Research

Treasury Bill Shortages and the Pricing of Short-Term Assets , 2024, The Journal of Finance (with Adrien d'Avernas) [ internet appendix ]

Abstract: We propose a model of post-GFC money markets and monetary policy implementation. In our framework, capital regulation may deter banks from intermediating liquidity derived from holding reserves to shadow banks. Consequently, money markets can be segmented, and the scarcity of Treasury bills available to shadow banks is the main driver of short-term spreads. In this regime, open market operations have an inverse effect on net liquidity provision when swapping ample reserves for scarce T-bills or repos. Our model quantitatively accounts for post-2010 time series for repo rates, T-bill yields, and the Fed's reverse repo facility usage.

Intraday Liquidity and Money Market Dislocations , 2025, Management Science (with Adrien d'Avernas and Baiyang Han) [ working paper version ]

Abstract: This paper proposes a new model of monetary policy implementation to account for two key developments: (i) the introduction of intraday liquidity requirements and (ii) the decreasing relevance of the federal funds market in favor of repurchase agreement (repo) markets with nonbank participants. Our paper studies how liquidity requirements prevent banks from arbitraging between the fed funds and repo mrkets and generate large repo spikes. We propose a simple measure of excess intraday reserves. Consistent with our theory, this metric is close to zero in 2019Q2, when U.S. repo markets experienced a spike of 400 basis points.

Central Bank Balance Sheet and Treasury Market Disruptions [Updated October 2025; R&R (2nd round), The Journal of Finance] (with Adrien d'Avernas and Damon Petersen)

Abstract: We study how banking regulation and the central bank balance sheet jointly influence Treasury market fragility. In a dynamic general equilibrium model, leverage-ratio requirements push Treasuries from banks to unregulated hedge funds that arbitrage the cash-futures basis, while intraday reserve regulations constrain banks' repo lending to hedge funds when repo funding is stressed. As a result, the likelihood and severity of disruptions---and, via hedge funds' compensation for liquidity risk, the cash-futures basis---depend on the size of the central bank's balance sheet and the expected duration of shocks.

The Implications of CIP Deviations for International Capital Flows [Updated September 2024; R&R, The Journal of Finance] (with Christian Kubitza and Jean-David Sigaux)

Abstract: We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors' holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices. Our findings shed light on a new determinant of international capital flows with important consequences for financial stability.

Can Stablecoins be Stable?  [Updated December 2025; R&R, Management Science] (with Adrien d'Avernas and Vincent Maurin)

Abstract: This paper proposes a framework to analyze the stability of stablecoins -- cryptocurrencies designed to peg their price to a currency. We study the problem of a monopolist platform earning seignorage revenues from issuing stablecoins and characterize equilibrium stablecoin issuance-redemption and pegging dynamics, allowing for various degrees of commitment over the system's key policy decisions. Because of two-way feedback between the value of the stablecoin and its ability to peg the currency, uncollateralized (pure algorithmic) platforms always admit zero price equilibrium. However, with full commitment, an equilibrium in which the platform maintains the peg also exists. This equilibrium is stable locally but vulnerable to large demand shocks. Without a commitment technology on supply adjustments, a stable solution may still exist if the platform commits to paying an interest rate on stablecoins contingent on its implicit leverage. Collateral and decentralizing stablecoin issuance help stabilize the peg.

Equilibrium in DeFi Lending Markets [Updated March 2024; Working Paper] (with Thomas Rivera and Fahad Saleh)

Abstract: We study lending in decentralized finance facilitated by a programmable interest rate rule set by a Protocol for Loanable Funds (PLF). PLFs suffer a disadvantage when compared to traditional lending platforms, given their inability to incorporate off-chain information into the borrowing and lending rates that they set. For this reason, for a pre-determined PLF interest rate function, the DeFi equilibrium is sub-optimal when compared to a competitive lending market equilibrium. We nonetheless show that an optimally designed PLF interest rate function is able to generate equilibrium interest rates, and therefore welfare, that is arbitrarily close to a competitive lending market equilibrium.

Discount Factors and Monetary Policy: Evidence from Dual-Listed Stocks , 2026, Journal of Financial Economics (with Minghao Yang and Constantine Yannelis) [ working paper version ]

Abstract: This paper studies the transmission of monetary policy to the stock market through investors' discount factors. To isolate this channel, we examine the effect of U.S. monetary policy surprises on the price ratio of the same stock listed simultaneously in Hong Kong and Mainland China. We identify a strong discount rate channel driven exclusively by cycle-amplifying surprises, defined as rate cuts during easing cycles and surprise hikes during tightening cycles. A 100 basis point cycle-amplifying surprise induces a 30 basis point change in the price ratio within five days.

The Fiscal Cost of Quantitative Easing  [January 2025; Working Paper] (with Adrien d'Avernas, Antoine Hubert de Fraisse, and Liming Ning)

Abstract: Quantitative easing (QE) shortens the duration of the consolidated public balance sheet by swapping long-term government bonds for short, floating-rate liabilities, thereby shifting interest-rate risk onto taxpayers. In segmented bond markets, absorbing duration from the marginal investor can support real activity, but it also generates state-contingent losses that must be financed with distortionary taxes. We quantify the resulting ex ante fiscal-efficiency cost by forecasting QE-portfolio return distributions and mapping these into expected tax deadweight losses under a conservative terminal tax rule. Across all recent U.S. QE programs, the expected costs total 0.24\% of GDP under risk-neutral valuation and 0.94\% as an upper bound. Relative to published benefit estimates, each QE program appears to have a positive NPV at inception.