Publications

"International Economic Sanctions and Third-Country Effects" (with Fabio Ghironi and Daisoon Kim)

IMF Economic Review, accepted

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.