@article{xu2022reshaping,
title={Reshaping global trade: the immediate and long-run effects of bank failures},
author={Xu, Chenzi},
journal={Quarterly Journal of Economics},
volume={137},
number={4},
pages={2107--2161},
year={2022},
publisher={Oxford University Press}
}

I show that a disruption to the financial sector can reshape the patterns of global trade for decades. I study the first modern global banking crisis originating in London in 1866 and collect archival loan records that link multinational banks headquartered there to their financing abroad. Countries exposed to bank failures in London immediately exported significantly less and did not recover their lost growth relative to unexposed countries. Their market shares within each destination remained significantly lower for four decades. Decomposing the persistent market-share losses shows that they primarily stem from lack of extensive margin growth, as the financing shock caused importers to source more from new trade partners. Exporters producing more substitutable goods, those with little access to alternative forms of credit, and those trading with more distant partners experienced more persistent losses, consistent with the existence of sunk costs and the importance of finance for intermediating trade.

@article{frydman2023banking,
title={Banking Crises in Historical Perspective},
author={Frydman, Carola and Xu, Chenzi},
journal={Annual Review of Financial Economics},
year={2023},
volume={15},
pages={265--290},
}

This article surveys the recent empirical literature on historical banking crises, defined as events taking place before 1980. Advances in data collection and identification have provided new insights into the causes and consequences of crises both immediately and over the long run. We highlight three overarching threads that emerge from the literature: First, leverage in the financial system is a systematic precursor to crises; second, crises have sizable negative effects on the real economy; and third, government interventions can ameliorate these effects. Contrasting historical episodes reveals that the process of crisis formation and evolution varies significantly across time and space. Thus, we also highlight specific institutions, regulations, and historical contexts that give rise to these divergent experiences. We conclude by identifying important gaps in the literature and discussing avenues for future research.

@article{xu2024real,
title={Real effects of supplying safe private money},
author={Xu, Chenzi and Yang, He},
journal={Journal of Financial Economics}
, year={2024},
volume={157},
pages={103868},
}

Privately issued money often bears default risk, which creates transaction frictions when used as a medium of exchange. The late 19th century US provides a unique context to evaluate the real effects of supplying a new type of money that is safe from default. We measure the local change in "monetary" transaction frictions with a market access approach derived from general equilibrium trade theory. Consistent with theories hypothesizing that lowering transaction frictions benefits the traded and inputs-intensive sectors, we find an increase in traded goods production, in the share of manufacturing output and employment, and in innovation.

@article{coppola2025currency,
title={Currency development through liquidity provision},
author={Coppola, Antonio and Krishnamurthy, Arvind and Xu, Chenzi},
journal={American Economic Association Papers and Proceedings},
year={2025},
volume={115},
}

Drawing on the experiences of the historical Eurodollar market and recent Chinese dollar bond issuances traded outside U.S. jurisdiction at negative spreads to Treasurys, we examine the conditions under which a parallel offshore dollar financial system that circumvents Western sanctions may emerge. We propose a model in which currency use is driven by liquidity provision and safe bond supply. We characterize three equilibrium regimes: high convenience yields emerge in both the initial sanctions-driven region and the final liquidity-driven region, separated by an intermediate region. Transitions between equilibria depend on safe-asset supply and liquidity technologies, in addition to endogenous dynamic complementarities.

@techreport{coppola2023liquidity,
title={Liquidity, debt denomination, and currency dominance},
author={Coppola, Antonio and Krishnamurthy, Arvind and Xu, Chenzi},
year={2023},
type={NBER Working Paper 30984},
}

The international monetary system of the last four centuries has experienced the rise, persistence, and fall of specific currencies as the dominant unit of denomination in global debt contracts. We provide a liquidity-based theory to explain this pattern. Firms issue debt that can be extinguished by trading their revenues for financial assets of the same denomination. When asset markets differ in their liquidity, as modeled via endogenous search frictions, firms optimally choose to denominate their debt in the unit of the asset that is most liquid. Equilibria with a single dominant currency emerge from a positive feedback cycle whereby issuing in the more liquid denomination endogenously raises the benefits of that denomination. This feedback mechanism has historically been seeded by governments that created the largest pool of liquid assets in the same denomination. Once dominance is established, a country's costs of investing in the ability to create liquid assets, such as by increasing fiscal capacity, are lower while the incentives to do so are higher, thereby entrenching dominance. We explain the historical experiences of the Dutch florin, the British pound sterling, the US dollar, and the transitions between them. Our theory highlights normative features of liquidity provision in the international monetary system through the lens of the Bretton Woods arrangement, and we discuss the implications of modern policy tools such as central bank swap lines. We rationalize the current dollar-dominant international financial architecture and provide predictions about the potential rise of the Chinese renminbi.

