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.
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.
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
Monetary transmission with frequent policy events with Altavilla, Gürkaynak, and Laeven
Journal of Monetary Economics, forthcoming
Should policymakers' speeches be considered monetary policy? Do they move financial markets and transmit to the real economy? We address these questions in the euro area. We construct the Euro Area Extended Monetary Policy Event Study Database (EA-EMPD), which sharpens the identification of high-frequency monetary policy surprises and expands the set of policy-relevant events by an order of magnitude relative to conventional databases restricted to scheduled ECB rate-setting meetings. We do so by combining policymakers' speeches with ECB policy announcements. Three main findings emerge. First, speeches move asset prices across maturities by magnitudes comparable to those of official policy announcements. Second, the relative importance of rate-setting announcements and policymakers' speeches differs across euro area and U.S. financial markets. Third, speech-induced short-rate surprises transmit to the real economy much like surprises associated with policy decisions, 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 accounts for only a negligible share of real economic fluctuations.