Haonan Zhou
@Haonan_Zhou
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Econ at Princeton, HK soon. International finance & macro. Baseball.
Princeton, NJ
Joined April 2015
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Before joining the finance group as an AP at the University of Hong Kong this summer (yay! In my opinion the best, largest, most vibrant international finance group you can ever get), please meet & chat about research as I travel across the globe! 👇🧵
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Yes, I have a paper for the job market and I want to talk about it (a long 🧵 follows). tl;dr: foreign investor composition is a useful metric when we think about emerging markets' (EM) resilience against global financial shocks. Happy to chat more :)
.
@Haonan_Zhou
’s job market paper studies the role of foreign investor composition in explaining emerging market economies’ sensitivity to shifts in global risk factors.
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I was mindlessly browsing the internet when this gem by Prof. Engel pops up. Can't stop reading since. If you are interested in international macro, this is the best set of notes to have. Just see this slide for a huge set of research ideas :)
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New paper with Eugenio, a humble attempt at setting the stage for some deeper understand of segmentation in EM currency markets. Have to admit I like how the new IMFWP template integrates latex.
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We've won a thing! Thanks to the award committee at CICF 2023 for recognizing our paper with
@egemeneren87
and Semyon as one of recipients for the Best Paper Award.
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A chapter from the new 2023 External Sector Report of the IMF builds on my Brookings Paper with Maury. Have known this for a while, but this feels even better than getting something published. I guess that's why you work on things like this.
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Come and see my advisor Mark's Mundell-Fleming lecture talking about sovereign debt, right now: . One thing you'll surely see for the first time: Mark in his business formal attire.
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Paper 3: Updated my paper on the aggregate effect of redistribution channels in the open economy. Analysis is done using microdata from Uruguay and an open-economy HANK model. Foreign-currency leverage by high-MPC households are key to shock amplification:
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What a wonderful talk! We've really made a lot of progress since Mundell-Fleming, and there's so much more to do in this field. Some topics of personal interest (which I think deserve their places in the IPF):
It is time for "New Foundations for International Macro Policy" & to update our textbooks. You can watch my lecture here:
@Susan_Athey
's kind introduction starts at minute 34 & my lecture at minute 40.
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See you soon :)
The program for the 2024 Adam Smith Workshop in Asset Pricing and Corporate Finance is now available:
18 super exciting papers out of 684 submissions (an acceptance rate of only 2.6%).
The conference will be held at LSE on April 18-19, 2024.
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Let me tell you what's really harmful for inclusion in econ/fin academia: hefty conference registration fees, even for presenters. I'll not name names but basically the numbers are saying that if you're not a full professor with research funds you can fk off. That's the tweet.
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Given that it's finally up on the Brookings event list, should say I'm super excited about what we're going to present on the global dollar cycle. Save the date :)
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Super happy to start the day with this great news. Congrats to one of the nicest in the profession
@itskhoki
!
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Sharing something I've been working on for a while -- quantifying the aggregate impact of external shocks to a small open economy through redistribution. Comment/suggestion appreciated :)
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Oh no… Alesina-Dollar and Burnside-Dollar 2000 were among the first batch of papers that brought me to the discipline.
Brookings is deeply saddened by the passing of Senior Fellow David Dollar. David was exceptional in every way—a world-renowned expert, and tremendous friend and colleague.
Our thoughts are with his loved ones. He will be deeply missed.
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I know it's a trendy topic and you are supposed to say nice things about it blah blah blah. But I just don't get it from this graph...
‘For Whom the Bell Tolls’ brings new evidence on the link between climate change and income inequality, finding that an increase in climate vulnerability is positively associated with rising income inequality, particularly in developing countries.
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Great chapter!
Smaller
#EmergingMarket
government debt markets tend to be less liquid. Developing liquid and resilient markets for government debt is a key policy objective
#BISQuarterly
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Congrats! :)
Congratulations to Ph.D. candidate
@ZiangLi_
on his outstanding job market paper and subsequent award of the 2023 Ben Bernanke Prize in Financial and Monetary Economics!
Learn more about this award and Li's research:
@MarkusEconomist
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stunning
I still find it extraordinary that so many are willing to defend a dehumanizing system where teenagers are reduced to one single racist variable in order for their future to be determined.
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great paper!
