Working Papers

The Development of Domestic Bond Markets [Job Market Paper]

This paper documents the importance of government debt in facilitating the development of corporate bond markets. Using micro-level data from Brazil, I exploit variation in the supply of government bonds at different maturities to estimate the causal effect of additional government debt outstanding on firm issuance decisions. I find that at early stages of development, government debt is a complement for corporate debt, implying that additional government debt outstanding at a given maturity causes firms to issue more. These effects ultimately increase long-term debt issuance and investment across firms, with stronger responses from companies with higher asset duration. However, as markets mature and government debt levels rise, I document a shift from complementarity to substitution. This evidence can be rationalized through government debt reducing corporate pricing uncertainty by providing pricing benchmarks and facilitating price discovery in bond markets.

International Currency Competition
with Christopher Clayton, Matteo Maggiori and Jesse Schreger.  November 2024.

We study how countries compete to become an international safe asset provider. Governments in our model issue debt to a common set of investors, resulting in competition as issuance by one country raises required yields for all countries. Governments are tempted ex post to engage in expropriation or capital controls, and can build reputation as a safe asset provider by resisting temptation to do so. We show how increased competition deters countries from building reputation, leaving more countries stuck at low reputation levels and unable to supply safe assets. We derive a model-implied measure of country reputation. We estimate this reputation measure using micro-data on investor portfolio holdings, and use it to track the evolution of countries' reputation over time. We study how an incumbent safe asset provider, like the U.S., uses its issuance strategy to deter the emergence of competitors.

Publications

Intenationalizing Like China
with Christopher Clayton, Matteo Maggiori and Jesse Schreger.  Conditionally Accepted, American Economic Review. September 2024.

• Non-Technical Brief

• Selected Media Coverage: Bloomberg | The Economist | Business Insider

We empirically characterize how China is internationalizing its bond market by staggering the entry of different types of foreign investors into its domestic market and propose a dynamic reputation model to explain this strategy. Our framework rationalizes China’s strategy as trying to build credibility as a safe issuer while reducing the cost of capital flight. We use our framework to shed light on China's response to episodes of capital outflows. 

China in Tax Havens
with Christopher Clayton, Antonio Coppola, Matteo Maggiori and Jesse Schreger.  AEA Paper and Proceedings. May 2023.

• Related Non-Technical Brief

• Data and Code

• Selected Media Coverage: New York Times | Bloomberg

We document the rise of China in offshore capital markets. Chinese firms use global tax havens to access foreign capital both in equity and bond markets. In the last twenty years, China’s presence went from raising a negligible amount of capital in these markets to accounting for more than half of equity issuance and around a fifth of global corporate bonds outstanding in tax havens. Using rich micro data, we show that a range of Chinese firms, including both tech giants and SOEs, use these offshore centers. We conclude by discussing the macroeconomic and financial stability implications of these patterns.