Macroeconomics & International Finance Seminars

Tuesday 1:40–3:00 p.m.
Online via Zoom

Winter 2022

January 11
Vivian Yue, Emory University
"Sovereign Risk and Financial Risk"
Host: Chenyue Hu and Grace Gu
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by over 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium -- a measure of the risk-bearing capacity of U.S. financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.

January 18
Linh To, Boston University
"Wage Differentials and the Price of Workplace Flexibility"
Host: Gueyon Kim
This paper presents a model of compensating differentials in which firms' costs of providing amenities may depend on worker productivity. In equilibrium, workers sort into jobs with and without an amenity depending not only on their willingness to pay for the amenity but also on their productivity. Estimating the model requires measures of workers' willingness to pay for job amenities at the individual level. To measure workers' preferences, we introduce a dynamic preference elicitation method called the Bayesian Adaptive Choice Experiment (BACE). We survey workers about their job characteristics and elicit their willingness to pay for different forms of workplace flexibility. We estimate the model to understand how workers trade-off workplace flexibility and match key patterns in the data. We use the estimates to explore the welfare consequences of workers facing different amenity prices.

January 25
Simon Gilchrist, NYU
Host: Alonso Villacorta

February 8
Peter Maxted, Berkeley
Host: Hikaru Saijo

February 15
Louphou Coulibabli, University of Wisconsin
Host: Galina Hale

February 22
Linda Goldberg, New York Fed
Host: Grace Gu

March 1
Enrico Moretti, UC Berkeley
Host: Brenda Samaniego

March 8
Chenzi Xu, Stanford GSB
Host: Alan Spearot

Fall 2021

October 12
Tom Schmitz, Bocconi University, Milan (visiting UCSC)
"The Aggregate Effects of Acquisitions on Innovation and Economic Growth"
Host: Hikaru Saijo
Large incumbent firms routinely acquire startups. This may stimulate aggregate growth, as acquisitions provide an incentive for startup creation and could transfer ideas to more efficient users. However, large firms do not always implement the ideas of their acquisition targets. Moreover, frequent acquisitions lower competition, which has an ambiguous effect on the innovation incentives of incumbents. To assess the net effect of these forces, we build a new endogenous growth model with heterogeneous firms and acquisitions. We discipline the model by matching aggregate moments and evidence from a rich micro dataset on acquisitions and patenting. Our findings indicate that stricter antitrust policy would trigger somewhat higher growth.

October 19
Anusha Chari, University of North Carolina at Chapel Hill
"Capital Flows in Risky Times: Risk-on/Risk-off and Emerging Market Tail Risk"
Host: Galina Hale
This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the tails of the distribution. Further, while there are some differences in the effects across bond vs. equity markets and flows vs. asset returns, the effects associated with the worst realizations are generally larger than that on the median realization. We apply our methodology to the COVID-19 shock to examine the pattern of flow and return realizations: the sizable risk-off nature of this shock engenders reactions that reside deep in the left tail of most relevant emerging market quantities.

October 26
Michael Devereux, University of British Columbia
"Foreign Reserves Management and Original Sin"
Host: Chenyue Hu
This paper studies the interaction between foreign exchange reserves and the currency composition of sovereign debt in emerging countries. Focusing on inflation targeting countries, we find that large holdings of foreign reserves are associated with higher local currency sovereign debt portfolios, an exchange rate which is less sensitive to global shocks, and a lower exchange rate risk premium in local currency sovereign spreads. We rationalize these findings within a financially constrained model of a small open economy. The Sovereign values local currency debt as a hedge against endowment risk, but since the exchange rate tends to depreciate in times of global downturns, risk averse international investors charge an additional currency risk premium on this debt. But when a country uses foreign reserves to lean against the wind in response to global shocks, this dampens the response of the exchange rate, providing insurance for the global investor. By reducing the investor ex-ante risk premium on local currency debt, foreign exchange reserves therefore facilitate a higher share of local currency debt in the sovereign portfolio. The key feature of the analysis highlights the role of reserves in stabilizing the component of exchange rate changes that respond to global shocks, and not the response to local shocks.

