LATEST 

April 21 2026. Presentation of the Florence Report - Reconfiguring Europe in a fractured global economy.

Voxeu.org: Reconfiguring Europe in a fractured global economy

• NEW VERSION April 2026 The Exchange Rate Insulation, Revisited, Giancarlo Corsetti, Keith Kuester, Gernot Müller, Sebastian Schmidt and Ben Schumann, CERP DP 15689. Revised December 2023. Voxeu column. Longer and more detailed version available as ECB WP 2630, revised December 2023

We confront the notion that flexible exchange rates insulate countries from external disturbances with new evidence for the euro area (EA) and 20 of its neighbors. Using high-frequency data, we first establish that countries with flexible exchange rates (“floats”) let their currencies depreciate in response to EA monetary policy shocks, while “pegs” raise interest rates. Yet at business cycle frequency, these depreciations do not translate into insulation: floats contract just as much as pegs—not only in response to monetary policy shocks but also to other shocks originating in the EA. This result appears puzzling in light of received wisdom, but we show that it can be rationalized within a state-of-the-art HANK model and flesh out the underlying transmission channels.

• Accepted JPE Macro Markets and Markups: Evidence on the Rising Market Power of Exporters from China, (including online appendix) Giancarlo Corsetti, Meredith Crowley, Lu Han and Huasheng Song, July 2019. New version 2026

The Chinese share of global product markets rose sharply over the last quarter century. Using Chinese customs data from 2000–2014, we show that this expansion coincided with a substantial rise in pricing-to-market. Markup elasticities to exchange rates nearly tripled, with more pronounced increases for highly differentiated products, goods with higher import penetration in destination countries, and products sold by larger firms. To identify these patterns, we develop a new estimator of markup elasticities that controls for marginal costs and endogenous market selection and a new classification of product differentiation based on Chinese linguistics.

• Revised April  2026 Trading around Geopolitics, (including online appendix), with Banu Demir and Beata Javorcik

Geopolitical fragmentation triggers complex dynamics in international trade. This paper examines the effects of sanctions through a stylized model and the empirical analysis of Turkiye's exports to Russia following its invasion of Ukraine in 2022. While sanctions prompted many exporters to exit the Russian market, firms willing to fill the gap faced reputational risks, higher nonpayment risk, and elevated costs of trading in international currencies. We show that Turkish firms sharply raised their exports of both sanctioned and non-sanctioned goods to Russia, charging higher prices, while also shifting toward cash-in-advance transactions and invoicing in Turkish liras instead of dollars. In contrast, Turkish affiliates of Western multinationals responded less, if at all, suggesting a desire to avoid secondary sanctions and reputational costs. For these firms, a back-of-the-envelope calculation points to aggregate annualized foregone revenues of $230 million, with a reputational-risk effect equivalent to tariffs of up to 42%.

• Debt | March 2026 IMF Finance and Development R&D Policy Coordination for Fractured Times Unstable geopolitics complicates effective coordination of fiscal and monetary policy GIANCARLO CORSETTI LEONARDO MELOSI

• New revised version of an older paper, January 2026 Exchange rates and monetary stabilization of tariff shocks, with Paul Bergin 

Home currency appreciation can neutralize the relative price distortions created by a tariff, moderating the rise in home import prices. A combination of domestic and foreign monetary policy appropriately managing the exchange rate can thus improve the trade-off between the objectives of supporting domestic demand and containing inflation. Using a New Keynesian two-country model, we analyze the role of the exchange rate in the optimal stabilization of unilateral home tariff shocks hitting, respectively, differentiated sticky-price goods and non-differentiated flexible price goods. In response to a tariff on the former, the cooperative Ramsey optimal monetary policy prescribes home appreciation, implemented mainly through a robust foreign monetary expansion. The monetary response in the home (tariff-imposing) country may be expansionary or contractionary, depending on trade elasticities, but it tends to be modest. If tariffs instead are imposed on flexible-price goods (commodities), the Ramsey optimal monetary response is the opposite, calling for a robust home monetary expansion containing home currency appreciation.

