LATEST
NEW! Deeply revised September 2025: International Risk Sharing and Wealth Allocation with Higher Order Cumulants, with Anna Lipinska and Giovanni Lombardo. Online appendix. conditionally accepted Review of Economic Studies.
We study international risk sharing across countries differing in size, openness, and productivity distributions, emphasizing fat tails. In a canonical IRBC model, safer economies benefit through asset and terms-of-trade revaluations, while riskier ones smooth consumption at the cost of lower wealth. Calibrated to non-Gaussian shocks, country size and openness, the model predicts welfare gains between 0.03% and 6.9% of permanent consumption (median 6%). Assuming Gaussian shocks reduces gains by about 2 percentage points, while assuming equal country size and no home bias renders them negligible. Clustering economies by openness, size, and higher moments accounts for the cross-country distribution of gains.
NEW! Empirical evidence on 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 US, 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. We show that exchange rates react to US tariff shocks in systematically different ways depending on retaliation: the US dollar (USD) appreciates if the tariff is imposed unilaterally, but depreciates if other countries retaliate. This empirical pattern resonates with the predictions of recent open-macro models with dominant currency pricing. In light of our evidence and drawing on theory, we conclude that the USD depreciation following the US tariff announcement on 2 April 2025 was not surprising. The spike in long-maturity US Treasury yields was, however, more unprecedented.
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 SEPTEMBER 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. Empirically, we identify a cointegrating relationship between relative permanent risk and long-maturity convenience yields. Counterfactual experiments show rising relative permanent risk explains around one-third of declining long-maturity convenience yields in 2002-2006 and 2010-2014.
NEW VERSION August 2025 Markets and Markups: Evidence on the Rising Market Power of Exporters from China, Giancarlo Corsetti, Meredith Crowley, Lu Han and Huasheng Song, July 2019.
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.
Trading around Geopolitics, With Banu Demir and Beata Javorcik, Revised July 2025
Geopolitical fragmentation triggers complex dynamics in international trade. Sanctions, forcing existing exporters to discontinue or reduce their sales, create profit opportunities in targeted countries. But firms responding to these opportunities face (i) risk of nonpayment, (ii) reputational risks and the threat of punitive measures, if their trading with unfriendly countries is exposed, and (iii) higher costs of established trading practice, such as making payments in international currencies through international circuits. This paper examines the trade-offs involved through the lens of a stylized model and empirical analysis of Turkiye's exports in the aftermath of Western sanctions imposed on Russia after its invasion of Ukraine. The results show that, as Turkish exports to Russia have risen sharply, Turkish firms have charged higher markups and prices, increased their reliance on cash-in-advance transactions and invoiced in Turkish liras instead of dollars. However, affiliates of Western MNCs showed a significantly lower growth in exports to Russia, suggesting a desire to avoid reputational costs. A back-of-the-envelope calculation points to annualized foregone revenues of $50 million for Turkish affiliates of Western MNCs, with the reputational risk effect equivalent to tariffs of up to 376%.
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.
The theory of reserve accumulation, revisited, with Seung Hyun (Fred) Maeng, Nov 2023, revised March 2024
An early draft: Global Value Chains and International Risk Sharing, with Lucio D’Aguanno, Aydan Dogan, Simon Lloyd, Rana Sajedi; March 2024
Exchange Rate Insulation Revisited, Giancarlo Corsetti, Keith Kuester, Gernot Müller, Sebastian Schmidt CERP DP 15689. Revised December 2023.
Working papers and recent publications by topics:
Monetary Policy, Fiscal Policy, International Transmission Mechanism, Extensive Margin, Exchange Rate Pass Through, Current Account, Currency and Financial Crises, The Euro.
Monetary policy
Short and Variable Lags 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., Janeway Institute Working Paper 2308
Exchange Rate Insulation Revisited, Giancarlo Corsetti, Keith Kuester, Gernot Müller, Sebastian Schmidt CERP DP 15689. Revised December 2023.
