University of Rochester, Department of Economics
I am an Assistant Professor in the Department of Economics at the University of Rochester. I obtained my Ph.D. in Economics from New York University in 2021. During 2021-22, I was a Postdoctoral Fellow in the International Economics Section at Princeton University. During 2022-23, I worked as a Research Economist in the World Bank Research Department, Macroeconomics and Growth Team.
My research interests are in International Economics and Macro-finance. Here is a link to my CV [Link].
Abstract: We formulate a reputational model in which the type of government is time varying and private information. Agents adjust their beliefs about the government's type (i.e., reputation) using noisy signals about its policies. We consider a debt repayment setting in which reputation influences the market's perceived probability of default, affecting sovereign spreads. We focus on the 2007-12 Argentine episode of inflation misreport to quantify how markets price reputation. We find that the misreports significantly increased Argentina's sovereign spreads. We use those estimates to discipline our model and show that reputation can have long-lasting effects on a government's borrowing costs.
We study the role of firm heterogeneity for investment dynamics in open economies. Using firm-level data from a panel of emerging markets, we document that increases in the global risk premium are followed by heterogeneous investment dynamics, with contractions for risky firms and expansions for risk-free firms. By developing a quantitative heterogeneous-firm open economy model, we show that these cross-sectional empirical patterns can be explained by the presence of indirect channels that mitigate the negative response to external shocks. We use the model to assess macroeconomic transmission during external crises and sudden stops. Our findings suggest that exchange rate depreciations play a stabilizing role during external crises for most firms in the economy, which helps them attenuate their adjustments through more favorable prices
Inelastic Markets: The Demand and Supply of Risky Sovereign Bonds, with Lorenzo Pandolfi, Sergio Schmukler, German Villegas Bauer, and Tomas Williams
We present new evidence of downward-sloping demand curves for risky sovereign bonds and analyze their macroeconomic implications. Our methodology exploits index rebalancings to identify shocks that shift the bond supply. We find that bond prices significantly respond to these shocks, which are orthogonal to country fundamentals. Because the shocks might influence the government's future debt and default policies, part of the price responses could capture changes in default risk, not the demand elasticity. To account for this, we combine the estimated price reactions with a structural sovereign debt model that allows us to isolate default risk. We find that two-thirds of the price reactions can be attributed to the demand elasticity; the rest to default risk. We show that the downward-sloping demand acts as a commitment device that limits debt issuances and reduces default risk. Our findings have implications for a growing literature that estimates demand elasticities for risky assets.
We study the effects of idiosyncratic risk, geographical diversification and concentration in the US banking industry, using a rich yet tractable spatial model of deposit-taking and lending across multiple regions. Despite its complexity, the model lends itself to a transparent calibration strategy using micro-level data on deposits and spreads. We quantify the effects of changes in the structure of the banking industry on deposit spreads and break them down into two components: concentration (markups) and diversification (risk premia). For smaller, poorer counties, we find significant diversification benefits from the wave of geographical expansion, which more than offset the negative impact of consolidation on competition.
The Asymmetric Pass-Through of Sovereign Risk [new draft coming soon]
Abstract: This paper studies the macroeconomic effects of corporate risk during a sovereign debt crisis. I consider a heterogeneous-firms model with endogenous default in which domestic banks are exposed to sovereign and corporate risk. The model features a doom loop between banks' net worth and corporate risk that depends on the transmission of sovereign risk to firms. I use Italian data to estimate this transmission and describe important heterogeneous effects across firms. I use those estimates to discipline the model and find that through its effect on banks' net worth, corporate risk amplifies the drop in output by more than 25%.
Financial Innovation and Liquidity Premia in Sovereign Markets: The Case of GDP-Linked Bonds. [Link]
Abstract: Issuances of state-contingent sovereign bonds have been limited both in quantity and frequency. One of the reasons argued in the literature is that these bonds would carry a sizable liquidity premium given the smaller size of their market. This paper quantifies how this liquidity premium erodes the potential benefits associated with the introduction of a new type of debt instrument: GDP-linked bonds. I incorporate search frictions into a standard incomplete-markets model with limited commitment and exogenous costs of default. I assume free entry of dealers together with an increasing-returns-to-scale matching technology so that the liquidity of GDP-linked debt is related to the size of its secondary market. I show that as long as the amount outstanding of GDP-linked bonds is small, search frictions are more severe for investors because only a few dealers enter the market. Larger search frictions lead to higher bid-ask spreads and to a larger liquidity premium at issuance, increasing the financing costs of the government. As a result, welfare gains are reduced by more than 50%, especially when the amount issued is small.