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Cambridge Endowment for Research in Finance (CERF)


CERF PhD Scholar: Naoki Yago

University of Cambridge, Faculty of Economics

PhD Supervisor: Professor Vasco Carvalho

Project: Exchange Rate Risk and Global Financial Stability

In the first project, I study the transmission of U.S. monetary policy to emerging economies (EMEs) when firms in EMEs are heterogeneous in terms of exposure to exchange rate risk. Especially, I study how heterogeneity in balance sheet size affects the transmission of monetary policy. In the second project, using high-frequency data on monetary shocks, I study the interaction of the U.S. monetary policy and EMEs’ foreign exchange intervention. In the third project, I analyze how financial globalization affects the emergence of asset bubbles and how bubbles affect economic growth and welfare in different countries.

Project Start and End Date: Start Date: 1 October 2021, End Date: 30 September 2023

Key Research Findings to date: In the first project, using data on US monetary shock identified by high-frequency method and corporate balance sheet data in EMEs, I found that large firms, which are particularly exposed to currency risk, reduce the dollar debt and investment. In the second project, I found that when the Fed hikes, FX intervention prevents the depreciation of exchange rate and the decline in stock price of firms with dollar debt. Finally, I started a new project to explain how demand for safe asset in dollars drove the deviation from uncovered interest parity (UIP) and how this explains the reserve currency paradox.

Dissimination: I presented the first project on monetary transmission at the Ghent University Workshop on Empirical Macroeconomics. The paper was also accepted at AEA annual meeting 2023. For the second project on exchange intervention, I am writing up the paper with my co-author. I plan to present it at the Monday lunchtime seminar in the Judge Business School in October and also plan to submit to conferences. I submitted the third paper on asset bubbles to a peer-reviewed journal and it is currently under review. The projects provides novel empirical perspectives on monetary and exchange rate policies.

Major Difficulties and Other Issues: The difficulty, especially in the second project on foreign exchange intervention, is the limitation of publicly available data on intervention. For our purpose of high-frequency identification, we need daily data on intervention. However, only a limited number of central banks publish the data on their website. We contacted central banks and collected data on intervention to overcome this data limitation.

Project Update - August 2021