Research

Job Market Paper

APP announcements and Dollar Indices

Asset Purchase Programs and the Exchange Rate

Abstract: In this paper, I evaluate the impact of COVID-era asset purchase programs (APPs) on the dollar exchange rate in both emerging markets (EMs) and ex-US advanced economies (AEs). In an event study analysis that includes APP announcements for 23 EMs and seven AEs, I find that APPs appreciated the exchange rate in EMs after controlling for the policy actions of the Federal Reserve (Fed), including the Fed SWAP lines, the policy actions of other AEs, and the policy actions of the implementing country itself. While controlling for SWAP lines turns this appreciation statistically insignificant for AEs, the appreciation remains significant in EMs. These results are robust to extensive robustness checks, including evidence from CIP deviations and options markets. I interpret the results through the lens of long-run UIP deviations driven by sovereign credit risk, showing that asset purchase surprises do not necessarily decrease the underlying risk-free rate in EMs. These results suggest that APPs can help EMs stabilize exchange rates during episodes of distress without necessarily intervening in the foreign exchange market.

Poster

Work in progress

"Long-Run UIP Deviations and Sovereign Risk: Evidence from Emerging Markets"

with Alessandro Rebucci and Giorgio Valente (draft is coming soon)

Abstract: Long-run uncovered interest rate parity (UIP) tends to hold in G-10 currencies (Chinn and Meredith, 2004; Lustig, Stathopoulos, and Verdelhan, 2019). Using a monthly sample of the ten most freely floating emerging market currencies (EM-10) from 2000 to 2023, we show that the LR-UIP does not hold in EMs. We then rationalize these facts with a no-arbitrage asset pricing framework with incomplete markets incorporating sovereign credit risk and its covariance with exchange rate risk, the quanto adjustment term, and convenience yields. We argue that when the UIP regression is augmented with these factors, long-run UIP also holds in EMs.These findings have important policy implications, offering insights into the factors influencing exchange rates in EMs and guiding the development of more targeted and effective monetary policies, including why asset purchases have appreciated the exchange rate in EMs during the COVID-19 period.

"SWAP Lines in Unconventional Times: Evidence from Advanced Economies"

Non-academic publications

Blog post on Center for Financial Economics

''Financial-Stability QE Can Appreciate the Exchange Rate'' (with Alessandro Rebucci). Johns Hopkins University (2022)

Academic Community Contributions

Fišar, M., Greiner, B., Huber, C., Katok, E., Ozkes, A., and the Management Science Reproducibility Collaboration (2023). Reproducibility in Management Science. Working Paper.

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