Leverage and Exchange Rate Cycles
, Joint Program in Financial Economics PhD Student
The solo-authored project aims to analyze the leverage cycle and exchange rate cycle in emerging market economies. A dynamic model will be developed to jointly examine the prices (corporate debt prices and exchange rates) and quantities (capital flows) in a small open economy. This research will illuminate several unresolved phenomena in international finance related to emerging market economies, including (1) the time-varying and volatile Uncovered Interest Rate Parity (UIP) premium and (2) sudden stops in capital flows. By integrating these factors into a unified framework, the model seeks to provide a more comprehensive understanding of how leverage and exchange rate cycles interact in these economies. The insights gained from this study are expected to contribute significantly to the literature on international finance, offering new perspectives on the dynamics that drive financial instability in emerging markets.