@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---the predominant tool of modern industrial policy---on exports and firm investment by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015--2019 as a natural experiment. We document sizable real effects of the shutdown: a $1 reduction in EXIM trade financing reduces exports by approximately $4.50. EXIM-dependent firms experience a contraction in total revenues, investment, and employment. EXIM's shutdown has the largest effects for exporters facing financing frictions and selling to markets with high contractual frictions, indicating a plausible underprovision of trade financing by private financial institutions. Consistent with these findings, we find that the shutdown increased the misallocation of capital because it particularly affected firms with a higher ex-ante marginal revenue product of capital. Our 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 distorting the allocation of resources in the economy.

@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 financial market structure on capital mobility by examining a formative but understudied episode in U.S. banking history---the first wave of state-level bank branching reforms in the 1930s---which led to over 70% of banking offices operating in branch networks by 1970. Combining state-level panel data, county-border discontinuity designs, and newly digitized bank- and branch-level balance sheets, we find that branching generated persistent gains in local financial and economic development, especially in underserved areas despite no statewide financial deepening. We construct a new metric, Deposit Market Access (``DMA''), to capture the potential funding available to a locality based on the geographic footprint of bank networks, and show that it can explain these patterns. We provide direct evidence from branch-level balance sheets that internal capital markets systematically reallocated funds from deposit-rich to credit-constrained locations. Our findings indicate that the organizational structure of banking can reduce spatial frictions that hinder capital allocation and create persistent economic gains.

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.