@techreport{matray2024exim,
title={EXIM's exit: Industrial policy, export credit agencies, and capital allocation},
author={Matray, Adrien and Mueller, Karsten and Xu, Chenzi and Kabir, Poorya},
year={2024},
type={NBER Working Paper 32019},
}

We study the role of Export Credit Agencies---a key tool of modern industrial policy---on exports, firm investment, and capital misallocation by using the effective shutdown of the US Export-Import Bank (EXIM) from 2015--2019 as a natural experiment. We document three results. First, EXIM has large causal effects: a $1 reduction in EXIM trade financing reduces aggregate US product-level exports by $4.50, and EXIM-dependent firms experience substantial contractions in revenues, investment, and employment. Second, shutting down EXIM increases capital misallocation by disproportionately affecting firms with high marginal revenue product of capital (MRPK) while leaving low-MRPK firms largely unaffected. Third, consistent with frictions in private capital markets distorting capital allocation, we find that the effects are concentrated among financially and contractually constrained firms and destination countries. Our results show that even in advanced economies with developed financial markets, industrial policy can improve capital allocation when it targets identifiable market failures in financing.

@techreport{mueller2025global,
title = {The Global Macro Database: A New Historical Dataset of Macroeconomic Statistics},
author = {Mueller, Karsten and Xu, Chenzi and Lehbib, Mohamed and Chen, Ziliang},
year = {2025},
type = {Working Paper},
}

The Global Macro Database is an open-source, continuously updated dataset of macroeconomic statistics that unifies and extends existing resources. By harmonizing and integrating data from 32 major contemporary sources--including the IMF, World Bank,and OECD--with historical records from 78 additional datasets, we construct comprehensive annual time series for 46 variables across 243 countries. This database covers global macroeconomic trends from the origins of modern data collection to projected estimates for 2030. Using this extensive database, we study the long-run output losses of financial crises and global temperature shocks, two applications in which historical time series are a crucial input. Our findings show that financial crises are associated with statistically detectable contractions in real GDP for five decades into the future, which are considerably larger than previously estimated. Temperature shocks also predict real GDP contractions up to 30 years ahead, especially in emerging economies.

@techreport{jiang2025dollar,
title = {Dollar upheaval: This time is different},
author = {Jiang Zhengyang and Krishnamurthy, Arvind and Lustig, Hanno and Richmond, Robert and Xu, Chenzi},
year = {2025},
type = {Working Paper},
}

What can we learn from the high-frequency responses in bond and currency markets to the recent tariff announcement about the status of the U.S. dollar as the global reserve currency? The dollar depreciated by 6.5% after April 1 in spite of rising U.S. interest rates and market volatility, which is highly unusual. The willingness of foreign investors to pay extra for the safety of dollar safe assets, including but not limited to U.S. Treasury, has declined. These asset market responses suggest that investors started to question the role of the dollar as the reserve currency.

@article{quincy2025branching,
title={Branching out: Capital mobility and long-run growth},
author={Quincy, Sarah and Xu, Chenzi},
year={2025},
type={Working Paper},
}

We study the long-run effects of the first wave of U.S. banking market integration on capital mobility and manufacturing productivity. Using newly digitized bank and branch balance sheet data matched to state and county panels, we provide direct evidence that branching produced lasting productivity gains without aggregate capital deepening by leveraging internal capital markets to improve the geographic allocation of capital. Our novel "deposit market access" measure shows that bank funding grew most in capital-constrained counties within branching states. Both market access and border discontinuity designs indicate that branching's organizational structure reduced capital allocation frictions to generate persistent growth.

