Annie Lee

I am an Assistant Professor of International Economics at Johns Hopkins University, SAIS. I received my Ph.D. in Economics from the University of Wisconsin-Madison in May 2022.  

My research interest lies in the determinants of the currency composition of assets and liabilities of governments, private agents, and the aggregate economy. I specifically focus on the role of exchange rate risk in currency choice, and the macroeconomic implications of such choices. 

Primary Research Fields: International Finance and Macroeconomics 

Contact Information:

Curriculum Vitae: CV

Legal Name: Soyean Lee (이소연)

Working  Papers

Revised & Resubmitted at Review of Economics and Statistics

[paper] [slides] This version: December 2023

Abstract:  The surge in foreign currency (FC) corporate debt in emerging economies has sparked concerns about macroeconomic stability, heightened by speculation about non-financial firms engaging in carry trades. Using firm-level data on the currency denomination of both assets and liabilities, we find evidence of firms’ carry trades: firms save in local currency liquid assets and earn higher interest income after issuing short-term FC debt. They also set aside FC liquid assets as FX risk buffers. A large degree of heterogeneity in incentives is observed. Notably, listed firms participate more in carry trades and allocate less FX risk buffers than non-listed firms.

Presented at:  Midwest Macro Fall 2022, Society for Economic Dynamics 2023

First version:  November 2021  

[paper] [slides] This version: January 2024

Abstract: We explore the negative balance sheet effect of foreign currency borrowing on the exchange rate pass-through to domestic prices. Exploiting a large devaluation episode in Korea in 1997, we empirically document that a sector with higher foreign currency debt exposure prior to the crisis experienced a larger price increase. Building a heterogeneous firm model with financial constraints, we quantify the role of foreign currency liabilities in explaining the exchange rate pass-through to prices and find that 15% to 30% of the sectoral price changes during the crisis can be explained by the balance sheet effect of foreign currency debt alone.


Presented at:  Midwest Macro Fall 2019, Korea International Economic Association 2022 Winter Conference at SNU, ASSA Meeting 2023, Ohio State University, Yonsei University, University of Seoul,  NBER East Asian Seminar on Economics 2023, Washington Area International Finance Symposium, 3rd WE_ARE_IN Macroeconomics and Finance 2023,  4th Women in International Economics Conference, Johns Hopkins University - Economics Department, ASSA Meeting 2024, NBER International Finance and Macroeconomics Program Meeting Spring 2024 (scheduled), WE_ARE Virtual Seminar Series (scheduled)

First version: August 2019


[paper] [slides] This version: January 2022

Abstract: Borrowing in foreign currency has historically induced a large currency mismatch on emerging economies' balance sheets, leading to financial instability and economic crises. Nonetheless, emerging market sovereigns still borrow a substantial amount in foreign currency. In fact, in this paper, we find empirically that emerging market sovereigns borrow even more in foreign currency when exchange rate volatility is higher, precisely when it is riskier for them to do so. This paper builds a quantitative sovereign default model with a risk-averse sovereign and risk-averse international investors, where the optimal currency composition of external sovereign borrowing is the outcome of a risk-sharing problem between the borrower and lenders. Emerging economies choose to bear exchange rate risk and borrow in foreign currency because international investors charge a high exchange rate risk premium on emerging market local currency debt. Moreover, the required premium on local currency debt is higher when exchange rate volatility increases, further dissuading emerging economies from borrowing in local currency. The estimated model with high risk aversion of lenders quantitatively matches well the foreign exchange risk premium, the relative borrowing cost in local currency over foreign currency, and the currency composition of external public debt. The model also performs well quantitatively in accounting for positive comovements between the foreign currency share of external public debt and exchange rate volatility, and the relative borrowing cost in local currency over foreign currency and exchange rate volatility. A counterfactual exercise shows that exchange rate stabilization results in a welfare gain to the emerging market sovereign of 0.35% measured in consumption equivalents.

Presented at:  KU Leuven Summer Event 2022,  Asian Meeting of the Econometric Society in China 2022 (AMES), Yonsei University, Society for Economic Dynamics 2022 (SED), Korea-America Economic Association, Midwest Macro Fall 2022, University of Maryland, North American Summer Meeting 2023

First Version: November 2021

[paper] This version: April 2022

Abstract: This paper helps unravel the long-standing equity home bias puzzle by building a model in which an agent infrequently adjusts her portfolio holdings of home and foreign equities. As real exchange rate returns are volatile, an investor who invests in foreign equities and holds on to her portfolio holdings for a long duration is likely to drift away from an optimal allocation. The agent, taking infrequent adjustment into account ex-ante, lowers her demand for foreign equities, generating home bias in equities. The introduction of the euro into various European countries and the enlargement of euro area in subsequent years provide a natural environment in which to validate the implications of the model. We empirically document that European countries experience lower equity home bias after adopting the euro as cross-border equity investment within the euro area entails no nominal exchange rate risk. When the levels of real exchange rate volatility are calibrated to match the average levels for European countries in the euro area and outside the euro area, the model can match the difference in levels of equity home bias between European countries experienced after the introduction of the euro.

Presented at:  North American Summer Meeting  2019 (NASMES 2019), Midwest Macro Fall 2019, Economics Graduate Student Conference 2019 in St.Louis (EGSC 2019),  Western Economic Association International 2021 (Virtual, WEAI 2021)

First version:  December 2018

[paper coming soon]

Abstract: Exploiting a large devaluation in Korea at the end of 1997, this paper investigates the impact of domestic currency depreciation on firms’ exports and their price settings. With a unique dataset that merges firm-level balance sheet information with transaction-level Korean customs data, we find that firms with greater exposure to foreign currency debt tend to increase their export prices following the devaluation, particularly pronounced for smaller firms. Moreover, smaller exporters reduce their export quantities, while larger exporters increase their export quantities when more indebted in foreign currency. The heterogeneous price and quantity responses across firm size potentially arise from large firms indebted in foreign currency not facing the balance sheet disruption as much as smaller firms. On top of that, larger firms may increase their exports to generate more cashflows when they are more indebted in foreign currency as their production capacity is not restricted after the devaluation. The panel data analysis from 2006-2021 confirms the relevance of the financial channel of dollar debt in the exchange rate pass-through to export prices and quantities in more recent periods.

Work-in-progress:


Pre-doctoral Publication: