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Articles by Dora Xia
Embracing carbon uncertainty in portfolio construction
Author(s): Dora Xia | Bank for International Settlements (BIS) Omar Zulaica | Bank for International Settlements (BIS) Keywords: Carbon footprints , sovereign debt , portfolio optimization , risk parity JEL Codes: G11 , G28 , Q54 , Q56 This policy brief is based on Xia, F.D. and Zulaica, O. (2026), “Embracing carbon uncertainty in portfolio construction”, BIS Working Papers No 1362.
Embracing carbon uncertainty in portfolio construction
Focus We study how to build sovereign bond portfolios that integrate financial and environmental considerations simultaneously. We introduce the concept of carbon returns, defined as the negative change in carbon emissions for a given country, paralleling the concept of financial returns. This allows us to apply traditional portfolio optimisation algorithms to both financial and carbon returns to guide portfolio choices.
Bond yield responses to macro news: the role of macro forecast disagreement and monetary policy uncertainty
Focus We study how forecaster disagreement and interest rate uncertainty shape bond market reactions to economic data releases. Forecaster disagreement is about what a release will show before it comes out, while interest rate uncertainty is about the future path of rates set by the central bank. We examine intraday movements in US Treasury bond yields around six major economic announcements, including inflation, employment and GDP data, over the period from 1998 to 2024.
Financial channel implications of a weaker dollar for emerging market
The depreciation of the US dollar in 2025 has occurred against the backdrop of continued resilience of trade and economic activity in emerging market economies (EMEs). A depreciating dollar affects both borrowers' and foreign investors' balance sheets and tends to loosen financial conditions in EMEs through the risk-taking channel of exchange rates.
R* in East Asia: business, financial cycles, and spillovers
Focus The neutral real interest rate, or r*, plays a central role in discussions about the stance of monetary policy. Existing estimates of r* focus predominantly on the interest rate that stabilises the economy at the business cycle frequency. However, recent recessions triggered by financial crises have highlighted the need for policymakers to consider not only business cycle stabilisation but also financial cycle dynamics.
Macroeconomic impact of tariffs and policy uncertainty
Tariffs affect economies most directly through trade volume and prices. Tariffs lower output growth everywhere, though the magnitude varies by country and scenario. They also tend to raise inflation, most notably in the imposing countries. Tariffs have indirect effects, including exchange rate shifts, supply chain disruptions, trade diversion and heightened uncertainty. These could worsen growth and inflation effects as well as the policy trade-offs central banks face.
Integrating balance sheet policy into monetary policy conditions
Focus Central banks in many jurisdictions have large balance sheets. This complicates the formulation of monetary policy, as policymakers must account for both short-term interest rates and balance sheet policies. The lack of a unified measure of monetary policy that captures multiple policy instruments also presents challenges for empirical research.
US dollar's slide in April 2025: the role of FX hedging
Home US dollar's slide in April 2025: the role of FX hedging BIS Bulletin | No 105 | Currency hedging by non-US investors holding US dollar securities appears to have made an important contribution to the weakness of the dollar in April and May 2025. In recent years, the strength of the dollar and high currency hedging costs driven by elevated short-term dollar interest rates had discouraged non-US investors from hedging their US dollar exposures.
The role of geopolitics in international trade
Focus International trade has been important for global economic growth for many years. Recently, however, global trade has slowed at the same time as geopolitical tensions have increased. We look at the connection between these developments by studying trade data from 47 economies for around 5,000 sectors between 2017 and 2023. Contribution We use finely disaggregated sectoral data to explore how geopolitical tensions affect trade.
Negative interest rate swap spreads signal pressure in government debt absorption
Interest rate swaps are contracts in which counterparties agree to exchange a series of fixed rate payments for a series of floating payments linked to a benchmark rate. The swap spread is the difference between the interest rate swap rate and the yield on a government bond of the same maturity.
The term structure of inflation forecasts disagreement and monetary policy transmission
Summary Focus As inflation expectations play a crucial role in determining the actual price level, they are closely monitored by central banks. Our paper explores the implication of disagreement about inflation expectations on the transmission of monetary policy to both the real economy and financial markets.
