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 Global Financial Crisis (GFC) and the Covid-19 pandemic. To explain these observations, I develop a New Keynesian Preferred Habitat model with repo featuring market segmentation, financial frictions, and preference shocks. The stochastic discount factor captures both financial and macroeconomic conditions. In this framework, financial market tensions can trigger real recessions, even in the absence of fundamental disruptions. The model illustrates a flight-to-liquidity demand during the GFC, and a flight-from-safety supply during the Covid-19 pandemic. The findings suggest that the effectiveness of monetary policies depends on financial frictions and the relative importance of the cash versus repo borrowing channels. Overall, this paper underscores the strong linkage between financial markets 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.