TATJANA SCHULZE - Research

Working Papers

"Demystifying Trade Patterns in a Fragmenting World"
(with Weining Xin)
[IMF Working paper No. 2025/129]

So-called “connector” countries have been argued to benefit from the US-China trade tensions, given their rising share in US imports. This paper draws an important distinction between trade reallocation—countries increase domestic production to substitute for declining Chinese exports to the US—and trade rerouting—countries serve as one-stop place for transshipment of Chinese exports to the US. Leveraging granular data on trade and FDI flows and global input-output linkages, focusing on six Asian countries, we first document that the connector role of these countries may reflect their growing domestic markets and Chinese supply chain reconfiguration, beyond trade rerouting from China to the US. We then zoom in on value-added components and deploy a synthetic control approach to disentangle trade reallocation from trade rerouting. While the evidence remains elusive for five of the six countries, Vietnam appears to have benefited from trade reallocation, with increased domestic content in its exports to the US in strategic sectors, instead of facilitating significant transshipment of Chinese exports to the US. Such domestic production expansion also helped increase domestic content in Vietnam’s exports to the rest of the world, and may be partly due to Chinese firms relocating to Vietnam through greenfield FDI. Despite potential short-term gains, trade reallocation increases connector countries’ vulnerability to geoeconomic fragmentation with losses to all countries in the long run.

"Corporate Credit Risk and Capital Flows in Emerging Market Economies"
[Working paper]

Emerging market (EM) corporate debt carries ambiguous risks: an attractive investment opportunity to some, heightened credit risk may also deter capital from abroad. Using the universe of USD-denominated corporate bonds issued by non-financial firms in a large sample of EM countries and tax havens, I show that credit spreads on corporate bonds can explain international capital flows. Importantly, they do so after controlling for well-known drivers of capital flows such as global risk, US monetary policy, and EM sovereign risk. I exploit idiosyncratic shocks to granular bond issuers to identify the causal effect of domestic corporate credit risk on capital flows. In a static country panel framework, I find robust evidence that EM corporate credit risk serves as an attractor of international capital flows. The results of a dynamic panel local projections exercise further suggest that the build-up of corporate credit risk over time can unleash capital flow reversals, deteriorate the terms of trade, lower output, and raise unemployment by a significant order of magnitude. My findings thus reconcile the empirical and theoretical literature on push and pull factors of international capital flows.

Figure: The Excess Bond Premium (EBP) of EMEs and the EBP of Gilchrist & Zakrajšek (2012) display a strong correlation before the Global Financial Crisis (60%) but a low correlation (22%) over the past decade . The EME-EBP is based on an unbalanced panel of 27 EMEs. The EBP estimated by Gilchrist and Zakrajšek (2012) for the US is publicly available via the Federal Reserve.

"Financial Shock Transmission to Heterogeneous Firms: the Earnings-Based Borrowing Constraint Channel"
(with Livia Chitu, Magdalena Grothe, and Ine van Robays)

[IMF Working Paper No. 2023/196] [ECB Working Paper No. 2860]

We study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs. We disentangle these two shocks in a structural Bayesian Vector Autoregression framework and investigate their respective effects on prices of equities and bonds issued by heterogeneous firms using micro-data for the US. We tease out mechanisms underlying the effects by contrasting traditional financial frictions arising from asset-based collateral constraints with the recent earnings-based borrowing constraint hypothesis, differentiating firms across leverage and earnings. Our empirical evidence strongly supports the earnings-based borrowing constraint hypothesis. We find that global risk shocks have stronger and more heterogeneous effects on corporate funding costs which depend on firms' position within the earnings distribution.

Figure: Difference in credit spreads between the tail of weakest firms and the median firm computed based on leverage and profitability

“The Zero Lower Bound and Financial Stability: A New Role for Central Banks?”
(with Dimitrios P. Tsomocos)
[Working paper]

Are critics’ concerns for bank profitability a justification for the European Central Bank to raise interest rates from the (zero) lower bound (ZLB)? Using a general equilibrium model with banks and collateral default, we analyze optimal monetary and regulatory policy upon departure from the ZLB. Rather than supporting bank profits, higher interest rates depress inflation when higher debt servicing costs increase losses from default. Precisely these losses offset any gains from banks’ interest margin. Monetary policy operates beyond traditional channels, stressing the relevance of Fisherian debt-deflation forces. They warrant incorporating financial stability objectives into central banks’ objective function.

Figure: Default losses under different weights on monetary policy and financial stability objectives in the central banks' objective function.

Work in Progress

Drivers of Exchange Rates in EMDEs - Implications for Foreign Exchange Intervention"
(with Ozge Emeksiz, Andres Fernandez and Nikhil Patel)

"FX mismatch and Earnings-Based Borrowing Constraints"
(with Giada Bozzelli and Mai Hakamada)

Policy Work

IMF Article IV Consultations

“Cambodia 2024 Article IV Consultation - Staff Report”, International Monetary Fund, January 2025.

“Vietnam 2024 Article IV Consultation - Staff Report”, International Monetary Fund, September 2024.

“Selected Issues Paper: An Application of the Integrated Policy Framework to Vietnam”, International Monetary Fund, September 2024.

IMF Staff Discussion Notes

"Geoeconomic Fragmentation and the Future of Multilateralism", January 2023, IMF SDN 2023/001.