Research
Publications
"International Economic Sanctions and Third-Country Effects" (with Fabio Ghironi and Daisoon Kim)
IMF Economic Review, accepted
Coverage: Berliner Zeitung.
We develop a quantitative, asymmetric, three-region, international trade and macroeconomic model in which the sanctioned economy has a comparative advantage in the energy production sector (e.g., gas) whereas the sanctioning economy(ies) has a comparative advantage in consumption goods production. We study two types of sanctions: (i) trade sanctions and (ii) financial sanctions. We calibrate our model to resemble the economic sizes and export patterns of three blocs: the EU-UK- US, China-India-Turkey, and Russia. Sanctions are effective at making the targeted economy less efficient and suffer from welfare losses–even if they are introduced unilaterally. Both the sanctioning and sanctioned regions are subject to inefficient resource allocation in response to sanctions. Exchange rate movements reflect the producer composition in the sanctioned economy. Multilateral sanctions amplify the impact of sanctions on the sanctioned economy, while they come at a cost for the third-region that joins the sanctions. Our results highlight the importance of multilateral sanctions for greater impact.
"Financial Intermediation, Resource Allocation, and Macroeconomic Interdependence"
Journal of Monetary Economics 115 (November 2020): 265-278.
[paper] [online appendix] [ESRB WP]
Awards: European Economic Association Young Economist Award, European Systemic Risk Board Ieke van den Burg Award (shortlist), 48th Money, Macro and Finance Conference Best Paper Award.
Coverage: Liberty Street Economics, e-axes -- 360 Econ view.
During the first decade of the euro, southern countries experienced a boom-bust cycle in bank lending, non-tradable sector growth, and capital inflows. I develop a quantitative, open economy model of banking that is consistent with the banks' behavior in credit allocation and foreign borrowing observed in Spanish data. I illustrate how movements in the frictions of cross-border deposits generate an endogenous asymmetric allocation of bank credit toward non-traded sectors, while producing a persistent and climbing current account deficit. A common central bank's unconventional policies in response to sudden stops are successful at ameliorating the downturn.
"News-Driven International Credit Cycles"
Journal of Macroeconomics 70 (December 2021): 103372
[paper] [online appendix] [Bank of Canada SWP]
How does news about future economic fundamentals affect within-country and cross-country credit allocation? How effective is unconventional policy when financial crises are driven by unfulfilled favorable news? I study these questions by employing a two-sector, two-country macroeconomic model with a financial sector in which financial crises are associated with occasionally binding leverage constraints. In response to positive news on the valuation of non-traded sector capital which turns out to be incorrect at a later date, the model captures the changes in the sectoral allocation of bank credit and patterns in cross-country borrowing in Spain between 2000-2010. When there are unconventional policies by a common authority in response to unfulfilled favorable news, liquidity injections perform better in ameliorating the downturn than direct assets purchases from the non-traded sector.
Working Papers
"Interest Rate Uncertainty as a Policy Tool?" (with Fabio Ghironi)
Journal of International Economics, R&R
[paper] [online appendix] [CEPR DP] [NBER WP]
Coverage: Bank of Canada Governor's Speech
We study a novel policy tool–interest rate uncertainty–that may be used to discourage inefficient capital inflows and to adjust the composition of external accounts between short-term securities and foreign direct investment (FDI). Identified interest rate volatility shocks in several emerging markets cause a decline in output, increase in price level, an improvement in the current account, and an increase in net FDI inflows. Using a calibrated open-economy New Keynesian model, we show that the pattern from a VAR can be reproduced. We introduce a policy rule that adjusts the volatility of emerging market economy interest rate shocks in response to drivers of capital flows. We identify the trade-offs in navigating external balance and price stability. The uncertainty policy discourages short-term inflows through portfolio risk and consumption smoothing channels. A markup channel combined with exchange rate depreciation generates FDI inflows. The uncertainty policy can be welfare improving under certain scenarios. We further investigate new channels under different assumptions about currency of export invoicing, varying degrees of risk aversion, several drivers of capital inflows, and effective-lower- bound in the rest of the world. Under every scenario, uncertainty policy is inflationary.
