WP link
Download replication package
Journal of Financial Economics, 2023
with Wenxin Du and Benjamin Hébert
For a quick summary, see this Liberty Street Economics Blog Post
Coverage by Wall Street Journal
Also see my NBER LTAM presentation
SSRN link, NBER WP link
Download replication package
The Demand for Money, Near-Money, and Treasury Bonds
Review of Financial Studies, 2022
Arthur Warga Award for Best Paper in Fixed Income, SFS Cavalcade, 2022
with Arvind Krishnamurthy
SSRN link, NBER WP link
Review of Financial Studies, 2022
Arthur Warga Award for Best Paper in Fixed Income, SFS Cavalcade, 2022
with Arvind Krishnamurthy
SSRN link, NBER WP link
Public Liquidity and Financial Crises
Conditionally accepted at American Economic Journal: Macroeconomics, 2023
2019 Cubist Systematic Strategies Ph.D. Candidate Award for Outstanding Research
SSRN link
Media Coverage: Op-ed on Liquidity Policies after COVID-19 , by Nasdaq
Conditionally accepted at American Economic Journal: Macroeconomics, 2023
2019 Cubist Systematic Strategies Ph.D. Candidate Award for Outstanding Research
SSRN link
Media Coverage: Op-ed on Liquidity Policies after COVID-19 , by Nasdaq
Dissecting Mechanisms of Financial Crises: Intermediation and Sentiment (May 2021)
revise & resubmit at Journal of Political Economy
with Arvind Krishnamurthy
Financial crises feature frothy pre-crisis behavior of asset markets (credit spread/equity price/bank credit) and skewed post-crisis dynamics. What is the underlying mechanism? We confront two prominent mechanisms with data, i.e., financial amplification via intermediation, and sentiment via time-varying beliefs.
SSRN link
revise & resubmit at Journal of Political Economy
with Arvind Krishnamurthy
Financial crises feature frothy pre-crisis behavior of asset markets (credit spread/equity price/bank credit) and skewed post-crisis dynamics. What is the underlying mechanism? We confront two prominent mechanisms with data, i.e., financial amplification via intermediation, and sentiment via time-varying beliefs.
SSRN link
The Passthrough of Treasury Supply to Bank Deposit Funding (Jan 2023)
with Yiming Ma and Yang Zhao
revise & resubmit at Journal of Financial Economics
Using branch-level deposit data, we show that larger Treasury supply leads to deposit outflows, and the effect is stronger with more fierce local deposit competition. At the same time, reliance on wholesale funding decreases.
We rationalize these findings in a model with imperfect deposit competition.
Arthur Warga Award for Best Paper in Fixed Income, SFS Cavalcade, 2020
SSRN link, Presentation Slides
Media Coverage:
The Fed must be careful to avoid bank deposit crowding out , by Central Banking
Impact of Treasury Supply Versus Monetary Policy on Bank Deposit Funding, by PR Newswire
with Yiming Ma and Yang Zhao
revise & resubmit at Journal of Financial Economics
Using branch-level deposit data, we show that larger Treasury supply leads to deposit outflows, and the effect is stronger with more fierce local deposit competition. At the same time, reliance on wholesale funding decreases.
We rationalize these findings in a model with imperfect deposit competition.
Arthur Warga Award for Best Paper in Fixed Income, SFS Cavalcade, 2020
SSRN link, Presentation Slides
Media Coverage:
The Fed must be careful to avoid bank deposit crowding out , by Central Banking
Impact of Treasury Supply Versus Monetary Policy on Bank Deposit Funding, by PR Newswire
The Term Structure of Liquidity Premium (March 2021)
with Scott Joslin and Yang Song
We empirically construct the term structure of liquidity premium (LP) and show that the term structure arises from a simple model with time-varying liquidity conditions and imperfect substitution between money and Treasurys.
The LP term structure contains rich information about: (i) expectation of future liquidity conditions, (ii) liquidity term premium, (iii) the substitutability between money and Treasurys, and (iv) Treasury supply. These results inform the heterogeneous impact of Quantitative Easing (QE) on the term structure. We are also able to extract the term structure of Treasury safety premium.
SSRN link
with Scott Joslin and Yang Song
We empirically construct the term structure of liquidity premium (LP) and show that the term structure arises from a simple model with time-varying liquidity conditions and imperfect substitution between money and Treasurys.
The LP term structure contains rich information about: (i) expectation of future liquidity conditions, (ii) liquidity term premium, (iii) the substitutability between money and Treasurys, and (iv) Treasury supply. These results inform the heterogeneous impact of Quantitative Easing (QE) on the term structure. We are also able to extract the term structure of Treasury safety premium.
SSRN link
Work In Progress
Treasury Demand, with Kristy Jansen and Lukas Schmid
Treasury Demand, with Kristy Jansen and Lukas Schmid