November 2
Laura Alfaro, Harvard
"Currency Hedging: Managing Cash Flow Exposure"
Host: Grace Gu
Foreign currency derivative markets are among the largest in the world, yet their role in emerging markets is relatively understudied. We study firms' currency risk exposure and their hedging choices by employing a unique dataset covering the universe of FX derivatives transactions in Chile since 2005, together with firm-level information on sales, international trade, trade credits and foreign currency debt. We uncover four novel facts: (i) natural hedging of currency risk is limited, (ii) financial hedging is more likely to be used by larger firms and for larger amounts, (iii) firms in international trade are more likely to use FX derivatives to hedge their gross -not net- cash currency risk, and (iv) firms pay different premiums, in particular, for longer maturity contracts. We then show that financial in- termediaries can affect the forward exchange rate market through a liquidity channel, by leveraging a regulatory negative supply shock that reduced firms' use of FX derivatives and increased the forward premiums.

November 9
Enghin Atalay, Federal Reserve Board, Philadelphia
"Micro- and Macroeconomic Impacts of Place-Based Industrial Policy"
Host: Gueyon Kim
We investigate the impact of a set of place-based subsidies introduced in Turkey. These policies were introduced in 2012 with the aim of spurring investment and reducing regional income inequality, and involve a mix of VAT reductions, investment tax credits, and reduced mandated social security contributions. Using firm-level data on revenues, employment, and productivity along with buyer-supplier data on the domestic production network, we first assess the direct and indirect impact of the 2012 subsidy reforms. We find an increase in economic activity in industry-province pairs that were the focus of the subsidy program, and positive spillovers to the suppliers of subsidized firms. With the aid of a dynamic multi-region multi-industry general equilibrium model, we then assess the aggregate impacts of the 2012 subsidy reforms. We find that the subsidy reforms reduced regional real wage inequality, but only modestly. These modest effects are due to the ability of households to migrate in response to the subsidy reforms and input-output linkages that traverse subsidy regions within Turkey.

November 16
William Diamond, Wharton School, University of Pennsylvania
"Risk-Free Rates and Convenience Yields Around the World
Host: Alonso Villacorta
This paper constructs risk-free interest rates implicit in index option prices for 9 of the major G10 currencies. We compare these rates to the yields of government bonds to provide international estimates of the convenience yield earned by safe assets. Average convenience yields across countries are highly correlated with the average interest rate in each country, ranging from -15 basis points in low-rate Japan to 60 basis points in high-rate Australia, with the moderate-rate U.S. providing a middling 35 basis points. For each country, a covered interest parity (CIP) deviation constructed from its option-implied rates and those of the U.S. is negative, with these negative CIP deviations growing sharply in periods of financial distress, including the 2020 covid crisis when convenience yields themselves remained moderate. We conclude that risk-free discount rates in the U.S. are especially low due to its central position in the global financial system, particularly during financial crises, but that U.S. safe assets do not earn an unusually large convenience yield in addition.

November 23
Ioana Marinescu, University of Pennsylvania, School of Social Policy & Practice
"Minimum Wage Employment Effects and Labor Market Concentration"
Host: Brenda Samaneigo
Why is the employment effect of the minimum wage frequently found to be close to zero? Theory tells us that when wages are below marginal productivity, as with monopsony, employers are able to increase wages without laying off workers, but systematic evidence directly supporting this explanation is lacking. In this paper, we provide empirical support for the monopsony explanation by studying a key low-wage retail sector and using data on labor market concentration that covers the entirety of the United States with fine spatial variation at the occupation-level. We find that more concentrated labor markets - where wages are more likely to be below marginal productivity - experience significantly more positive employment effects from the minimum wage. While increases in the minimum wage are found  to significantly decrease employment of workers in low concentration markets, minimum wage-induced employment changes become less negative as labor concentration increases, and are even estimated to be positive in the most highly concentrated markets. Our findings provide direct empirical evidence supporting the monopsony model as an explanation for the near-zero minimum wage employment effect documented in prior work. They suggest the aggregate minimum wage employment effects estimated thus far in the literature may mask heterogeneity across different levels of labor market concentration.