Working Papers

Green Transmission: Monetary Policy in the Age of ESG
Job Market Paper
Winner of the Cambridge Finance Best Student Paper Award
ECB Young Economist Prize Finalist 

Abstract: How sensitive are green firms to monetary policy? In this paper, I evaluate the implications of firms becoming greener for the transmission of monetary policy on asset prices, credit risk and firm-level investment. In response to a shock to monetary policy, green firms (with high environmental scores) are significantly less impacted than their brown counterparts (with lower environmental scores).  This difference in response cannot be attributed to inherent differences in firms' characteristics. Instead, I show that it is driven by investors' preferences for sustainable investing. Using a stylized theoretical framework and a comprehensive empirical analysis, I show how preferences for sustainable investing lower the sensitivity of green capital flows to monetary policy shocks. Consequently, this enhances the resilience of green firms to higher interest rates.

The Effects of Macroprudential Policy Announcements on Systemic Risk
with Kristina Bluwstein

Abstract:  We construct a new dataset of macroprudential policy announcements for the United Kingdom and estimate their effect on systemic risk, using a high-frequency identification approach. First, by examining a sample of the largest UK-listed banks, we identify macroprudential policy announcement shocks that were unanticipated by the financial markets. Second, we study the effects of market-based macroprudential policy surprises on systemic risk in a local projection. We find that a perceived macroprudential policy tightening contributes to a substantial reduction in systemic risk in the short run, with effects persisting for several months. The reduction is mostly attributed to the reaction in equity and bond markets.

The Effects of Exchange Rate Shocks on the Relative Competitiveness of Exporters
with Thomas Prayer

Abstract: How do firms react to exchange rate shocks affecting their competitors? To address this question, we combine product level export data from firms located in 13 emerging and low-income economies with information on i) product-level imports, ii) trade policy and iii) bilateral origin-destination exchange rates. Our identification strategy exploits variation from exporting firms from different countries of origin that export to the same destination. We find evidence of strategic complimentarities, with a typical firm reducing its markup by 0.7% in response to its competitors' exchange rate depreciating by 10%. Our findings point to a substantial degree of heterogeneity in these elasticities across firms, product types and markets. Strategic complementarities are stronger for firms that are i) larger, ii) export highly differentiated capital and consumption goods and iii) export to OECD destinations. Furthermore, we document a puzzle on the extensive margin: our results show that the number of firms exporting to a given destination increases in response to exchange rate depreciation episodes facing foreign competitor firms.

The Impact of Covid-19 on the ECCU Banking Sector
with Janne Hukka

Abstract: The Covid-19 crisis led to an unprecedented decline in tourism, which had a significant impact on the ECCU economies. We estimate the Covid-19's potential impact on these economies' banking sector, where asset quality is adversely affected both through direct tourism related exposures, as well as indirect channels through the broader economy. The results allow us to simulate medium-term cumulative paths for non-performing loans under different recovery scenarios. Additionally, we assess the region's credit quality sensitivity to tourism shocks by economic sector, permitting a more targeted distribution of potential losses in region wide stress tests. Our findings suggest the scale of potential credit losses is large with significant financial stability implications. In some instances, the losses could be amplified by parallel stress to banks' sovereign and overseas investment exposures. The findings help better design near-term policy responses, as well as longer-term regional macroprudential policy supervision.