"International Trade and Macroeconomic Dynamics with Sanctions" (with Fabio Ghironi and Daisoon Kim)
Journal of Monetary Economics, accepted
Blogpost: VoxEU
Coverage: Kommersant
We develop a framework combining dynamic, intertemporal choices of general-equilibrium macro models with microfoundations of modern trade theory to study sanctions. In a two-country, two-sector setup, Home holds a comparative advantage in producing differentiated consumption goods via heterogeneous firms with endogenous entry, while Foreign in homogeneous intermediate goods from a fixed number of firms. Sanctions include trade bans and financial restrictions excluding particular Foreign agents from markets. In our model, sanctions reallocate resources across and within countries, affecting production, exchange rates, and welfare, with larger welfare losses when targeting sectors of comparative disadvantage. Focusing only on long-run outcomes, overlooking initial dynamics, inaccurately assesses welfare impacts. Sanctions weaken international comovement and fragment markets but leave business cycles intact.
"Interest Rate Uncertainty as a Policy Tool?" (with Fabio Ghironi)
Journal of International Economics, conditionally accepted
[paper] [online appendix] [CEPR DP] [NBER WP]
Coverage: Bank of Canada Governor's Speech
We study an unconventional 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 GDP growth, increase in inflation, an improvement in the current account, and a depreciation in real exchange rate. Using a calibrated open-economy New Keynesian model, we introduce an interest rate uncertainty policy rule that adjusts the volatility of emerging market economy interest rate shocks in response to drivers of capital flows. 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 transmission of uncertainty via markups is influenced by the extent of exchange rate pass-through. The uncertainty policy may be welfare improving if designed against uncertainty shocks that drive capital flows. However, it may be welfare reducing against level shocks that drive capital inflows. We further investigate new channels under different scenarios, including various assumptions about currency of export invoicing, varying degrees of risk aversion, interaction with different types of Taylor rules, and effective-lower-bound in the rest of the world.
"International Economic Sanctions and Third-Country Effects" (with Fabio Ghironi and Daisoon Kim)
IMF Economic Review 72 (January 2024): 611-652.
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.
"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.
"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.
"A Silver Lining in the Silver Economy: Macroeconomic Implications of Healthy Aging" (with Bertrand Gruss, Eric Huang, Andresa Lagerborg, and Diaa Noureldin)
Coverage: Financial Times, Freakonomics, World Economic Outlook.
This paper investigates whether improvements in older adults’ health can mitigate the growth slowdown and rising fiscal pressures induced by population aging. We integrate detailed micro data analysis with a multi-country, heterogeneous-agent overlapping-generations general equilibrium model. Empirically, we document substantial gains in cognitive capacity among individuals aged 50 and older, which translate into higher earnings, greater labor-force participation, and increased hours worked. In our model simulations, these healthy-aging trends contribute about 0.4 percentage point to global GDP growth over 2025–2050, partially counteracting the drag from population aging. We then simulate a healthier-aging policy—modeled as a gradual convergence of older adults’ cognitive health to Swedish benchmark levels—and compare its impact with measures to raise female labor-force participation and extend effective retirement ages across economies. Our findings indicate that converging to Swedish-level healthy aging could alone boost global average annual GDP growth by roughly 0.2 percentage point in the twenty-first century, complementing other labor-market reforms in mitigating the economic drag from aging.
"Monetary Policy under Network-Level Bottlenecks" (with Nick Sander, Sihwan Yang, and Sebastian Wende) In-progress
Coverage: The Economist, World Economic Outlook.
This paper examines monetary policy under temporary, sector‑level supply bottlenecks using a rich production‑network framework. We first show that binding sectoral constraints steepen the aggregate supply curve and introduce novel trade‑offs when interacting with demand shifts. We then embed this mechanism in a calibrated two‑region, multi‑sector New Keynesian model with occasionally binding constraints. First, we use the model to generate policy lessons when some sectors in the economy face supply constraints while others may face deficient demand. Second, we fit the model to 2020–24 and quantify how bottlenecks amplified inflation and output volatility during COVID‑19. Unlike standard supply shocks, temporary sectoral constraints create a trade-off between economic stability when constrained and economic stability afterwards—so that crisis‑period focus can worsen later aggregate adjustments. We also show that coordinated tightening across regions mitigates inflation spillovers through the production network, indicating that the global slack is an important independent determinant of domestic inflation.
"Global Shocks and Local Response: Currency Risk and Monetary Policy" (with Husnu Dalgic) In-progress
"Monetary Policy, Trade, and Commodity Price Fluctuations" (with Daisoon Kim and Larry Schembri) In-progress
"Unconventional Monetary Policy and Ambiguity" (with Burçin Kısacıkoğlu) In-progress
“The Rise of the Silver Economy: Global Implications of Population Aging” (with Bertrand Gruss, Eric Huang, Andresa Lagerborg, and Diaa Noureldin), World Economic Outlook, Chapter 2, Spring 2025.
“The Great Tightening: Insights from the Recent Inflation Episode” (with Jorge Alvarez, Emine Boz, Thomas Kroen, Alberto Musso, Nicholas Sander, Sebastian Wende, and Sihwan Yang), World Economic Outlook, Chapter 2, Fall 2024.
“Steady But Slow: Resilience Amid Divergence” (with Hippolyte Balima, Daniel Leigh and Jean-Marc Natal), World Economic Outlook, Chapter 1, Spring 2024.
“The Neutral Interest Rate: Past, Present, and Future. A Thematic Review” (with Matteo Cacciatore and Bruno Feunou), Staff Discussion Paper, Bank of Canada, April 2024.
“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.
“International Trade and Macroeconomic Dynamics with Sanctions” (with Fabio Ghironi and Daisoon Kim), VoxEU.org, October 2024.
“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.
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.