Published Papers

"The European Trust Crisis and the Rise of Populism" (with Yann Algan, Sergei Guriev and Elias Papaioannou), 2017Brooking's Papers on Economic Activity, 201848(2): 309-400, CEPR Discussion Paper No. 12444, EBRD Working Paper No. 208. [ VOX, WSJ, FT, FOX BUSINESS, Pro-Market and coverage]  

  • We study the implications of the Great Recession for voting for anti-establishment parties, as well as for general trust and political attitudes, using regional data across Europe. We find a strong relationship between increases in unemployment and voting for non-mainstream, especially populist parties. Moreover, increases in unemployment go in tandem with a decline in trust in national and European political institutions, while we find much attenuated effects of unemployment on interpersonal trust. The correlation between unemployment and attitudes towards immigrants is muted, especially for their cultural impact. To advance on causality, we extract the component of increases in unemployment explained by the pre-crisis structure of the economy, in particular the share of construction in regional value added, which is strongly related both to build-up and the burst of the crisis. Our results imply that crisis-driven economic insecurity is a substantial driver of populism and political distrust.     

"Financial Flows and the International Monetary System(with Hélène Rey), 2015, published in The Economic Journal, 125(584): 675-698, NBER Working Paper No. 21172. 
  • We review the findings of the literature on the benefits of international financial flows and find that they are quantitatively elusive. We then present evidence on the existence of a global cycle in gross cross border flows, asset prices and leverage and discuss its impact on monetary policy autonomy across different exchange rate regimes. We focus in particular on the effect of US monetary policy shocks on the UK's financial conditions.

Purchasing Power Parity in Tradable Goods (with Ian Marsh and Lucio Sarno), 2012, in James, J., L. Sarno and I.W. Marsh (eds.) Handbook of Exchange Rates, London: Wiley

  • A vast body of empirical research documents the linkage between nominal exchange rates and relative prices across countries. While excellent surveys exist in the literature on this topic, they focus largely on broad baskets of prices and, most commonly, on the consumer price index. This survey focuses on internationally tradable goods and services, rather than broad baskets that also include a substantial nontradable component. Specifically, the objective is to distill the literature on the properties of deviations from the law of one price applied to internationally tradable goods or sectors - i.e. the proposition that price levels of similar goods, expressed in a common currency, have a tendency to equalize over time. We conclude that a careful reading of the literature suggests that this notion of PPP holds in the long run for a broad range of tradable goods and services and for a broad set of currencies.

Working Papers    

"Exchange Rates and Commodity Prices"

  • I build an exchange rate strategy that trades currencies conditional on changes in the global prices of commodity indices; hence, termed "commodity strategy". First, I document that commodity prices have significant out-of-sample predictive ability for the future exchange rates of several commodity exporters and importers at the daily frequency. However, I report that the reverse forecasting relationship does not survive out-of-sample testing. Second, I find a significant cross-sectional spread in both spot and excess returns of 6% p.a. between the currencies that are predicted to appreciate and those that are predicted to depreciate. The returns appear to be uncorrelated to those of popular exchange rate strategies such as the carry trade and currency momentum. Furthermore, the spread in returns is not explained by traditional risk factors; however, it is partly accounted for by the strategy's high transaction costs. Net profitability can be restored by either implementing a simple market timing rule or by investing in developed markets with low costs and high liquidity.

"In Quest for a Robust Model for the Exchange Rate: a Collective Approach" 

  • I evaluate the predictive ability of a comprehensive set of empirical models of exchange rates, in addition to a standard technical trading strategy, on monthly exchange-rate returns for four developed and four emerging countries across different horizons. I implement a rolling window approach to the estimation and forecasting of the models, and construct an encompassing forecast. I also assess the economic value of the out-of-sample forecasting power of the empirical models using a simple dynamic allocation strategy, and find three key results: (1) the Taylor rule model consistently outperforms, economically and statistically, the interest rate parity, purchasing power parity, and monetary fundamental models as well as the technical trading strategy. (2) The technical rule has superior predictive power over the random walk benchmark. (3) There appears to be statistical gains from an unrestricted combined forecasting model. These results are robust across countries and horizons.

Work in Progress