Essays in international macro-finance and asset pricing

Thesis

This thesis consists of three self-contained chapters, the first two of which address topics in international macro-finance, and the last of which turns to asset pricing.

Chapter 1 develops a two-country model with liquidity constraints to study why a decline in one country’s government bond liquidity (or convenience) yield relative to another is typically accompanied by depreciation of the first country’s currency. A shock that makes a country’s bond less saleable triggers substitution across investment types, lowers total investment, and generates a trade surplus, weakening the exchange rate. The same shock simultaneously drives down the bond’s liquidity yield. The mechanism does not depend on any privileged status for U.S. assets.

Chapter 2 analyses loan-to-value ratio macroprudential policy in a two-country setting inspired by the “global saving glut” in the early 2000s, using Germany and Spain as an illustrative pair. The paper considers three policy regimes: internationally cooperative optimisation, a non-cooperative optimisation by national policymakers, and a benchmark of no policy response. The paper compares the policy regimes’ ex-ante welfare implications. While international cooperation predictably dominates, the study finds that the non-cooperative regime can, through competitive policy distortions, deliver even lower welfare than doing nothing. Sensitivity checks identify parameter ranges in which this ranking reverses.

Chapter 3 addresses cryptocurrency valuation, particularly the observed rapid price growth. It proposes a model in which investors are uncertain about eventual adoption demand and update their beliefs based on noisy signals over time. Early uncertainty is met with heavily discounted prices. Subsequently, gradual learning raises the price level and lowers the variance of price growth, matching key empirical patterns.

Authors: Wulfsohn, M

• DOI: 10.5287/ora-zb59w18gn
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: learning; asset pricing; government bonds; macroprudential policy; international cooperation; liquidity; bitcoin; global saving glut; financial frictions; exchange rates; cryptocurrency