Research Interests: International Macro/Finance, Asset Pricing, Growth, and Development.
Emerging country governments increasingly issue bonds denominated in local currency and the share of this market held by foreign investors, once negligible, has been progressively growing. This paper presents a model of segmented markets, in which specialized foreign investors can access multiple local markets only after paying an entry cost. In the model, risk aversion of foreign investors is counter-cyclical and tied to the risk-free interest rate. We show that when the risk-free rate is sufficiently low, the benefits of investing in these new markets are greater than the entry costs. When we feed the actual U.S. interest rate, the model predicts a strong increase in the foreign holding of local currency debt, an increase in comovment of local and foreign currency bond returns and a reduction in yields

Keywords: sovereign debt, currency composition, emerging markets, market segmentation
JEL: E43, G12, F31, G11 

Presented at the CESifo Area Conference on Macro, Money and International Finance; the Barcelona GSE Summer Forum 2018-International Capital Flows; Macro Week in Marrakech 2018; ADEMU Conference 2018 - Sovereign Debt in the 21st Century; Annual Meeting of the SED 2017; and SAET 2017 Annual Conference. 


Working Papers:

Why has the financial sector expanded? Is this expansion socially desirable? Cross-country data suggests that the joint distribution of talent and wealth determines the size of the financial sector. I propose an occupational choice model with heterogeneous agents in terms of talent and wealth, matching friction, and private information to study a tradeoff between financial intermediation and production. Talent is important for both industry and finance: more talent in industry means more output production, while more talent in finance means more efficient capital allocation. First, the model predicts that the financial sector attracts too much talent. When agents make their occupational choice between finance and entrepreneurship, they do not internalize negative externalities that they impose on investors: the more bankers are the fewer talented entrepreneurs and great investment opportunities are. The efficiency can be restored by taxing the financial sector. Second, the model generates the simultaneous growth of wealth dispersion and the size of financial sector. Small wealth inequality between investors causes substantial income differences between entrepreneurs, which is translated into greater next period wealth inequality. Finally, the model qualitatively replicates the US data well: the growth of finance in employment and GDP, the increase in income inequality and the productivity slowdown. 

Keywords:  talent, financial sector, matching, productivity
JEL:  G14, E44, L26, O15
                      Presented at seminar at Konstanz University 2014; XIX Workshop on Dynamic Macroeconomics 2014 (Vigo); Rimini Conference in Economics and Finance 2014 (Rimini), Young Economists Conference 2014 (Belgrade); Fifth Conference on Recent Developments in Macroeconomics 2014 (Mannheim); Third Year Forum (EUI)

                      In this paper we uncover a novel investment strategy on sovereign bonds issued by emerging countries and denominated in local currency. We show that by allocating bonds into portfolios with respect to their co-movement with the Carry currency risk factor, investors obtain a large cross-section of dollar excess returns. We find that most of these returns represent compensation for aggregate global risk. A standard, no-arbitrage affine model of defaultable long-term bonds in local currency with global and country-specific shocks can replicate these findings if there is sufficient heterogeneity in exposure to global shocks, bond maturities are short enough, and the global component of default risk is sufficiently homogenous across countries.

                      Keywords:  local currency sovereign bonds; currency risk; term premium; default risk
                      JEL: F31, F34, G15 

                      Presented at the Asset Pricing Workshop 2018 (York) 

                      This paper studies cryptocurrency investment strategies from the perspective of U.S. investors. We take Bitcoin as representative cryptocurrency and consider exchanges around the globe where investors can trade different fiat and cryptocurrency pairs (i.e., U.S. dollar for Bitcoin). We treat each currency pair as a different asset. We start off large, persistent, and mean-reverting deviations in bitcoin prices, converted in U.S. dollars, and uncover two investment strategies based on information on past price deviations that generate large cross-sections of excess returns. A principal component analysis shows that most of the variation in the cross-sections of returns is explained by two common components. We find that these components are correlated with crypto factors but poorly correlated with a large set of standard non-crypto factors. 