Published papers:
The elusive gains from inward-looking monetary policy, joint with Martin Bodenstein and Luca Guerrieri, previously CEPR DP 14359 February 2020, Forthcoming Review of Economic Studies
Gambling to preserve price (and fiscal) stability, with Bartosz Mackowiak, IMF Economic Review 2023
The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response?, with Paul Bergin, Journal of International Economics 2023
Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response?, with Luca Dedola and Sylvain Leduc, August 2022. Forthcoming, Journal of International Economics.
One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area, with Joao Duarte and Samuel Mann, March 2020. CEPR DP 14968 Journal of the European Economic Association
Beyond Competitive Devaluations: The Monetary Dimensions of Comparative Advantages, with Paul Bergin, American Economic Journal: Macroeconomics, 12(4):246-86, 2020, NBER WP
Macroeconomic stabilization, monetary-fiscal interactions, and Europe’s monetary union, Giancarlo Corsetti, Luca Dedola, Marek Jarociński, Bartosz Maćkowiak, Sebastian Schmidt ECB Discussion paper 1988, December 2016, European Journal of Political Economy
Step away from the zero lower bound: small open economies in a world of secular stagnation, Giancarlo Corsetti, Eleonora Mavroeidi, Gregory Thwaites and Martin Wolf, (also: Bank of England Working Paper 666, 2017) Journal of International Economics
Fixed on Flexible: Rethinking Exchange Rate Regimes After the Great Recession Giancarlo Corsetti, Keith Kuester and Gernot J. Mueller, IMF Economic Review 65(3), August 2017, 586-632. An early version was previously circulated as The Case for Flexible Exchange Rates in a Great Recession, CEPR Discussion Paper DP 11432
Sovereign risk and belief-driven fluctuations in the euro area, joint with Keith Kuester, Andre Meier and Gernot Mueller, IMF WP 13/227 Journal of Monetary Economics
Optimal monetary policy in open economies , prepared for the Handbook of Monetary Economics, vol. III, Edited by Ben Friedman and Michael Woodford, mimeo 2010
Optimal Monetary Policy and the Sources of Local-Currency Price Stability with Luca Dedola and Sylvain Leduc, in Jordi Gali and Mark Gertler (eds) International Dimensions of Monetary Policy, Chicago University Press, 2009
New Open Economy Macroeconomics (January 2007). Entry for the New Palgrave Dictionary of Economics, 2nd edition
The Simple Geometry of Transmission and Stabilization in Closed and Open Economies with Paolo Pesenti, NBER International Seminar on Macroeconomics 2007, pages 65-116 National Bureau of Economic Research, Inc.
Openness and the case for flexible exchange rates Research and Economics 2006
My paper with Paolo Pesenti International Dimensions of Optimal Monetary Policy, Journal of Monetary Economics 52/2 pp 281-305, 2005
My paper with Paolo Pesenti: Welfare and Macroeconomic Interdependence, Quarterly Journal of Economics 2001
Competitive Devaluations: towards a welfare based approach, with Paolo Pesenti, Nouriel Roubini and Cedric Tille: Journal of International Economics, June 2000.
