Foreign Safe Asset Demand and the Dollar Exchange Rate

The Journal of Finance · 2021 · 321 citations

• Monetary economics
• Economics
• Business

ABSTRACT We develop a theory that links the U.S. dollar's valuation in FX markets to the convenience yield that foreign investors derive from holding U.S. safe assets. We show that this convenience yield can be inferred from the Treasury basis, the yield gap between U.S. government and currency‐hedged foreign government bonds. Consistent with the theory, a widening of the basis coincides with an immediate appreciation and a subsequent depreciation of the dollar. Our results lend empirical support to models that impute a special role to the United States as the world's provider of safe assets and the dollar as the world's reserve currency.

Firm Volatility in Granular Networks

Journal of Political Economy · 2020 · 121 citations

• Econometrics
• Business
• Economics

Firm volatilities comove strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers, and customer-supplier links depend on customers’ size. The model produces distributions of firm volatility, size, and customer concentration consistent with the data.

Review Article: Perspectives on the Future of Asset Pricing

Review of Financial Studies · 2020 · 103 citations

• Computer Science
• Business
• Computer Security