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

[paper] [NBER WP] [CEPR DP]

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]