• Early draft A FTPL Approach to International Reserve Accumulation, December 2025, CEPR DP 21113 

• Early draft Monetary Stabilization of Export Shocks, Revisited, with Sushant Acharya (University of Melbourne and CEPR) and Edouard Challe (Paris School of Economics and CEPR), November 2025

• Revised Nov 12 2025: Trading blows: the exchange rate response to tariffs and retaliations, Daniel Ostry, Simon Lloyd and Giancarlo Corsetti, Bank of England Staff Working Paper No. 1,139, Published on 22 August 2025

This paper provides econometric evidence on how exchange rates respond to tariffs. We construct a new tariff-shock database, which captures tariff-related announcements, threats and implementations by the U.S., China, the Euro Area and Canada between 2018 and 2020, and in 2025. Our shock measure accounts for both the size of tariff rates and their economic relevance. Over the 2018-2020 period, we show that exchange rates reacted to U.S. tariff shocks in systematically different ways depending on retaliation: the U.S. dollar (USD) appreciated if the tariff was imposed unilaterally, but depreciated if other countries threatened to retaliate. In 2025, when nearly all U.S. tariff actions were met with retaliatory threats, the USD again depreciated. In contrast to 2018-2020, however, long-maturity U.S. Treasury yields rose in 2025, instead of fell—consistent with an interpretation of ‘Liberation Day’ as a reserve-currency shock. This may reflect that U.S. tariff actions in 2025 were significantly larger, more frequent and targeted a broader set of countries.

Voxeu: Tariffs and US dollar depreciations: Not so surprising after all, Giancarlo Corsetti Simon Lloyd Daniel Ostry. September 2025

LafonteBLOG: Tariffs and the US dollar: Economics was right, after all, Giancarlo Corsetti, 27 June 2025

• NEW VERSION 2025 U.S. Risk and Treasury Convenience, with Simon Lloyd, Emile Marin and Daniel Ostry

We document a rise in investors’ assessment of U.S. risk relative to other G.7 economies since the late 1990s, driven by higher permanent risk but not reflected in currency returns. Using a two-country framework with trade in a rich maturity structure of bonds which earn convenience yields, alongside risky assets and currencies, we establish an equilibrium relationship between cross-border convenience yields, relative country risk and carry-trade returns. Taking this to the data, we identify a cointegrating relationship between relative permanent risk and cross-border convenience yields on long-maturity bonds. Two counterfactual experiments demonstrate that increases in relative permanent risk explain around one-third of the decline in long-maturity convenience yields over two sub-periods, 2002-2006 and 2010-2014.

• NEW VERSION October 2025 The theory of reserve accumulation, revisited, with Seung Hyun (Fred) Maeng,  first version Nov 2023.

We develop a model in which optimizing governments hold international reserves to reduce disruptions from belief-driven hikes in borrowing costs, which originate from post-auction uncertainty about debt repayment. Accumulating reserves can eliminate these self-fulfilling cost hikes, allowing governments to issue debt along the fundamental price schedule and thereby improve consumption smoothing. Quantitatively, the model predicts average reserves of 2.2% of GDP for short-term debt, and a lower level of 0.4% for long-term debt, as longer maturities provide some protection against these self-fulfilling hikes by reducing refinancing needs.

• A revised (not final) draft Sept 15 2025: Global Value Chains and International Risk Sharing, with Lucio D’Aguanno, Aydan Dogan, Simon Lloyd, Rana Sajedi; first draft March 2024

• New version Feb 2025: The Short Lags of Monetary Policy Buda, G., Carvalho, V. M., Corsetti, G., Duarte, J. B., Hansen, S., Moura, A. S., Ortiz, A., Rodrigo, T., Rodríguez Mora, J. V., Alves da Silva, G., (previously, Janeway Institute Working Paper 2308). 

We examine the transmission of monetary policy shocks to the macroeconomy at high frequency. To do this, we build daily consumption and  investment aggregates using bank transaction records and leverage administrative data for measures of daily gross output and employment for  Spain. We show that variables typically regarded as "slow moving", such as consumption and output, respond significantly within weeks. In contrast, the responses of aggregate employment and consumer prices are slow and peak at long lags. Disaggregating by sector,  consumption category  and supply-chain distance to final demand, we find that fast adjustment is led by downstream sectors tied to final  consumption—in particular luxuries and durables—and that the response of upstream sectors is slower but more persistent. Finally, we find that  time aggregation to the quarterly frequency alters the identification of monetary policy transmission, shifting significant responses to longer lags, whereas weekly or monthly aggregation preserves daily-frequency results.

New version coming soon:

• Global Inflation and Exchange Rate Stabilization under a Dominant Currency, joint with Luca Dedola and Sylvain Leduc. 

Newly published/accepted papers

Books and E-books

Policy documents and columns

Cilento, Italy, 2013, Photo VC.