Fiscal Policy
Debt Sustainability and the Terms of Official Support, Giancarlo Corsetti Aitor Erce and Timothy Uy, CEPR DP 13292, November 2018
Debt Seniority and Sovereign Debt Crises, Anil Ari , Giancarlo Corsetti , Luca Dedola, IMF Working Paper No. 18/104, May 2018
Fiscal Crises, Confidence and Default: A Bare-bones Model with Lessons for the Euro Area, with Luca Dedola, December 2011
Published papers:
Debt Crises, Fast and Slow, with Seung Hyun Maeng, Journal of European Economic Association, 2023
Official Lending Strategies During the Euro Area Crisis, Giancarlo Corsetti Aitor Erce and Timothy Uy, July 1 2020, Review of International Organizations
Liquidity and consumption: Evidence from three post-earthquake reconstruction programs in Italy, with Antonio Acconcia and Saverio Simonelli, American Economic Journal: Macroeconomics, July 2020
The Mystery of the Printing Press: Monetary Policy and Self-fulfilling Debt Crisis with Luca Dedola. Journal of European Economic Association 14: 1329-1371. 292. 2016
Here is the text of my Schumpeter Lecture on the Mystery of the Printing Press at the EEA, Mannheim, August 24, 2015 video
Sovereign risk and belief-driven fluctuations in the euro area, joint with Keith Kuester, Andre Meier and Gernot Mueller, IMF WP 13/227 Journal of Monetary Economics
Sovereign risk, Fiscal Policy and Macroeconomic Stability with Keith Kuester, Andre' Meier, and Gernot Mueller. Economic Journal 2012
What determines government spending multipliers? with Andre Meier and Gernot Mueller, IMF WP 12/150 , CEPR DP 9010, 2012 Economic Policy, October 2012
Multilateral Economic Cooperation: The role of fiscal policy, with Gernot Mueller, paper prepared for the conference “Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century” organized by the NBER and the Bank of England, London, September 2011
Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment, with Antonio Acconcia and Saverio Simonelli, American Economic Review, 2014
"Floats, Pegs and the Transmission of Fiscal Policy," joint with K Kuester and G Mueller, in Luis Felipe Cespedes and Jordi Gali (eds.) Fiscal Policy and Macroeconomic Performance, Santiago, Chile: Central Bank of Chile, 2011. Originally presented at the Fourteenth Annual Conference of the Central Bank of Chile, October 21 22, 2010, Fiscal Policy and Macroeconomic Performance. CEPR DP 8180 Working Papers Central Bank of Chile 608, Central Bank of Chile.
Debt Consolidation and Fiscal Stabilization of Deep Recessions, joint with Kuester, Meier and Mueller. American Economic Review PP May 2010
Fiscal Stimulus with Spending Reversals, with A Meier and Gernot Mueller, IMF working paper 09106, CEPR DP 7302, Review of Economics and Statistics
Cross-border spillovers from fiscal stimulus, with A Meier and Gernot Mueller, International Journal of Central Banking 2010
Twin Deficits, Openness and the Business Cycle , with Gernot Mueller, Journal of European Economic Association 2008
Twin Deficits: Squaring Theory, Evidence and Common Sense, with Gernot Mueller, Economic Policy October 2006 --- The old version (March 2006) is available here
The international transmission mechanism: theory and evidence
The theory of reserve accumulation, revisited, with Seung Hyun (Fred) Maeng, Nov 2023, revised March 2024
An early draft: Global Value Chains and International Risk Sharing, with Lucio D’Aguanno, Aydan Dogan, Simon Lloyd, Rana Sajedi; March 2024
Published:
Traded and nontraded goods prices, and international risk sharing: an empirical investigation with Luca Dedola and Francesca Viani, in Chris Pissarides and Jeff Frenkel (eds.) NBER International Seminar in Macroeconomics, 2011
The international risk sharing puzzle is at business cycle and lower frequency, joint with Luca Dedola and Francesca Viani, Canadian Journal of Economics 2011
The International Dimension of Productivity and Demand Shocks in the US Economy, joint with Luca Dedola and Sylvain Leduc Journal of European Economic Association Feb 2014. Complete version with web appendix
Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism Among G7 Countries with Luca Dedola and Sylvain Leduc, in Lucrezia Reichlin and Kenneth West (eds.) NBER International Seminar on Macroeconomics 2006. Revised version November 2006
International Risk Sharing and the transmission of productivity shocks, with Luca Dedola and Sylvain Leduc, Review of Economic Studies, 2008.
