MATIAS MORETTI

Contact Information

Email: mmoretti@worldbank.org

The World Bank, Development Research Group

1818 H Street NW

Washington, DC 20433

I am a Research Economist at the World Bank Research Department, Macroeconomics and Growth Team. Previously, I was a Postdoctoral Fellow in the International Economics Section at Princeton University. I obtained my Ph.D. in Economics from New York University in 2021.

My research interests are in International Economics and Macro-finance.

Here is a link to my CV [Link].

Working Papers

Information Frictions, Reputation, and Sovereign Spreads [Revise & Resubmit, Journal of Political Economy], with Juan MartĂ­n Morelli. [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.

The Asymmetric Pass-Through of Sovereign Risk. [Link]

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.

Work in Progress

Global Risk Premia and Macroeconomic Fluctuations, with Caitlin Hegarty, Pablo Ottonello, and Diego Perez