NAVIGATING DOLLAR FUNDING SHORTAGE AND TRADE INTERVENTIONS: IMPLICATIONS FOR MACROECONOMIC STABILITY AND EXCHANGE RATE DYNAMICS

This dissertation studies how the country-level dollar funding shortage affects the country's macroeconomy, and how to what extent the exchange rate can offset the trade barriers. Chapter 1 is written based on my job market paper. I construct a novel measure of dollar funding stress for a sample of 119 economies during the period 1980 - 2021. I name this measure the "Dollar Funding Shortage" (DFS) index. The DFS index is a countrylevel assessment of countries' dollar funding conditions, and is constructed through text classifications using a natural language processing (NLP) model. I document that systemic dollar funding crises are more prevalent than other financial crises, and typically happen simultaneously with or precede currency and banking crises. Empirically, I find that such idiosyncratic dollar funding stress can adversely affect GDP, bank dollar lending, imports, and exports by firms that are more dependent on external dollar financing. Chapter 2 is coauthored with economists at the International Monetary Fund. We answered the question of how does the exchange rate react to trade interventions? In this chapter, we revisit the classical model of trade protectionism's impact on the exchange rate based on a high-frequency global trade actions dataset. By constructing an accurate measure of trade policy shocks at the product-line level, our approach allows quantifying the exchange rate offset on trade interventions. Using the panel local projection method, we show that 1) a 1 percent increase of uniform import tariff will be offset by a 0.05-0.1 percent appreciation of the home currency to foreign currency, 2) non-tariff barriers (NTBs) have a larger impact on the exchange rate movements, 3) exchange rate responds differently to tariff announcements versus inception, with the home currency depreciating in between the announcement and the inception date.