@article{quincy2025big,
title={Big bad branches? Entry regulation after bank failures},
author={Quincy, Sarah and Xu, Chenzi},
year={2025},
type={Working Paper},
}

This paper documents and rationalizes a significant, previously overlooked shift in U.S. state banking regulation between the 1920s and 1930s. Using a newly constructed, comprehensive database of state banking laws from 1925 to 1940, we show that contrary to the conventional view that regulations loosen during booms and tighten after crises, states restricted bank entry in the 1920s and eased these restrictions during and after the Great Depression. The central force was an urban-rural political realignment in which rural areas that had supported higher bank capital requirements in the 1920s reversed course in the 1930s. Capital requirement increases in the 1920s raised barriers to entry, reducing the number of banks without subsequently lowering requirements when banks exited. In the 1930s, faced with bank failures and bankless communities, these same states turned to legalizing branch banking as an alternative means of restoring credit access. Our findings show how regulatory capture can become self-defeating: the very entry barriers that protected incumbent banks during the boom made it prohibitively expensive to replace them during the bust, ultimately transforming rural communities from defenders of local banking monopolies into advocates for the "big bad branches" they had previously opposed.

@article{bilal2025climate,
title={Climate change and financial stability: 1850--2024},
author={Bilal, Adrien and Ilhan, Emir and Kanzig, Diego and Mueller, Karsten and Xu, Chenzi},
year={2025},
type={Working Paper},
}

This paper shows that rising global temperature erodes financial stability. We combine macro-financial data covering more than 180 countries over 150 years with a time series approach based on natural climate variability. Our estimates imply that a permanent 1 degree C increase in global temperature increases the risk of a sovereign debt crisis by 20 p.p. and a banking crisis by 15 p.p. Sovereign debt rises by 55%, debt-to-GDP ratios increase by 22 p.p., and government expenditures soar due to the underlying economic losses. Crisis risk is concentrated in emerging economies. In contrast, a comparable analysis using local temperature shocks detects mostly negligible effects.

The increasing availability of microdata has enabled researchers to decompose economic shocks across multiple dimensions, such as breaking down country exports by firms, products, and destinations or analyzing city employment across industries and firms. However, this level of disaggregation presents new empirical challenges, such as accounting for the extensive margin and handling with heterogeneous treatment effects when the number of observations varies nonrandomly across agents. Our research demonstrates that standard regressions using log-transformed dependent variables are biased in most settings and can misrepresent the true effects of additional controls on the elasticity of the variable of interest. To address these issues, we propose a new methodology based on the aggregation properties of arc elasticity. This approach is particularly useful for: (i) expressing the total elasticity of a shock as a weighted sum of intensive and extensive margins; (ii) disaggregating data to control for additional unobserved heterogeneity; and (iii) testing for potential spillovers and violations of the Stable Unit Treatment Value Assumption (SUTVA) in a model-free way. Our method provides a robust framework for analyzing highly disaggregated economic data, offering insights that traditional approaches may overlook.

What explains the differences in how often countries default on their external debt and how quickly they re-access external credit markets afterwards? While some countries borrow again within a few years, often only to default again, others remain excluded for decades. In this paper we first document this pattern of "serial" default in the London market during the period from 1820 to 1939 using the frequency, duration, and scale of default. We provide a model of investor learning about sovereigns' likelihood of default based on the publicly observed circumstances of default, which generates predictions for their bond prices and terms of future issuance. Second, we test these hypotheses using a newly created dataset of text-based measures of the circumstances of borrowing and default. These qualitative measures come from the universe of historical financial newspapers published in Britain, and they allow us to more fully capture the information set that was available to investors.

We introduce novel data on the universe of multinational banking activity during the first age of globalization from 1870 1914 and show that these financial connections significantly increased trade volumes. First, we describe the data and show that the distribution of countries `exporting' banks is very skewed: the top four exporters are responsible for almost 80% of all multinational banks. Second, we show that there is a significant positive relationship between a multinational banking connection and exports using a standard gravity framework. We also employ a near-neighbors approach to disentangle the causal effect of bank entry from the possibility that banks simply anticipated exports growth.