The demand for government debt
Summary Focus We investigate how central bank balance sheet policies affect investor demand for government debt. As central banks embark on quantitative tightening (QT) to shrink their balance sheets, how different sectors will absorb government debt will largely depend on how sensitive their demand is to changes in the yields (or prices) of government bonds.
Looking under the hood: The two faces of inflation
Claudio Borio, Piti Disyatat, Dora Xia, Egon Zakrajšek 25 January 2022 High and low inflation are two very different animals. This column argues that after remaining low and stable for a prolonged period, what we measure as inflation is in fact largely an average of idiosyncratic (relative) price changes and not inflation in the theoretical sense of a generalised increase in prices.
Achievements and challenges in ESG markets
Financial markets can support the transition to a more sustainable and fairer economy by influencing firms' funding costs. To explore this mechanism, we study the extent to which investors respond to signals about the environmental or social benefits stemming from given projects or firms. We find evidence of a carbon risk premium: debt from entities with a higher carbon footprint trades at marginally higher yields, all else the same.
BIS Quarterly Review, March 2021
The pandemic-related financial turmoil of March 2020 (00:02:20) 1 Mar 2021 BIS Quarterly Review, March 2021 A year after the pandemic-induced financial turmoil of last March, BIS economists review some of the lessons on the functioning of non-bank financial intermediaries that were not apparent in the heat of the moment.
Investor size, liquidity and prime money market fund stress
Massive redemptions at money market funds (MMFs) investing primarily in high-quality short-term private debt securities were an important feature of the market dislocations in March 2020. Building on previous studies of the underlying drivers, we find that large investors' withdrawals did not differentiate across prime institutional MMFs according to these funds' asset liquidity positions.
Trade sentiment and the stock market: new evidence based on big data textual analysis of Chinese media
Summary Focus Trade tensions between China and the United States have created volatility in the global stock market in recent years, but their effects are difficult to quantify. News items related to tariffs and other factors, including trade barriers between the two countries, have made the analysis of these effects particularly challenging. For this reason, the literature has thus far mainly analysed case studies that refer to specific episodes with a time horizon of just a few days.
Monetary policy, relative prices and inflation control: flexibility born out of success
Monetary policy, relative prices and inflation control: flexibility born out of success 20 Sep 2021 BIS Quarterly Review, September 2021 Inflation dynamics have changed since the mid-1980s, with important implications for monetary policy. The achievement of low and stable inflation on the back of credible monetary policy frameworks has coincided with a sharp and major drop in the co-movement of prices across finely disaggregated sectors of the economy.
Investors' risk attitudes in the pandemic and the stock market: new evidence based on internet searches
The BIS hosts nine international organisations engaged in standard setting and the pursuit of financial stability through the Basel Process.
Offshore markets drive trading of emerging market currencies
FX markets for emerging market currencies account for almost 25% of global turnover. Patel explains how these markets have evolved in the past few years. (01:54) FX markets for the currencies of emerging market economies grew more rapidly than those for major currencies between 2016 and 2019, rising from 19% to almost 25% of global turnover. At the same time, these currencies attracted a wider range of participants and saw a rapid increase in offshore trading activity.
The financial cycle and recession risk
Online appendix Financial cycle booms can end in crises and, even if they do not, they tend to weaken growth. Given their slow build-up, do they convey information about recession risk? We compare the predictive performance of different financial cycle proxies with that of the term spread - a popular recession indicator. In contrast to much of the literature, our analysis covers a large sample of advanced and emerging market economies.
Explaining Monetary Spillovers: The Matrix Reloaded
BIS Working Papers | No 757 | 20 November 2018 by Jonathan Kearns, Andreas Schrimpf and Dora Xia Summary Focus We study the strength and characteristics of interest rate spillovers from seven advanced economy central banks to 47 advanced and emerging market economies. Our main focus is on the channels through which spillovers occur and why some countries respond more than others to changes in monetary policy in advanced economies.
Term premia: models and some stylised facts
We review methods and models for estimating term premia on long-term government bonds. We then use these models to estimate term premia on US and euro area bonds and explore their recent behaviour. Although the models produce different estimates for the level of term premia, they largely concur on the trends and dynamics.
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