Discussion of "Obstfeld and Rogoff's International Macro Puzzles: A Quantitative Assessment", Journal of Economic Dynamics and Control, Volume 72, November 2016, Pages 24–28
Extensive margin
Beyond Competitive Devaluations: The Monetary Dimensions of Comparative Advantages, with Paul Bergin, American Economic Journal: Macroeconomics, 12(4):246-86, 2020, NBER WP
Varieties and the Transfer Problem, with Philippe Martin and Paolo Pesenti. Journal of International Economics 2013
The extensive margin and monetary policy, with Paul Bergin, Journal of Monetary Economics, 2008, previously circulated as "Towards a theory of firm entry and stabilization policy," NBER wp 11821, CEPR dp 537
Productivity spillovers, terms of trade and the `home market effect' joint with Philippe Martin and Paolo Pesenti, Journal of International Economics 2007
Exchange Rate Pass Through
Exchange Rate Insulation Revisited, Giancarlo Corsetti, Keith Kuester, Gernot Müller, Sebastian Schmidt CERP DP 15689. Revised December 2023.
Published
Invoicing and Pricing-to-market: Evidence on International Pricing by UK exporters, Giancarlo Corsetti, Meredith Crowley, and Lu Han, March 2022, Journal of International Economics.
British firms invoice in multiple currencies, even in the same destination market
UK data provide evidence that firms switch invoicing currency over time
Exchange rate pass through and pricing-to-market differ by invoicing currency
Firms adjust relative markups across markets only when invoicing in local currency
Within a year of the Brexit vote, all UK export prices aligned with the weak pound
2021 revision of Markets and Markups: A New Empirical Framework and Evidence on Exporters from China, and Appendix, Online appendix, Giancarlo Corsetti, Meredith Crowley, Lu Han and Huasheng Song, July 2019. CEPR DP13904
Published papers:
High exchange rate volatility and low pass-through, with Luca Dedola and Sylvain Leduc, Journal of Monetary Economics Sept 2008
Optimal Monetary Policy and the Sources of Local-Currency Price Stability Joint with Luca Dedola and Sylvain Leduc (Revised draft September 2007). Prepared for the NBER Volume: International Dimensions of Monetary Policy, edited by Jordi Gali and Mark Gertler, Chicago University Press.
A macroeconomic Model of International Price Discrimination 2005 Journal of International Economics, 67(1), 129-155. Old version with longer discussion of multiple equilibria
Endogenous pass-through and Optimal Monetary Policy: A Model of Self-Validating Exchange Rate Regimes with Paolo Pesenti (January 2002-revised September 2004, presented in Atlanta 2002) CEPR wp 8737
The current account: theory and evidence
Varieties and the Transfer Problem, with Philippe Martin and Paolo Pesenti. Journal of International Economics 2013
What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks, with Panagiotis Konstantinou, revised 2011 (December 2008). American Economic Review, 2012
Twin Deficits, Openness and the Business Cycle , with Gernot Mueller, Journal of European Economic Association 2008
Twin Deficits: Squaring Theory, Evidence and Common Sense, with Gernot Mueller, Economic Policy October 2006 --- The old version (March 2006) is available here
Currency and financial crises (and their prevention)
The theory of reserve accumulation, revisited, with Seung Hyun (Fred) Maeng, Nov 2023, revised March 2024
Published papers:
Debt Crises, Fast and Slow, with Seung Hyun Maeng, February CEPR DP 14868, June 2020, JEEA 2023
Correlation Analysis of Financial Contagion short piece joint with Marcello Pericoli and Massimo Sbracia on pitfalls studies of contagion (2010)
International Lending of Last Resort and Moral Hazard: a Model of IMF's Catalytic Finance, with Bernardo Guimaraes and Nouriel Roubini (November 2002 -- this draft: March 2005). Journal of Monetary Economics 2006
Some Contagion, Some Interdependence: More Pitfalls In Tests of Financial Contagion with Marcello Pericoli and Massimo Sbracia,(June 2000- revised March 2002) Journal of International Money and Finance 2005
The role of large players in currency crises (with Paolo Pesenti and Nouriel Roubini, presented at the NBER conference on Currency Crises in Emerging Market in January 2001), NBER Working Paper No. W8303 May 2001. In “Preventing currency crises in emerging markets” edited by Edwards and Frenkel, University of Chicago Press.
Does one Soros make a difference? A Theory of Currency Crises with Large and Small Traders with Stephen Morris, Hyun Song Shin and Amil Dasgupta (revised July 2000) Cowles Foundation Discussion Paper 1273, and CEPR w.p.. Review of Economic Studies 2004
Fiscal Imbalances and the Dynamics of Currency Crises with Bartosz Mackowiak, (previously Economic Growth Center at Yale University 2000 and CEPR 2001). European Economic Review 2006
A fiscal perspective on currency crises and “original sin”, with Bartosz Mackowiak, in Barry Eichengreen and Ricardo Hausmann (eds), "Other People's Money: Debt Denomination and Financial Instability in Emerging Market Economics," Chicago University Press.
What Caused the Asian Currency and Financial Crisis?, Japan and the World Economy 11 (3), September 1999, pp.305-373. Also: National Bureau of Economic Research Working Papers 6833 "Part I : A Macroeconomic Overview" 6834 "Part II: The Policy Debate"
Shadow Rates and Multiple equilibria in the Theory of Currency Crises with Lilia Cavallari, Journal of International Economics
Paper Tigers? A Model of the Asian Crisis, European Economic Review (43)7, 1999. Also National Bureau of Economic Research Working Paper No.6783, 1998.
The Asian Crisis: An Overview of the Empirical Evidence and Policy Debate (with Paolo Pesenti and Nouriel Roubini), forthcoming in Pierre Richard Agenor, Marcus Miller, David Vines and Axel Weber (eds.), Financial Crises: Causes, Contagion and Consequences, Cambridge, U.K.: Cambridge University Press, 1999
Willem Buiter, Giancarlo Corsetti and Paolo Pesenti,"Interpreting the ERM Crisis: Country-Specific and Systemic Issues", Princeton Studies in International Finance No. 84, February 1998, published by Princeton Studies in International Finance , Princeton University.
Financial Markets and European Monetary Cooperation. The Lessons of the 1992-93 ERM Crisis (with Willem Buiter and Paolo Pesenti), Cambridge, U.K.: Cambridge University Press, 1998. SANWA MONOGRAPH in international finance.
The euro
Debt Sustainability and the Terms of Official Support, Giancarlo Corsetti Aitor Erce and Timothy Uy, CEPR DP 13292, November 2018
Published papers:
One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area, with Joao Duarte and Samuel Mann, March 2020. CEPR DP 14968 Journal of the European Economic Association
Official Lending Strategies During the Euro Area Crisis, Giancarlo Corsetti Aitor Erce and Timothy Uy, July 1 2020, Review of International Organizations.
The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis, withBarry Eichengreen, Galina Hale and Eric Tallman, Open Economies Review, Springer, vol. 31(2), pages 219-236, April.
Macroeconomic stabilization, monetary-fiscal interactions, and Europe’s monetary union, Giancarlo Corsetti, Luca Dedola, Marek Jarociński, Bartosz Maćkowiak, Sebastian Schmidt ECB Discussion paper 1988, December 2016, European Journal of Political Economy
Sovereign risk and belief-driven fluctuations in the euro area, joint with Keith Kuester, Andre Meier and Gernot Mueller, IMF WP 13/227 Journal of Monetary Economics
A Modern Reconsideration of the Theory of Optimum Currency Areas, prepared for the ECFIN Conference EMU@10, in Brussels, Revision February 2008
Endogenous pass-through and Optimal Monetary Policy: A Model of Self-Validating Exchange Rate Regimes with Paolo Pesenti (January 2002-revised September 2004, presented in Atlanta 2002) CEPR wp 8737
Annual Report on the European Economy, by the European Economic Advisory Group at CESifo 2002, 2003, 2004, 2005, 2006, 2007. 2008, 2009
A short piece by Giancarlo Corsetti for Tiaa-cref: Idea Exchange with Barry Eichengreen (Dec 2001): Feeling the Impact of the EuroCurrency
Stability, Asymmetry and Discontinuity: the Launch of European Monetary Union, with Paolo Pesenti, Brookings Papers on Economic Activity, December 1999
The (Past and) Future of European Currencies, with Paolo Pesenti, March 2000, in Cuadernos de Economía