Hello and welcome to my website! I am an assistant professor of economics at UC Berkeley. Prior to joining Berkeley, I was an assistant professor of finance at Stanford GSB.
UPDATE: I am co-organizing the following conferences:
NBER Summer Institute IFM Data Session on July 10 in Cambridge, MA with Jesse Schreger (Columbia GSB).
SITE session on ''Trade and Finance" on July 25-26 at Stanford with Juliane Begenau (Stanford GSB), Adrien Matray (Stanford GSB), and Linda Goldberg (Federal Reserve Bank of NY).
The conference will feature papers on international economics, finance, and banking.
Second Annual GCAP conference on September 27-28 at Columbia with Antonio Coppola (Stanford GSB), Matteo Maggiori (Stanford GSB), and Jesse Schreger (Columbia GSB).
The conference will feature papers on international economics and finance broadly defined.
My research is on international macroeconomics and finance, banking, and trade, often through the lens of economic history.
I am affiliated with the NBER and CEPR.
I am an Associate Editor at the Journal of Political Economy.
Please email me if you are interested in part-time research assistance opportunities.
PUBLICATIONS
"Reshaping Global Trade: The Immediate and Long-Term Effects of Bank Failures"
Quarterly Journal of Economics (2022)
Bibtex • Abstract • Draft • Online Appendix • Replication
@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}
}
Publisher Version (Open Access)
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.
Awards: AQR Top Finance Graduate Award, BlackRock Applied Research Prize Finalist, French Finance Association Research Prize, Economic History Society New Researcher Prize, World Economic History Congress Poster Prize
Media: Econimate Video • Trade Talks Podcast • Telegraph UK • Economist • Microeconomic Insights • Hoover Institute • Stanford GSB Insights
"Banking Crises in Historical Perspective"
Annual Review of Financial Economics (2023)
with Carola Frydman
Bibtex •
Abstract •
Draft •
Slides
@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},
}
Publisher Version (Open Access)
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.
Media: Alternatives Economiques
"Real Effects of Supplying Safe Private Money"
Journal of Financial Economics (2024)
with He Yang
Bibtex •
Abstract •
Draft •
Online Appendix •
Replication
@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.
Awards: WFA Cubist Systematic Strategies PhD Candidate Award for Outstanding Research
Media: VoxEU • Stanford GSB Insights
RESEARCH
"Liquidity, Debt Denomination, and Currency Dominance"
with Antonio Coppola and Arvind Krishnamurthy
Bibtex •
Abstract •
Draft
@techreport{coppola2023liquidity,
title={Liquidity, Debt Denomination, and Currency Dominance},
author={Coppola, Antonio and Krishnamurthy, Arvind and Xu, Chenzi},
year={2023},
type={Working Paper},
institution={National Bureau of Economics Research}
}
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.
Media: Stanford GSB Insights
"EXIM's Exit: The Real Effects of Trade Financing by Export Credit Agencies"
with Adrien Matray, Karsten Mueller, and Poorya Kabir
Bibtex •
Abstract •
Draft •
Replication •
Certification of Reproducibility
Media: VoxEU • Stanford GSB Insights
@techreport{matray2024exim,
title={EXIM's exit: The real effects of trade financing by export credit agencies},
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---the predominant tool of industrial policy---on firm behavior by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015--2019 as a natural experiment. We show that a 1% reduction in EXIM trade financing reduces exports in an industry by approximately 5%. The impact on firms' total revenues implies that the export shock has positive pass-through to domestic sales, and firms contract investment and employment. These negative effects for the average firm are amplified by increased capital misallocation across firms as those with higher ex-ante marginal revenue product of capital contract more. We model the effect of EXIM trade financing as lowering two types of input cost wedges: an exporting firm's financing friction, and an importer market friction. We show that both frictions are empirically relevant, indicating that even in well-developed financial markets, the supply of trade financing is plausibly constrained. These results provide a framework for the conditions under which Export Credit Agencies can boost exports and firm growth, and can act as a tool of industrial policy without necessarily leading to a misallocation of resources.
"Branching Out: Bank Deregulation and Long-Run Growth"
with Sarah Quincy
Abstract
We document that one of the largest waves of bank deregulation in the United States occurred in the immediate aftermath of the Great Depression when states, for the first time in their histories, meaningfully relaxed limitations on bank branching. By the eve of the interstate branching deregulations of the 1970s, over 70% of banking offices were already part of a branch network. However, the overall prevalence of branching belies significant and persistent geographic heterogeneity as banking regulation had remained largely unchanged in the subsequent decades. Using a county border pair design, we show that counties in states which deregulated branching during the 1930s experienced consistently higher deposit and manufacturing sector growth through the 1990s than those just across the border in unit banking only states.
"Robust Elasticity Estimates in Disaggregated Data"
with Paul Beaumont and Adrien Matray
Abstract
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.
"The Financing Channel of Gains From Trade"
with Carlos Burga and Adrien Matray
Abstract
We provide empirical causal evidence that international trade can generate wealth that relaxes collateral constraints in the banking sector, leading to increased credit to both the traded and non-traded sectors of the economy. Using Peru's Free Trade Agreement with China in 2009 as a shock to product-level trade costs, we trace out the impact on exporting firms, the banking sector, and finally the non-traded sector of the economy. First, exports to China in the product categories with the largest change in tariffs grew differentially more than product exports to other destinations. Exporting firms differentially exposed to the change in tariffs grew and became more profitable. Banks indirectly exposed to these exporting firms through their loan portfolio also grew, became more profitable, and extended more credit. Firms that were indirectly exposed to the trade shock through their banks also received more credit. We decompose these increases in firm borrowing and find that 62% of the increase in lending was to firms in the non-traded sector despite these firms being an overall smaller component of the aggregate economy.
"Origins of Serial Sovereign Default"
with Sasha Indarte
Abstract
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.
Funding: NSF Grant #2117003
"International Banks: Re-Agents of Globalization"
with Wilfried Kisling and Chris M. Meissner
Abstract
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.
Funding: British Academy Leverhulme Grant
Other Writing
"The Dirty Little Secret of Credit Card Rewards Programs"
New York Times Op-Ed (2023)