Academic Publications
Discount Rates, Debt Maturity, and the Fiscal Theory with Corhay, Kung, and Morales
Journal of Finance, 2023
This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory depend directly on the conditional nominal term premium, giving rise to an optimal debt-maturity policy that is state-dependent. In a calibrated macrofinance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.
Threats to Central Bank Independence: High-Frequency Identification with Twitter with Bianchi, Gomez-Cram, and Kung
Journal of Monetary Economics, 2023
A high-frequency approach is used to analyze the effects of President Trump’s tweets that criticize the Federal Reserve on financial markets. Identification exploits a short time window around the precise timestamp for each tweet. The average effect on the expected fed funds rate is negative and statistically significant, with the magnitude growing by horizon. The tweets also lead to an increase in stock prices and to a decrease in long-term U.S. Treasury yields. VAR evidence shows that the tweets had an important impact on actual monetary policy, the stock market, bond premia, and the macroeconomy.
News coverage: Bloomberg, CNBC, CNN, Financial Times, Politico, Reuters, Wall Street Journal
Micro Uncertainty and Asset Prices with Herskovic and Kung
Journal of Financial Economics, 2023 - Fama-DFA prize
Size and value premia comove strongly with one another at low frequencies, but they are both negatively related to long-run movements in the equity premium. We explain these patterns in an investment-based asset pricing model featuring persistent micro and macro uncertainty. Micro uncertainty generates size and value premia waves, while macroeconomic uncertainty produces equity premium waves. The negative correlation between micro and macro uncertainty at low frequencies explains why the equity premium is a long-term hedge for size and value premia. Persistent micro uncertainty is also a source of instability for size and value factors in short samples.
Monetary Transmission with Frequent Policy Events with Altavilla, Gürkaynak, and Laeven
Journal of Monetary Economics, 2026
We examine how policymakers’ speeches and monetary policy announcements at official policy meetings transmit to financial markets and the real economy in the euro area. Using high-frequency intraday data across a broad cross-section of financial assets, we introduce the Euro Area Extended Monetary Policy Event-Study Database (EA-EMPD). We refine the identification of monetary policy surprises by exploiting granular, quote-level data on individual market participants’ bid and ask quotes. This novel dataset expands the set of identifiable policy events by an order of magnitude relative to databases restricted to rate-setting meetings. Our analysis yields three main findings. First, central bank speeches move asset prices across all maturities by magnitudes comparable to those of official policy announcements. Second, the relative importance of surprises associated with policy decisions and speeches differs markedly between euro area and U.S. financial markets. Third, speech-induced short-rate shocks transmit to the real economy similarly to official policy shocks, and combining the two sources of policy shocks materially improves the precision of inference. Importantly, even under this much broader definition and measurement of monetary policy impulses, monetary policy shocks account for only a negligible share of fluctuations in real economic activity.