"International Trade and Macroeconomic Dynamics with Sanctions" (with Fabio Ghironi and Daisoon Kim)
Journal of Monetary Economics, R&R
Coverage: Kommersant
We develop a model of the international trade and macroeconomic dynamics triggered by the imposition of financial and/or trade sanctions. Sanctions generate a reallocation of resources in the sanctioned economy. Financial sanctions are more effective only if a greater share of Foreign agents is sanctioned. Exchange rate is not a useful metric to evaluate the impact of sanctions. Welfare losses in the sanctioned economy is more pronounced if there are sanctions on the less effective sectors and the sanctioned economy is enforced to reallocate resources to the less efficient sectors.
"Monetary Policy, Trade, and Commodity Price Fluctuations" (with Daisoon Kim and Larry Schembri) In-progress
[Preliminary draft is available upon request]
"Monetary Policy Implications of Insurance Through Euro" (with Husnu Dalgic) In-progress
[Preliminary draft is available upon request]
"Unconventional Monetary Policy and Ambiguity" (with Burçin Kısacıkoğlu) In-progress
[Preliminary draft is available upon request]
Policy Papers
Policy Reports/Book Chapters
“Multilateralism During Economic Warfare” in B. Coulibaly and H. Kharas (eds), Climate, Global Governance, and Technology, Special Report, Brookings Institution, October 2023.
“Potential output and the neutral rate in Canada: 2023 assessment” with Julien Champagne, Christopher Hajzler, Dmitry Matveev, Harlee Melinchuk, Antoine Poulin-Moore, Youngmin Park, Temel Taskin, Staff Analytical Note 2023-6, May 2023.
“Yield Curve Control” (with Matteo Cacciatore) CEA Inquiry, Bank of Canada, July 2020.
“The Growth Debate Redux” in K. Derviş and H. Kharas (eds), Growth, Convergence and Income Distribution: The Road from the
Brisbane G-20 Summit, Brookings Institution Press, Washington, D.C., November 2014.
“Unconventional Monetary Policy and Its Reflections on the Global Economy” (with Izak Atiyas and Fuat Keyman) in K. Derviş and H. Kharas (eds), Think Tank 20: The G-20 and Central Banks in the New World of Unconventional Monetary Policy, Brookings Institution Press, Washington, D.C., August 2013.
Op-Eds and Blog Posts
“Fiscal Multipliers” (with Domenico Lombardi), Longitude, March 2013, Pages 76-78.
“Buying Time by Buying Bonds” (with Kemal Derviş and Karim Foda), Brookings Up Front, September 2012.
Discussions
Discussion of "Unemployment Risk, Liquidity Traps, and Monetary Policy," by Dario Bonciani and Joonseok Oh, 37th Symposium on Money, Banking and Finance, Banque de France, June 17, 2021.
Discussion of "Monetary Policy Transmission in the New Model for France of Banque de France," by Lemoine et al., Central Bank Modelling Workshop, Central Bank of Armenia, September 19, 2019.
Discussion of "Sovereign Default in a Monetary Union," by Sergio de Ferra and Federica Romei, CEPR ESSIM, Tarragona, May 8, 2019.
Discussion of "The Optimal Inflation Target and the Natural Rate of Interest," by Philippe Andrade, Jordi Galí, Hervé Le Bihan, and Julien Matheron, Theories and Methods in Macroeconomics Conference, IAB, Nuremberg, March 22, 2019.
Discussion of "Volatility Risk Pass-Through," by Ric Colacito, Max Croce, Yang Liu, and Ivan Shaliastovich, NBP-Bank of Lithuania-CEBRA-CEPR Conference: International Spillovers, National Bank of Poland, Warsaw, September 20-21, 2018.
Discussion of "Monetary Policy Volatility Shocks in Brazil," by Angelo Marsiglia Fasolo, XX Annual Inflation Targeting Conference, Banco Central do Brasil, Rio de Janeiro, May 24, 2018.
Discussion of "Explaining International Business Cycle Synchronization: Recursive Preferences and the Terms of Trade Channel," by Robert Kollmann, CEPR Annual International Macro and Finance Meeting, Zurich, October 6-7, 2017.
Discussion of "Financial Heterogeneity and Central Bank Non-Standard Measures in a Monetary Union," by Matthieu Darracq Pariès and Niki Papadopoulou, 1st Research Conference of the CEPR Network on Macro Modelling and Model Comparison, Frankfurt, June 19-20, 2017.
Discussion of "When Markets Sneeze, the Fed Gets Bold: The Collateral Framework as an Unconventional Policy Tool," by Osman Abbasoglu, Salih Fendoglu, Birol Kanik, and Yasin Mimir, X. Winter Workshop in Economics, Istanbul, December 30, 2016.