Global flight-to-safety shocks are the most important shocks driving world GDP growth in an estimated DSGE model:
#IFDPPapers
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Here's my podcast debut. Thanks for listening :)
A strong dollar can lead to global risk aversion and increased liabilities for emerging markets who hold debt in dollars.
“It’s kind of a double whammy for them,” says Mauriece Obstfeld on the latest
#BPEApodcast
->
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Yes! Great work! Congrats
@rafaguntin
!
Forthcoming in the AER: "The Micro Anatomy of Macro Consumption Adjustments" by Rafael Guntin, Pablo Ottonello, and Diego J. Perez.
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Paper 1: With my wonderful coauthor
@i_aldasoro
and Sebastian Doerr, we look at how non-banks act as significant shock amplifier in the syndicated lending market:
New paper alert!!
**Non-bank lending during financial crisis**
(joint w/ S Doerr &
@Haonan_Zhou
)
A large literature studies how bank lending contracts around crises; we show that non-banks contract their syndicated lending by over 50% more than banks
Comments welcome!
1/
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Come to
#SFSCavalcade
to hear my coauthor talk about signaling of emerging market firms through currency choice this afternoon (Capital Structure track), and me discussing China's internationalization of the bond market tomorrow afternoon (IAP track), both starting at 1:30!
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Substantially updated version of our paper on CIP deviations, for this year's ISoM:
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The field of academic econ has entered into an era where disclosure statements are no longer relevant.
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I struggle to understand this. Is this suggesting: 1) classic macro topics like inflation / growth affect only the very rich? 2) Those omitted from this year’s P&P (trade etc) aren’t relevant to 95% of the ppl? I’m not an old guard, not even a newbie. Just sincerely curious.
Economists (then): focuses most research on 5% of the world's population
Economists (now): what if we look at what's happening to the other 95%?
Old guard: whoa, whoa, whoa, why are you making everying about race, gender and class?? Those people aren't "the economy".
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Paper 2: We model a signaling channel of foreign-currency borrowing for emerging market corporates: High-quality firms signal repayment ability against information asymmetry by taking on risks from currency mismatch:
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Then, see you early June at the BIS (and online!) for the 2024 version of the ISOM, where I'll introduce our latest work on heterogeneous investors & monetary policy transmission across borders with Ester and Karen.
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Had a lot of conversations on this issue during last week's BPEA meeting. Make sure to read this great piece by Maury.
Central banks all over the world are rasing interest rates, amplifying each other's policy impact. Maurice Obstfeld warns of danger if they collectively go too far & drive the world economy into an unnecessarily harsh contraction.
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The new BIS working paper by McCauley and Schenk () offers a fascinating historical account of central bank FX swaps, relevant for today's thinking on the design of global financial architecture in supporting dollar liquidity. 1/n
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Will be presenting my JMP and an exciting new work in the making at CEPR ESSIM (Paris) at the end of May.
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@p_ganong
I guess it depends on the inputs and the underlying model, but in a different context Yacine has a suite of Matlab tools for estimating diffusion processes via MLE: . Obviously not applicable to KMV's estimation but might be useful.
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@MoritzLenel
Will missing our meeting and the reading group! Thanks Moritz, for so many things…
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"... agreement that [integrated policy framework] were very difficult to operationalize and had little impact in practice, even if they may be useful in theory. In the survey, less than 20% of CBs indicated that these frameworks had some influence on their decision to intervene."
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I'll end here, but if you're interested, I'd really appreciate your thoughts on the paper. And while I have you here: check out my website with more papers on international finance and macro: 🔚
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Mark in a suit and looking good!
Mark Aguiar’s plenary
@SEDmeeting
, finding policies that are Pareto improving in the presence of the empirically rich micro heterogeneity
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But back to the main question at stake: HTM/AFS make sense only when the holder has stable liabilities. And now the govt rewards regulatory arbitrage by backstopping risk-taking.
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I left a lot unsaid here, including 1⃣ the wealth channel of global financial cycle amplification in my model; 2⃣ the role of inelastic asset demand; and 3⃣ a bunch of other counterfactuals (check the paper!). But the ✉️ is hopefully clear: a diverse investor base is desirable.
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As we reflect on discrimination/implicit racism, maybe we shouldn't forget this:
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great paper!
