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Working Papers

Term Premia and Credit Risk in Emerging Markets: The Role of U.S. Monetary Policy,” 2021. (Paper | Appendix).

Changes in U.S. monetary policy lead to a reassessment of policy rate expectations and of risks in emerging markets.   Abstract: This paper documents the channels through which U.S. monetary policy impacts the sovereign bond yields of emerging markets. Traditional decompositions of sovereign yields are not suitable for emerging markets because they rely on a default-free assumption. Instead, I decompose the yields of 15 emerging markets into average expected future short-term interest rates, a term premium and compensation for credit risk. I use this decomposition to analyze the transmission channels of U.S. monetary policy surprises identified with intraday data. I find that the response of emerging market yields to target, forward guidance and asset purchase surprises is economically significant, yet delayed over days. In addition, unanticipated U.S. monetary policy decisions lead to a reassessment of policy rate expectations and a repricing of interest and credit risks in emerging markets. Finally, U.S. unconventional monetary policies limit the monetary autonomy of emerging markets along their yield curves.  


Does the Exchange Rate Respond to Monetary Policy in Emerging Markets? Evidence from Mexico,” 2021. (Paper)

Intraday data solves the exchange rate puzzle in emerging markets.   Abstract: This paper addresses the exchange rate puzzle in emerging markets. While monetary policy in advanced economies exerts a strong impact on exchange rates, existing evidence for emerging markets shows that the response is small, nonexistent or inconsistent with standard open economy models. I use a new dataset of intraday changes in asset prices around policy events to estimate the impact of monetary policy on the exchange rate and the yield curve in Mexico. I find that an unanticipated increase in the policy rate appreciates the currency and flattens the yield curve, in line with the evidence for advanced economies. Comparing intraday and daily changes in asset prices reveals that, unlike the yield curve, the response of the exchange rate is sensitive to data frequency as it is only perceived using intraday data. I show that the puzzle is the result of wide event windows when measuring changes in the exchange rate with daily data, giving rise to a standard omitted variable bias.  


Price and Quantity Effects of Monetary Policy Actions and Statements in an Emerging Economy,” 2021. (Paper | Slides)

Asset prices and portfolio flows respond to monetary policy actions and statements.   Abstract: This paper studies the effects of monetary policy actions and statements on the exchange rate, the yield curve and portfolio flows in Mexico. Surprises about the current policy rate and about its future path communicated via statements are identified using a new dataset of intraday changes in asset prices around monetary policy announcements. I show that bond yields and portfolio flows respond significantly to both types of surprises. Domestic and foreign investors rebalance their portfolios over time following monetary policy decisions; for domestic investors, the rebalancing depends on their business model. Meanwhile, the exchange rate only reacts to surprises about the current policy rate and the effect is not persistent.  


Do Banks Hedge Their Return on Assets from Monetary Policy Shocks?” 2019. (Paper)

Banks use different strategies to insulate their return on assets from monetary policy shocks.   Abstract: Using bank-level data from Mexico, this paper shows that banks insulate their return on assets (ROA) from monetary policy changes using different strategies. The ROA components of some banks are insensitive to changes in monetary policy, especially their net interest margin (NIM) since they match their interest income and expenses. Meanwhile, other banks offset changes in their NIM with other ROA components. The strategy implemented depends on the charter (domestic or foreign) and business model. For example, the largest banks do not match their interest income and expenses. Subsidiaries of foreign banks, however, are closer to matching than domestic banks.  


Stock Returns and the Drivers of Portfolio Equity Flows in Emerging Markets,” 2019. (Paper)

Stock market returns can be used to identify global and domestic factors in portfolio equity flows.   Abstract: This paper uses stock market returns to identify common (global) and idiosyncratic (domestic) factors in the portfolio equity inflows of emerging markets. The analysis covers 16 emerging markets from 1999 to 2015. A portfolio allocation model guides the identification strategy in vector autoregression models. The evidence is consistent with the predictions of the model. I find that global shocks mainly drive portfolio equity inflows, whereas global and domestic shocks drive stock market returns.  


The Structure of the Mexican Interbank Market,” Banco de México mimeo, 2013. (Paper | Slides)

The Mexican interbank market has a core-periphery structure.   Abstract: This paper provides evidence that the Mexican interbank market is tiered. I fit the core-periphery model developed by Craig and von Peter (2010) to 157 daily networks (from January 3 to August 15, 2011) of bilateral exposures (aggregated and disaggregated) between 41 commercial banks and 6 development banks. The main findings are (i) the core-periphery model provides a better fit to the Mexican interbank market than random networks, that is there are money center banks that intermediate with the rest of the banks in the market, (ii) the size and the composition of this group of banks is remarkably stable over time for aggregated (and some disaggregated) networks, (iii) the relations (borrowing and lending) between banks in the core and the periphery are asymmetric. The results are robust and significant.  



The Impact of Macroeconomic News from Mexico and the U.S. on the Mexican Stock Market” with Rodolfo Cermeño Bazán, Economía Mexicana (renamed Latin American Economic Review in 2014), 2012, 35-67. [In Spanish] (Paper)

Stock returns in Mexico are associated with macroeconomic surprises from Mexico and the U.S.   Abstract: This paper studies the relationship between the arrival of macroeconomic news and the Mexican stock market. We use GARCH models to examine the reaction of daily excess returns of stock prices to surprises in Mexican and U.S. macroeconomic releases from 2003 to 2008. We find that the dynamics of daily returns in the Mexican stock market are linked to the arrival of new information on macroeconomic fundamentals from both Mexico and the U.S.  



Bond Flows and Liquidity: Do Foreigners Matter?” by Jens H. E. Christensen, Eric Fischer and Patrick J. Shultz, 2020. (Slides)