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The Bitcoin–Macro Disconnect
Benigno, Gianluca; Rosa, Carlo (2023-02-01)
This paper investigates the link between Bitcoin and macroeconomic fundamentals by estimating the impact of macroeconomic news on Bitcoin using an event study with intraday data. The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.
Staff Reports , Paper 1052

Working Paper
“Good” Inflation, “Bad” Inflation: Implications for Risky Asset Prices
Bonelli, Diego; Palazzo, Berardino; Yamarthy, Ram S. (2025-01-06)
Using inflation swap prices, we study how changes in expected inflation affect firm-level credit spreads and equity returns, and uncover evidence of a time-varying inflation sensitivity. In times of “good inflation,” when inflation news is perceived by investors to be more positively correlated with real economic growth, movements in expected inflation substantially reduce corporate credit spreads and raise equity valuations. Meanwhile in times of “bad inflation,” these effects are attenuated and the opposite can take place. These dynamics naturally arise in an equilibrium asset ...
Finance and Economics Discussion Series , Paper 2025-002

Journal Article
The Economic Effects of a Potential Armed Conflict Over Taiwan
Neely, Christopher J. (2025-02-26)
This article examines the likely economic effects of a Chinese invasion or blockade of Taiwan for the U.S. and the world by considering historical precedents. Such a conflict would likely produce a flight-to-safety in the asset market, huge disruptions in international trade, and banking problems, and it would greatly exacerbate existing fiscal pressures. The authorities of the People’s Republic of China would probably try to sell U.S. and other western securities prior to a conflict to avoid sanctions on those assets. Such sales would be temporarily disruptive but would likely have only ...
Review , Volume 107 , Issue 3 , Pages 1-23

Report
Intergenerational Redistribution in the Great Recession
Heathcote, Jonathan; Krueger, Dirk; Rios-Rull, Jose-Victor; Glover, Andrew (2014-05-20)
We construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of big recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase ...
Staff Report , Paper 498

Working Paper
How Can Asset Prices Value Exchange Rate Wedges?
Lewis, Karen K.; Liu, Edith X. (2022-11-07)
When available financial securities allow investors to optimally diversify risk across countries, standard theory implies that exchange rates should reflect this behavior. However, exchange rates observed in the data deviate from these predictions. In this paper, we develop a framework to value the welfare costs of these exchange rate wedges, as disciplined by asset returns. This framework applies to a general class of asset pricing and exchange rate models. We further decompose the value of these wedges into components, showing that the ability of goods markets to respond to financial ...
Finance and Economics Discussion Series , Paper 2022-075

Discussion Paper
The International Spillover of U.S. Monetary Policy via Global Production Linkages
di Giovanni, Julian (2021-01-06)
The recent era of globalization has witnessed growing cross-country trade integration as firms’ production chains have spread across the world, and with stock market returns becoming more correlated across countries. While research has predominantly focused on how financial integration impacts the propagation of shocks across international financial markets, trade also influences these cross-border spillovers. In particular, one important aspect, highlighted by the recent work of di Giovanni and Hale (2020), is how the global production network influences the transmission of U.S. monetary ...
Liberty Street Economics , Paper 20210106

Working Paper
Uncertainty, Stock Prices and Debt Structure: Evidence from the U.S.-China Trade War
Ozdagli, Ali; Wang, Jianlin (2022-08-19)
Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent with bank debt providing insurance for zombie firms in bad economic times.
Working Papers , Paper 2212

Working Paper
International Asset Markets and Real Exchange Rate Volatility
Bodenstein, Martin (2006)
The real exchange rate is very volatile relative to major macroeconomic aggregates and its correlation with the ratio of domestic over foreign consumption is negative (Backus-Smith puzzle). These two observations constitute a puzzle to standard international macroeconomic theory. This paper develops a two country model with complete asset markets and limited enforcement for international financial contracts that provides a possible explanation of these two puzzles. The model performs better than a standard incomplete markets model with a single non-contingent bond unless very tight borrowing ...
International Finance Discussion Papers , Paper 884

Discussion Paper
How Unconventional Are Large-Scale Asset Purchases?
Rosa, Carlo; Tambalotti, Andrea (2014-03-03)
The large-scale asset purchases (LSAPs) undertaken by the Fed starting in late November 2008 are widely considered to be a form of ?unconventional? monetary policy. Although these interventions are certainly unprecedented, this post shows that their effect on financial conditions is not that unconventional, in the sense that the relative effects of the LSAPs on returns across broad asset classes?nominal and real government bonds, stocks, and foreign exchange?are quite similar to those of more conventional policies, such as a reduction in the federal funds rate (FFR).
Liberty Street Economics , Paper 20140303

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