Xu Zhang

Ph.D. Candidate

My research focuses on the intersection of macroeconomics and finance, both theoretical and empirical. I look at how central bank monetary policy affects financial market participants - households and financial intermediaries - and shed new light on underlying economic mechanisms linking financial markets with the real economy.

Research Statement

Email: xuz039@ucsd.edu

Working Papers

"Evaluating the Effects of Forward Guidance and Large-scale Asset Purchases (Job Market Paper)"  (PDF) "Online Appendix"  (PDF)

This paper evaluates the effects of forward guidance and large-scale asset purchases (LSAP) when the nominal interest rate reaches the zero lower bound. We investigate the effects of the two policies in a dynamic new Keynesian model with financial frictions adapted from Gertler & Karadi (2011, 2013), with changes implemented so that the framework delivers realistic predictions for the effects of each policy on the entire yield curve. We then match the change that the model predicts would arise from a linear combination of the two shocks with the observed change in the yield curve in a high-frequency window around Federal Reserve announcements, allowing us to identify the separate contributions of each shock to the effects of the announcement. Our estimates correspond closely to narrative elements of the FOMC announcements. Our estimates imply that forward guidance was more effective at inflation, while LSAP was more important in influencing output.

"A New Measure of Monetary Policy Shocks"  (PDF) Econbrowser

This paper constructs a new measure of monetary policy shocks that is orthogonal to fundamentals by combining the high-frequency approach of Gürkaynak et al. (2005) and Romer & Romer (2004)'s narrative approach. The empirical features of the new measure are: (i) contractionary monetary policy surprises revise the private sectors' unemployment rate expectation upward and inflation expectation downward; (ii) the hypothesis that the new measure is white noise cannot be rejected at both the daily and the monthly frequency; (iii) the new measure has insignificant effects on the long-term real rates; (iv) the new measure co-moves negatively with the current stock prices and the stock price futures.

Monetary Policy and Household Balance Sheet Heterogeneity

Monetary policy interventions have distributional effects across the population depending on the composition of the assets and liabilities of households. I provide empirical analysis using household- level micro data and document the responses of households’ expenditure, saving and labor market outcome to monetary policy by their balance sheet heterogeneity. My analysis is the first empirical test using the household panel data to confirm the existing literature on heterogenous effects of monetary policy shock based on age and on hand-to-mouth wealthy household. In addition, I find new channels of heterogeneity. When there is an expansionary monetary policy shock, households with the median Loan-to-Value ratio save more than other groups (by 35 percent), suggesting a refinancing channel (by 3 percent). Moreover, having more home equity will mitigate this refi- nancing behavior. In terms of equilibrium labor supply, the responses of the households with high Loan-to-Value ratio supply less working hours (1.5 hours) than other groups, while having more home equity will also mitigate this behavior (by 0.13 hours).

Measuring the Effects of Forward Guidance in a Macroeconomic Framework

I examine the effect of forward guidance monetary policy in a dynamic stochastic general equilibrium model with term structure. Odyssean forward guidance is modeled as anticipated shocks in the central bank's interest rate rule. Delphic forward guidance is modeled as information shocks to the underlying potential output. The model is first estimated with a particle filter with both macroeconomic and yield curve data before 2007, and calibrated using the projection method to consider the zero lower bound. The model shows that the expansionary forward guidance will lower nominal/real bond yields, although the effects on the term premium is small compared to the effects on the risk neutral rate. Furthermore, the medium-term bond yields decrease more than the short-term and longer-term bond yields in response to expansionary forward guidance.