Research
Job Market Paper
The U.S. Monetary Transmission and International Prices: The Role of a Cost Channel
Summary
| Recent evidence indicates that US monetary tightening is usually inflationary for international prices, which is contrary to canonical models. Thus, I embed a cost channel into a two-country model to study the transmission. This supply-side cost mechanism will lead to inflation pressure at home and abroad. The home and foreign output will also be disproportionately affected by the change in terms of trade. Moreover, the spillover and spillback effects of US monetary policy are determined by the foreign country's policy stance. Finally, the cost channel implies a tougher trade-off for optimal domestic policy and a larger room for international coordination. |
Presentation
| Future Scholars in Finance Forum, JIE Summer School, CES China, AsianFA, RCEA, Chinese Academy of Fiscal Sciences, HKUST, University of California San Diego |
Working Papers
1. LSAP Shocks and Stock Prices: The Information Effect Revisited (with John Rogers, Wenbin Wu, and Juanyi Jenny Xu)
Summary
| The central bank information effect is the subject of lively debate. We present a novel finding regarding the effects of U.S. large-scale asset purchase (LSAP) shocks and offer interpretations based on an information effect that varies both over time and across firms. Specifically, positive LSAP shocks depress U.S. stock returns during periods of quantitative easing (QE) but not in other sub-periods. An LSAP easing policy signals a worsening in the Fed's economic outlook, leading to a decrease in equity investors' confidence. This ``LSAP information effect" is more pronounced for more procyclical firms and is state-dependent, with larger effects during worse economic circumstances. The transmission of this LSAP shock information effect works primarily through the risk premium channel, with more significant effects on firms with higher risk exposure. |
Presentation
| World Congress of ES, IAAE, AsianFA, CCER Summer Institute, PKU-NUS Annual Conference, AMES(Vietnam), AMES(Singapore), WEAI, Fudan FISF, HKUST |
2. The Spill-back and Spillover Effects of US Monetary Policy: Evidence on an International Cost Channel (with Yao Amber Li, Lingfei Lu, and Shangjin Wei) [NBER wp]
Summary
| We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical ``spill-back" pattern differs from the predictions of typical open-economy macro models. We also document a new empirical ``spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel—their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions. |
Presentation
| World Congress of ES, CES China, HKIMR-ECB-BOFIT Joint Conference, NBER China, CICF, CTRG, NBER East Asian, HKUST-Fudan-SMU Conference, Melbourne Annual Macro Policy Meeting, IAAE, AsianFA, AMES, International Economics Joint Conference in Shenzhen, EITI, ATW, Monash, PKU(NSD), China Agricultural University, NUFE, HKUST |
3. The International Spillover of Monetary Policy Shock: New Evidence from Nighttime Light (with Kaiji Chen, Qichao Wang, and Juanyi Jenny Xu)
Summary
| We revisit the international spillover effects of the US monetary policy shock (MPS) using a new data source, the daily nighttime light (NTL), as a high-frequency proxy for real economic activities. We find that the unexpected US tightening has a negative impact on China's output, and the peak comes about two months after the shock. The overall negative response is consistent with a construction investment channel, with the NTL variation mainly driven by non-built-up areas instead of city centers and suburbs. Consistently, cities with lower urbanization rates, and tighter financial conditions respond more negatively to a contractionary shock. Moreover, we show that trade exposure could partially mitigate the overall adverse impacts of a US tightening. |
Presentation
| CFRC, World Congress of ES, European ES Winter, Midwest Macro, CICF, CICM, CES China, CES North American, IFABS, China Accounting and Finance Conference, International Conference on The Chinese Economy: Past, Present and Future, EFG, ITDGR, PKU(NSD), UIBE, Cheung Kong Graduate School of Business, HKUST, University of Florida |