                      Keywords: bitcoin, cryptocurrencies, crypto factors.
                      JEL: G12, G14, G15, F31 
                      This paper studies the efficiency of cryptocurrency markets. We consider 109 exchanges around the globe where investors can trade bitcoin for different fiat and cryptocurrency pairs and discuss the shape and structure of the distribution of daily bitcoin prices across different markets, currencies and time periods. We find that the typical price distribution is symmetric and leptokurtic with a standard deviation that varies over time between 2% to 9%. We find that a large fraction of the time variation in the dispersion of bitcoin prices depends on fluctuations in counter-party risk, liquidity, and global demand for bitcoins. On a given day, we find that the location compo on average 67\% is due to price differences across exchanges located in different geographical locations. Not only the dispersion is larger for bitcoin-to-fiat pairs in comparison to bitcoin-to-crypto pairs, but also a larger fraction of the price dispersion is explained by location. Panel estimates indicate that the variability of bitcoin discounts is lower the lower counterparty risk and bid-ask spreads. Temporary and permanent exchange shutdowns are also associated with a reduction in bitcoin discounts in other markets. 

                      Keywords: cryptomarkets, market anomalies, bitcoin, cryptocurrencies
                      JEL: G12, G14, G15, F31 

                      Presentated at the 2018 Crypto Valley Conference on Blockchain Technology
                      Empirical evidence shows that, in the vast majority of cases, governments default selectively on either home or foreign debt holdings. Yet, so far, no theoretical model has been proposed to explain this fact. We build a general equilibrium incomplete markets model with defaultable debt and two types of investors, domestic and foreign, to study the nature of selective default. The model analyses how the government optimally finances itself using three sources of funding: distortionary taxes, domestic debt and foreign debt. The government uses foreign borrowing to smooth output fluctuations. Consequently, foreign default is more likely in recessions, when a risk averse borrower finds it more costly to repay non-contingent debt. The government finds it optimal to use mostly domestic debt to smooth distortions. Domestic default is thus more likely when the tax distortions are high. Total default happens when high distortions coincide with a recession. Secondly, the model matches important data moments, in particular debt levels and the frequencies of different types of defaults. Thirdly, contrary to recent theoretical findings, we show that when taxes are distortionary, secondary markets are not sufficient to prevent sovereign defaults.

                      Keywords: sovereign debt, selective default, debt composition, secondary markets
                      JEL: F34, G15, H63, E43 

                      Presented at North American Meeting of the Econometric Society (University of Minnesota); 20th Annual Conference on Computing in Economics and Finance (Oslo); XIX Workshop on Dynamic Macroeconomics (Vigo); Young Economists Conference (Belgrade), seminar at Konstanz University; central bank bank of Hungary; Rimini Conference in Economics and Finance; Central European Program in Economic Theory Workshop (Udine); Third Year Forum(EUI)

                      Work in Progress:
                      The bulk of the news shocks literature focuses on shocks materializing 4 or 5 quarters ahead. Moreover, there is little empirical evidence on news about longer-run events. We exploit a proprietary data set on giant mineral discoveries worldwide from 1950 to 2013. The median delay between the discovery of a mineral and its actual exploitation is 9 years. This is almost twice the delay reported in other commoditydiscovery data considered in the literature so far, and thus it allows to study news events with a longer horizon. We find that macroeconomic responses are delayed, with little or no action 3 years into the discovery. The benchmark model by Arezki, Ramey, and Sheng (2017) performs well in explaining this delay. We discuss other possible channels and implications for macroeconomics.

                      Keywords: Expectation shocks, limited foresight, myopia, small open economy RBC.
                      JEL: 
                      E23, Q33.

                      Discussions:
                      Pre-PhD Publications:
                      In an important model of growth and pollution proposed by Stokey [Int. Econ. Rev. 39 (1998) 1] neither the rate of economic growth nor the rate of growth of emissions depends on the time preference of the representative agent, which seems somewhat paradoxical. To resolve this paradox, we introduce into Stokey's model the assumption of dual-rate discounting, prove the existence of a sustainable balanced growth optimal path, and show that the growth rates of output and emissions are increasing in the proportion between the consumption and the environmental discount factors of the representative agent.

                      Keywords: growth, pollution, discounting
                      JEL:  O44, C61