Research

Research Interests
  • Macroeconomics, Financial Economics
  • Time-series Econometrics, Empirical Finance

 

PUBLICATION

Regime Dependent Dynamics of Parallel and Official Exchange Markets in China: Evidence from Cryptocurrency (with Huachen Li)

Applied Economics (2024). Online Appendix. Published Version.

 

Working Paper

Monetary Policy and Credit Supply Adjustment with Endogenous Default and Prepayment – Appendix

This paper develops a general-equilibrium model to study how the credit supply mechanisms in the financial intermediation sector, which lends to households and entrepreneurs subject to financial frictions, influence monetary policy. In the model, endogenous default of mortgage and business loans and prepayment of household mortgages influence the costs of supplying credits in the financial intermediary (FI). The FI optimizes her loan portfolio composition given these cost variations with frictions. The loan contracts between the FI and borrowers allow these two parties to share aggregate risk, deviating from the canonical work by Bernanke et al. (1999). I estimate the model with US data. Likelihood inference indicates positive credit supply cost elasticities, significant frictions to portfolio adjustment, and balance-sheet strength fluctuation to borrowers’ default and prepayment variations. Given households’ endogenous behaviors, conventional monetary policy’s effectiveness in stabilizing inflation is enhanced under a TFP shock but reduced under a mortgage loan risk shock, and the credit supply channels worsen the latter situation. The effectiveness of unconventional monetary policy is enhanced by the credit supply channel.

 

Segmented Exchange Markets and U.S. Monetary Spillovers: Beyond the Trilemma (with Huachen Li)

This paper re-evaluates the international macroeconomic trilemma by embedding segmented foreign exchange markets into a constant elasticity of substitution (CES) interest parity framework. Using a novel panel of implied parallel exchange rates, we analyze the transmission of U.S. monetary policy shocks across exchange rate and capital control regimes. Static estimates demonstrate that monetary autonomy is not merely a discrete policy choice, but is fundamentally conditioned on the elasticity of substitution between official and shadow markets. Dynamically, local projections reveal that parallel markets absorb external pressures when official channels are constrained, and expose stark asymmetric responses driven by a “fear of appreciation.” Nominally flexible regimes with capital controls maintain autonomy during U.S. tightening but aggressively import U.S. rate cuts during easing, highlighting the practical limits of monetary independence.

 

Time-Varying Loan Puzzles (with Huachen Li) – Online Appendix

We document two new puzzling responses of bank loans following a monetary tightening using a flexible econometric framework that allows for time variation and stochastic volatility. First, the well-known puzzle of a positive response in commercial and industrial (C&I) loans is not present prior to 1980. Second, the response of consumer loans to monetary tightening undergoes a noticeable reversal beginning in the early 1980s, turning positive in the 1990s and thereafter, giving rise to what we term the consumer loan puzzle. Our estimates suggest that the onset of these puzzling responses in both C&I and consumer loans coincides with the Volcker disinflation. Structural changes in monetary policy regimes, the banking industry landscape, and the regulatory environment are likely factors that explain the emergence of these empirical anomalies.

 

Bank Loan Portfolio, Monetary Policy Transmission, and Financial Downturns

This paper studies the change in the financial sector’s asset portfolio following a monetary policy contraction, as well as a tightening of financial conditions measured by loan-to-value (LTV) ratios in the residential mortgage market. By using three different datasets relating to bank loans and private sector liabilities in the U.S., the paper provides indirect support to active portfolio composition changes in the banking sector. This evidence is from the observed differences in the dynamics of loan responses between these datasets and over time. In terms of econometrics, both fixed and time-varying parameter vector autoregressive models are employed to identify these findings. Specifically, under a monetary contraction, results confirm the puzzling commercial and industrial (C&I) loan increase found in the literature. However, different degrees of the puzzling increase materialize depending on the dataset employed. Along the business cycles, this business loan puzzle is found to be more prominent in the 1980s, but varying over time, and slightly weaker after the Great Recession. Also, banks tend to favor real estate loans after the 2000s following a monetary contraction. Under a negative LTV ratio shock, banks tend to adjust their asset portfolio by cutting C&I loans more than real estate loans; over time, this response pattern shows little time variation across datasets, other than a notable boom in real estate liabilities after the 2000s. The response of monetary policy to credit crunches (or booms) seems to be time-varying: more aggressive before the Great Recession but weaker near and after the recession.

 

 

 

Work in Progress

Government Consumption: On the Effectiveness of Fiscal Stimulus at the Zero Lower Bound (with Nora Traum)