Global tightening cycles can amplify financial transmission of monetary policy across countries. In the data, contractionary monetary shocks have larger effects in periods of global tightening. (1/2)
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Every time I see an SDR-related proposal floating around, I go back to Maury's fantastic paper on SDR: .
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My trip to Asia will begin with presentations of two papers in Hong Kong and a discussion at my favorite conference in China:
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Well. Technical issues aside (per my discussion with others the model’s not solved properly), what bothers me the most is: Twitter is the perfect place to make a fuss, but it’s super distracting because the real place for having these conversations is the peer review process.
Lots of discussion this week about the Smets-Wouters as a statistical model paper. I tried to replicate some of their results, this thread contains what I found:
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More on 1: deeper understanding of the distinct structure of EM FX markets (NDF, large CIP deviations), different policy approaches (e.g., Malaysia vs. India on fwd mkt segmentation), and spillover (currency hedging cost). Coming soon this month: an IMF WP taking the first look.
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2. Sovereign default. The current build of IPF is almost silent on the fiscal side of the picture, and on the interaction between CFM/FXI & external borrowing. And connection to 1: issuance strategies in response to the Global Financial (and Dollar) Cycle.
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So there's something special about these investors. E.g., banks, insurers and pensions (ICPFs) are different from investment funds. They dampen the impact of global shocks on bond prices, and buy bonds during "risk-off" episodes like the Taper Tantrum, when inv. funds liquidate.
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I'll do a "policy-relevant" version of my JMP at DebtCon7, also in Paris.
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Check out the thread, as well as the QR piece —
🚨New
@bis_org
WP out!🚨
*Non-bank lending during crises*, joint with Sebastian Doerr and
@Haonan_Zhou
tl;dr: non-banks curtail credit by significantly more than banks during crises & the value of lending relationships explains most of the gap
👇thread
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Will then visit one of my favorite cities for the 2024 version at the BSE summer forum, discussing an exciting paper.
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Macro📈: we see a close relationship between EM's sovereign yield spread beta to global risk factors (say the VIX) vs. measures of foreign investor composition. In the paper, you'll also see that the stronger is the presence of investment funds, the higher the sensitivity.
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A couple of non-technical summaries of our recent works (1/2) --
#SUERFpolicybrief
"A friend in need is a friend indeed? Nonbanks and lending relationships during crises" by
@i_aldasoro
(
@BIS_org
), Sebastian Doerr (BIS), and
@Haonan_Zhou
(
@Princeton
)
#NonBanks
#SyndicatedLoans
#FinancialCrises
#FinancialStability
#RelationshipLending
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@momin_rayhan
@MarkusEconomist
It's incorporated in the loss function you give to the network. Say you want to impose a Dirichlet condition. You just pick some points on the boundary and tell the neural network to minimize the distance between the solution and the boundary condition you specify.
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Key takeaway: important to take segmentation into account when looking at EM deviations from interest parity. Meanwhile, onshore isolation from global factors could coexist with excessive sensitivity of NDFs offshore.
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Adding some reactions to a thought-provoking piece by
@pogourinchas
and Chang-Tai Hsieh on
@ProSyn
: 1/n
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These findings guide my quantitative model of EM sovereign debt market with 1⃣ different types of lenders with realistic demand structures; 2⃣ local AND global shocks (I want to understand how important is the global financial cycle), in the hope that it matches data (it does!)
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The comments in Luis' tween simply miss the point. It's a second-order issue that a labor paper is categorized as gender-related (hey, even the P&P thinks that way!). It's a first-order thing when topics relevant to the economy are simply missing. Period.
In the AEA Conference Papers and Proceedings: no macro, no inflation, no fiscal policy, nothing on the stimulus, no monetary policy, no climate, no industrial organization, no trade, nothing on long term growth.
Aprox. 20 papers on race, 20 on gender.
Right balance?
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Well said by Gourinchas, Rey and Sauzet (NBER WP25782). The paper offers a comprehensive narrative of research on international monetary system with some interesting historical perspectives.
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1. Shallow financial markets are key in deriving policy implication in the IPF. But market segmentation is endogenous. There's a reason why, even after enlarged foreign participation in LC bond market, UIP gaps still play a big role and we are talking about "original sin redux".
