Search Results
Discussion Paper
The Federal Reserve's Liquidity Backstops to the Municipal Bond Market during the COVID-19 Pandemic
The COVID-19 pandemic has caused tremendous hardship all over the world. In response, the Federal Reserve has moved quickly and aggressively to support the economy in the United States. In this article, we present some initial evidence for the effectiveness of some of the facilities in calming the municipal bond market, particularly the short-term variable-rate demand obligation (VRDO) market. We discuss the important role of liquidity backstops in mitigating runs and stabilizing financial markets in general based on insights from our study on the runs on VRDO and auction-rate securities ...
Journal Article
How Credible Is Hong Kong's Currency Peg? Insights from Financial Market Prices
This article presents a structural asset-pricing model that quantifies financial market perceptions of the credibility of Hong Kong's Linked Exchange Rate System (LERS). Using data from the foreign exchange market, the authors estimate the probability that the Hong Kong dollar (HKD) remains pegged to the US dollar (USD) and the value the HKD would take if the peg were to break. The analysis reveals multiple episodes when market confidence in the peg declined, with particularly sharp stress in late 2022 and mid-2025. In these periods, capital flows, interest rate differentials, and liquidity ...
Journal Article
Shipping Cost Shocks and US Producer Prices: Normal versus Crisis Pass-through
This paper examines how fluctuations in shipping costs pass through to U.S. producer prices. We link confidential shipment-level import transactions from the Census Bureau's Longitudinal Firm Trade Transactions Database (LFTTD) to confidential firm-level producer prices from the Bureau of Labor Statistics' Producer Price Index (PPI) microdata, constructing a monthly panel of more than 6,000 U.S. manufacturing importers from 2005 to 2022. Using local projections and Bartik-style instruments based on route-level shipping-cost variation, we find that pass-through to domestic producer prices is ...
Journal Article
The Term Structure of the Excess Bond Premium: Measures and Implications
In this article, we construct daily aggregate as well as short-, medium-, and long-term "excess bond premium" (EBP) measures using a widely available corporate bond database (known as "TRACE"). The novel EBP measures we construct provide an important gauge of strains in the financial sector at different horizons. We find that the short-term EBP measure increased more dramatically at the peaks of the COVID-19 pandemic and the 2007–09 global financial crisis, but the pattern was reversed around the interest rate liftoff at the end of 2015.
Journal Article
How Many Rate Hikes Does Quantitative Tightening Equal?
In this article, I examine the question of how to quantify the equivalence between interest rate hikes and quantitative tightening (QT). Using a simple "preferred habit" model I estimate that a $2.2 trillion passive roll-off of nominal Treasury securities from the Federal Reserve's balance sheet over three years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times, but 74 basis points during turbulent periods.
Journal Article
Analyzing the Efficacy of the Fed's Secondary Market Corporate Credit Facility
This article analyzes the effectiveness of the Secondary Market Corporate Credit Facility (SMCCF) in stabilizing the US corporate bond market during the COVID-19 pandemic. The SMCCF announcements in March and April 2020 significantly reduced credit spreads across different bond maturities, restoring a more typical upward-sloping yield curve. The Federal Reserve's bond purchases, though relatively small in scale, notably decreased credit spreads for eligible bonds compared to ineligible ones. The study's model suggests that market dynamics, including a rush to sell short-term safe bonds and ...
Journal Article
The Federal Reserve's Liquidity Backstops to the Municipal Bond Market during the COVID-19 Pandemic
The COVID-19 pandemic has caused tremendous hardship all over the world. In response, the Federal Reserve has moved quickly and aggressively to support the economy in the United States. In this article, we present some initial evidence for the effectiveness of some of the facilities in calming the municipal bond market, particularly the short-term variable-rate demand obligation (VRDO) market. We discuss the important role of liquidity backstops in mitigating runs and stabilizing financial markets in general based on insights from our study on the runs on VRDO and auction-rate securities ...
Working Paper
Shipping Cost Shocks and US Producer Prices: Normal versus Crisis Pass-through
This paper examines how shipping costs pass through to US producer prices. We link confidential shipment-level import transactions from the Census Bureau's Longitudinal Firm Trade Transactions Database (LFTTD) to confidential firm-level producer prices from the US Bureau of Labor Statistics' Producer Price Index (PPI) microdata, constructing a monthly panel of more than 6,000 US manufacturing importers from 2005 to 2022. Using local projections and Bartik-style instruments based on route-level shipping-cost variation, we find that pass-through to producer prices is negligible in normal times ...
Working Paper
The Two-Pillar Policy for the RMB
We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of the RMB under the two-pillar policy. Using derivatives data on the RMB and the U.S. dollar index, we estimate the model to assess financial markets' views about the fundamental exchange rate and sustainability of the policy. Our model is able to predict the modification of the two-pillar policy in May ...
Working Paper
Forecasts of inflation and interest rates in no-arbitrage affine models
In this paper, we examine the forecasting ability of an affine term structure framework that jointly models the markets for Treasuries, inflation-protected securities, inflation derivatives, and oil future prices based on no-arbitrage restrictions across these markets. On the methodological side, we propose a novel way of incorporating information from these markets into an affine model. On the empirical side, two main findings emerge from our analysis. First, incorporating information from inflation options can often produce more accurate inflation forecasts than those based on the Survey of ...