Qian Wu

Qian Wu

PhD Candidate in Economics

Research

A New Keynesian Preferred Habitat Model with Repo (JMP)

This paper documents puzzling discrepancies in the Treasury cash and repo markets during the GFC and Covid-19. To explain these empirical observations, I develop a New Keynesian Preferred Habitat model that features market segmentation, financial frictions, and quality preference. I demonstrate a flight-to-liquidity demand for short-term Treasuries during the GFC, but a flight-from-safety supply for long-term Treasuries during Covid-19, emphasizing the role of (in)convenience yields during market distress. The model also verifies that repo rates are more ``risk-free” as they contain no price risk premia. Financial frictions reduce the transmission of conventional policy but enhance the effectiveness of QE. Additionally, the efficacy of monetary policies depends on the relative importance of the repo borrowing channel versus the cash borrowing channel. Overall, the results highlight the strong linkage between financial frictions and the real economy.

SOFR So Good? New Benchmark Interest Rate and Crowding-Out Effect

This paper examines the scarce collateral channel through which government debt may create an additional crowding-out effect on asset prices and macroeconomic variables under the SOFR regime. An increased supply of Treasuries diminishes their scarcity value, leading to higher borrowing costs for Treasury holders in the repo market and an increase in the SOFR. I provide empirical evidence demonstrating that rising government debt correlates with an increase in SOFR. I then build a stylized model where LIBOR or SOFR can index the business coupon rate. This scarce collateral channel allows public debt to impact the real economy under the SOFR regime without relying on distortionary taxes, though quantitative analysis indicates that the effect in general equilibrium is minimal.

ESG Investment, Consumption, and Production (with Christian Heyerdahl-Larsen)

We analyze the neutrality of ESG strategies with an Arrow–Debreu(AD) model of general equilibrium with production, time, and uncertainty. We show that when the market is complete, because investors can always replicate the payoffs of any portfolio, the SRI is neutral if it does not affect consumption or production preference. Conversely, socially responsible consumption (SRC) and socially responsible production (SRP) are effective in allocating capital to firms with positive aggregate externalities, thereby influencing real economic outcomes.