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Working Paper
A model of the Twin Ds: optimal default and devaluation
Yue, Vivian Z.; Schmitt-Grohe, Stephanie; Na, Seunghoon; Uribe, Martin (2015-04-01)
This paper characterizes jointly optimal default and exchange-rate policy in a small open economy with limited enforcement of debt contracts and downward nominal wage rigidity. Under optimal policy, default occurs during contractions and is accompanied by large devaluations. The latter inflate away real wages, thereby avoiding massive unemployment. Thus, the Twin Ds phenomenon emerges endogenously as the optimal outcome. In contrast, under fixed exchange rates, optimal default takes place in the context of large involuntary unemployment. Fixed-exchange-rate economies are shown to have ...
FRB Atlanta CQER Working Paper , Paper 2015-1

Working Paper
Bank Financing of Global Supply Chains
Alfaro, Laura; Presbitero, Andrea F.; Minoiu, Camelia; Brussevich, Mariya (2025-05-19)
Finding new international suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018–19 US-China trade tensions. We match data on shipments to US ports with the US credit register to analyze trade and bank credit relationships at the bank-firm level. We show that importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit ...
FRB Atlanta Working Paper , Paper 2025-4

Working Paper
Trade Uncertainty and U.S. Bank Lending
Goldberg, Linda S.; Minoiu, Camelia; di Giovanni, Julian; Correa, Ricardo (2024-10-18)
This paper uses U.S. credit register data and the 2018–19 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks' ex-ante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more ...
FRB Atlanta Working Paper , Paper 2024-16

Working Paper
Liquidity Shocks, Dollar Funding Costs, and the Bank Lending Channel during the European Sovereign Crisis
Zlate, Andrei; Sapriza, Horacio; Correa, Ricardo (2016-09-30)
This paper documents a new type of cross-border bank lending channel using a novel dataset on the balance sheets of U.S. branches of foreign banks and their syndicated loans. We show that: (1) The U.S. branches of euro-area banks suffered a liquidity shock in the form of reduced access to large time deposits during the European sovereign debt crisis in 2011. The shock was related to their euro-area affiliation rather than to country- or bank-specific characteristics. (2) The affected branches received additional funding from their parent banks, but not enough to offset the lost deposits. (3) ...
Supervisory Research and Analysis Working Papers , Paper RPA 16-4

Working Paper
Geopolitical Risk and Global Banking
Niepmann, Friederike; Shen, Leslie Sheng (2025-08-01)
How do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those markets through foreign affiliates—unlike their response to other macro risks. Furthermore, banks reduce domestic lending when geopolitical risk rises abroad, especially when they operate foreign affiliates. A simple banking model in which geopolitical shocks feature expropriation risk can explain these ...
Working Papers , Paper 25-7

Working Paper
U. S. monetary policy and emerging market credit cycles
Ivashina, Victoria; Bräuning, Falk (2017-08-29)
Foreign banks? lending to firms in emerging market economies (EMEs) is large and denominated primarily in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers face a 32-percentage-point greater increase in the volume of loans issued by foreign banks than borrowers from developed markets face, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographical regions and industries, and holds for non-U.S. ...
Working Papers , Paper 17-9

Working Paper
The Valuation Effects of Trade
Barbiero, Omar (2021-09-01)
This paper estimates the cash flow and real effects of currency mismatches generated by foreign-priced operations of French manufacturers. The value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. I aggregate foreign-priced operations to the firm level to build a shift-share measure of invoice currency mismatch. This measure outperforms any trade-weighted effective exchange rate index in explaining cash flows of trading firms. Large firms absorb valuation shocks in their balance sheet, and ...
Working Papers , Paper 21-11

Working Paper
The Channels of International Comovement
Barbiero, Omar (2023-10-01)
How does exposure to international markets affect returns and cash flow comovements? Foreign bond owners, lenders, affiliates, investors, customers, and suppliers all transmit country shocks to companies. Most multinationals have many of these exposures simultaneously within the same foreign market. Returns and cash flows of two companies comove when exposed to the same country through the same channel. Within-country exposure through different channels is generally associated with lower comovement, in line with an operational hedging strategy. This evidence can help reconcile how, on ...
Working Papers , Paper 23-16

Working Paper
Risk Sharing and Amplification in the Global Banking Network
Shen, Leslie Sheng; Zhang, Tony (2024-04-01)
We develop a structural model of the global banking network and analyze its role in facilitating risk sharing and amplifying shocks across countries and over time. Using bilateral international lending data, we uncover significant heterogeneity in the willingness and capacity of banks to provide cross‐border interbank and corporate loans. This heterogeneity explains variation in risk sharing and amplification across countries. Moreover, we show that cross‐border loan supply has become less elastic overtime, resulting in a decline in risk sharing. While shock amplification has also ...
Working Papers , Paper 24-4

Working Paper
Inflation, Debt, and Default
Hur, Sewon; Perri, Fabrizio; Kondo, Illenin O. (2018-09-28)
We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of ...
Working Papers (Old Series) , Paper 1812

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