Research

Publications

Robust difference-in-differences analysis when there is a term structure
With Kjell G. Nyborg, Journal of Financial Economics, 170, August 2025, 104081

For variables with a term structure, the standard differences-in-differences (DiD) model is predisposed toward misspecification, even under random assignment, because of heterogeneity over the maturity spectrum and imperfect matching between treated and control units. Estimated treatment effects that are false, biased, or hard to interpret become a concern. Neither unit fixed effects nor standard term-structure controls resolve the problem. Solutions that overcome imperfect matching involve estimating the term structure of hypothesized treatment, which is also what is economically interesting (regardless of matching efficiency). These issues are not unique to DiD analysis, but are generic to group-assignment settings.

Working papers

The Price of Money: The Reserves Convertibility Premium over the Term Structure
With Kjell G. Nyborg
Swiss Finance Institute Research Paper No. 24-17, February 2024

Central bank money provides utility by serving as means of exchange for virtually all transactions in the economy. Central banks issue reserves (money) to banks in exchange for assets such as government bonds. If additional reserves have value to a bank, an asset’s degree of convertibility into reserves can affect its price. We show the existence of a government bond reserves convertibility premium, which tapers off at longer maturities. The degree of convertibility is priced, but heterogeneously so. Our findings have implications for our understanding of reserves, liquidity premia, the term structure of interest rates, and central bank collateral policy.

(An earlier version circulated under the title “The price of money: How collateral policy affects the yield curve”)

The reserves convertibility premium and liquidity constraints
With Kjell G. Nyborg and Benjamin Schneider
Working paper, November 2024

We provide evidence that the marginal value of reserves to banks is embedded in some asset prices. Reserves are the ultimate medium of exchange, and banks need sufficient reserves as a hard constraint to operate. If constraints bind, theory suggests that the marginal value of reserves can be transmitted to those securities that marginal banks hold and the central bank accepts as collateral in exchange for additional reserves. Consistent with this, using Eurozone data, we show the existence of reserves convertibility premia in some government bonds when domestic banks are highly stressed and constraints bind.

Collateral, Central Bank Repos, and Systemic Arbitrage
With Falko Fecht, Kjell G. Nyborg, and Jörg Rocholl
Swiss Finance Institute Research Paper Series No. 16-66, November 2016

Central banks are under increased scrutiny because of the rapid growth in, and composition of, their balance sheets. Therefore, understanding the processes that shape these balance sheets and their consequences is crucial. We contribute by studying an extensive dataset of banks’ liquidity uptake and pledged collateral in central bank repos. We document systemic arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the financial crisis and may contribute to financial fragility and fragmentation.

Central bank liquidity policy and the cross-section of bank equity returns
September 2022

This paper examines abnormal bank equity returns around the announcement and implementations of the largest central bank liquidity operations to date. Those were conducted by the European Central Bank (ECB) at the height of the sovereign debt crisis in 2011 and 2012. I find that banks in countries perceived as being relatively riskier at the time experienced larger positive abnormal equity returns. Relating country-level abnormal returns to country-level liquidity uptake shows that banks with higher liquidity uptake profit disproportionately more from larger returns over this period. This provides evidence that the ECB alleviates stress in the euro area through the provisioning of relatively more liquidity to banks in riskier countries.