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First Libra and now this. Let’s admit one thing: some people get lucky and get licensed to throw around money achieving nothing. What does this inform us on optimal policy design against misallocation, inequality and the macroeconomy?
I wanted to share that we are starting a new company called
@lightspark
to explore, build and extend the capabilities and utility of
#Bitcoin
. As a first step, we’re actively assembling a team to dive deeper into the Lightning Network. (1/3)
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Why do we care about this pattern? Ans: to understand shock transmission. Background: 1⃣ External financial factors explain a large chunk of variation of EM asset prices ("global financial cycle"); 2⃣ short horizon of EM's borrowing subjects them to volatility in funding cost.
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With all respect, I don’t understand this logic. Give me a primitive shock that the central bank is responding to. Simply calling shocks demand or supply fluctuations is not structural at all…
It is again annoying that some people claim that monetary policy is not contributing to the disinflation process and/or that the Phillips Curve is dead because we are not observing an increase in unemployment or a large recession given the sizable interest rate hikes. (1/19)
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@momin_rayhan
@MarkusEconomist
Also in practice I find for highly nonlinear problems you need a very small timestep (potentially lower accuracy) for finite diff (this could also apply to MCA and Hansen-Khorami-Tourre). Handling boundary conditions in two dimensions or more is also tricky for finine diff.
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Wow this is bold and I’m amazed at one’s courage to tweet something like this. I don’t understand banking, but I’ve at least read something published less than 40 years ago and I know Brunnermeier-Pedersen and Brunnermeier-Sannikov…
I think I've concluded that the fundamental problem with economists trying to model banking is that they don't know what banks are. So they create models with institutions that are almost but not entirely unlike banks, and call them models of banking.
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"Which foreign investors sort into what markets" could matter a lot to EM dynamics when we think of the "Taper Tantrum" shocks, and may warrant a closer look at appropriate policy response. More on the first part in a few months, and hopefully on the second part some time later.
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Typical survivorship bias, what kind of rhetoric is that? Why don't nytime journalist go on and ask some "expert witness" econ professor? He surely would do a better job for Yale.
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I do want to mention some limitations (a.k.a. work-in-progress worth a second paper): 1⃣ I don't have a theory (yet) on EM's best issuance strategy in this (realistic) mkt setting; 2⃣ I haven't put my model in GE -- investors put money in/out of EMs because I tell them to do so.
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@momin_rayhan
@MarkusEconomist
Here the prereq would be methods applicable to high-dimensional problems. You can do finite difference on adaptive sparse grids (but then the naive upwinding still violates Barles-Souganidis. See Schaab-Zhang paper)
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EM central banks’ policy in currency market integration varies. On one hand you have Malaysia not recognizing NDF trading offshore, on the other hand RBI recently allows more domestic participation in NDFs. Follow-up works could have a better sense what’s the optimal arrangement.
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For those who like to read papers with nice typesetting, it's finally out here:
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@momin_rayhan
@MarkusEconomist
re: timestep -- you want your algorithm to converge fast, so you can't really pick a dt that's too tiny. On boundary conditions: most off-the-shelf algorithms for 2d problems (like d'Avernas-Vandeweyer) assume away boundary conditions.
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My question is simply what was driving this institution (disclaimer: where I used to work) to come up with such a paper. It's not like they are bad economists and it's not like it's the official position... but still I find it absurd.
The first question you should ask when you see something like this is: "If increasing interest rates work by cooling demand, how much of inflation is caused by demand?". If "demand" is not an option, you should not pass Go and proceed directly to causality jail. 1/2
#econtwitter
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@MissChangHe
@PrincetonEcon
Thanks Chang! Really enjoyed reading your great JMP. Look forward to meeting you soon after the market :)
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@stevehouf
Agree, although I guess if you’re a producer of the literature it’s quite hard to use it well if you only know the tool but not where it comes from
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After reading this I’m more convinced: this kind of wallet should just do fiat because apparently the guy running this doesn’t know what he’s talking about
A lot has been said about stablecoins, payments, and Facebook and Novi's potential role to improve what I see as an unacceptable status quo of our payment systems that still leave too many people behind. Here's my take:
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2) Analogy to the spike in cross-currency basis at quarter-ends and year-ends due to regulatory constraints (see the seminal paper by Du, Tepper and Verdelhan): is it optimal for central banks to close down the basis? 4/4
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