My research combines models of reserve demand with daily central bank and bank-level data to study monetary policy implementation and the distribution of liquidity adjustment across banks. Related work examines inflation expectations, external accounts, and money-market fragility.
I study why Bangladesh’s overnight rate moved away from its target after the adoption of interest rate targeting in July 2023. A reserve demand model adapted to Bangladesh’s reserve requirements links responses to reserve shocks to expected future rates and reserve-maintenance deadlines. The central bank’s daily forecast errors in currency in circulation and the government’s net position with the central bank, from 2016 to 2024, allow comparisons across monetary targeting and two interest rate targeting episodes. In one episode, the overnight rate stayed near its target; in the other, near the ceiling. The evidence largely supports the model predictions. The findings suggest that the reserve market could support the new regime, while the persistent deviations are consistent with the central bank’s limited ability to supply reserves. A deeper domestic government securities market would widen the instruments available for reserve provision.
Who Absorbs a Reserve Drain? Monetary Operating Frameworks and Distributional Reserve Scarcity
Under review · draft available on request
A two-layer model and daily bank-level data examine where an unexpected reserve drain becomes visible in aggregate reserve market outcomes and which banks bear the adjustment.
Abstract
This paper asks where an unexpected reserve drain becomes visible in aggregate reserve market outcomes and which banks bear the adjustment. A two-layer model links aggregate reserve adjustment to the unsecured funding banks obtain before the maintenance deadline. In daily Bangladesh data, drains are measured by the central bank’s one-day-ahead forecast errors for currency in circulation and the government’s net position with the central bank. The overnight rate registers a drain differently across three operating regimes: monetary targeting and two interest rate corridor episodes. Banks’ unsecured borrowing responses to a drain differ with their reserve-maintenance pressure and prior financing premiums in every regime, including the regime in which the overnight rate does not respond significantly. The mechanism does not depend on statutory reserve requirements. It applies wherever banks can defer adjustment until an operational deadline.
Imported Energy Shocks: Inflation Expectations, Monetary Policy, and Distributional Effects
Survey evidence, FRB/US simulations, and a household exposure framework examine how the anchoring of inflation expectations shapes the monetary policy response to imported energy shocks.
Abstract
This paper studies how inflation expectation anchoring may shape the monetary policy response to imported energy shocks. Anchoring is measured from the New York Fed consumer survey for 2013 to 2019. In FRB/US simulations of the same oil price shock, drifting perceived trend inflation produces more persistent inflation and a larger policy rate response. A household exposure framework traces these paths across household groups. Preliminary group-level survey estimates are consistent with weaker anchoring leading to larger revisions of medium-run inflation expectations after oil shocks. Preliminary results show no clear evidence of aggregate amplification, and the simulated distributional effects remain to be established empirically.
The Role of External Account Dynamics in Transitions to Higher Income Status: Panel Data Evidence
Data for 184 countries from 1976 to 2017 document how external accounts change as economies move to higher income status, with panel estimates of the roles of the real exchange rate and global financial conditions.
Abstract
Using data for 184 countries from 1976 to 2017, this paper documents how external accounts change as economies move from lower-middle to upper-middle and high-income status. Export and FDI ratios to GDP rise across income groups, while import tariff revenue falls relative to GDP. Preliminary panel fixed-effects estimates for 1992 to 2017 show that real exchange rate appreciation lowers the export ratio in lower-middle and upper-middle-income countries but not in high-income countries. Global financial conditions strongly influence capital inflows in the two higher groups.
Global Liquidity Components, Depository Corporations, and Money Market Fragility
Monthly data for 12 economies link global liquidity conditions and depository corporations’ balance sheets to the risk of sharp overnight rate spikes.
Abstract
This paper identifies predictors of money market stress, defined as sharp overnight rate spikes, using monthly data for 12 developing, emerging, and advanced economies. The predictors are global liquidity conditions and depository corporations’ balance sheet indicators. Preliminary panel probit estimates for December 2001 to August 2009 show that cyclical deviations in depository corporations’ foreign liabilities relative to domestic credit raise the risk of overnight rate spikes. So does real exchange rate appreciation. Cyclical deviations predict stress more strongly than cumulative cyclical deviations.