Research information
Published Papers
Thermal stress and financial distress: Extreme temperatures and firms' loan defaults in Mexico, Aguilar, S; Gutierrez, E., Heres, D., Jaume, D. , and Tobal, M.
Journal of Development Economics (2024): 103246.
Link Here: https://www.sciencedirect.com/science/article/pii/S030438782300202X.
Abstract. The frequency and intensity of extreme temperature events are likely to increase with climate change. Using a detailed dataset containing information on the universe of loans extended by commercial banks to private firms in Mexico, we examine the relationship between extreme temperatures and credit performance. We find that unusually hot days increase delinquency rates, primarily affecting the agricultural sector, but also non-agricultural industries that rely heavily on local demand. Our results are consistent with general equilibrium effects originated in agriculture that expand to other sectors in agricultural regions. Additionally, following a temperature shock, affected firms face increased challenges in accessing credit, pay higher interest rates, and provide more collateral, indicating a tightening of credit during financial distress.
Do Credit Supply Shocks Affect Employment in Middle-Income Countries?, Gutierrez, E.; Jaume, D., and Tobal, M.
American Economic Journal: Economic Policy 15.4 (2023): 1-36.
Link Here: https://www.aeaweb.org/articles?id=10.1257/pol.20210354.
Abstract. This paper studies the effect of bank credit supply shocks on formal employment in Mexico using a proprietary data set containing information on all loans extended to firms by commercial banks during 2010–2015. We find large impacts on the formal employment of small and medium firms: a positive credit shock of one standard deviation increases yearly employment by 1.4 percentage points. The shares of uncollateralized credit, credit received by family firms, by younger firms, and by firms with no previous bank relationships also increase, suggesting that credit shocks may play a more prominent role for employment creation in credit-constrained settings.
Vertical Differentiation, Risk-Taking and Retail Funding, David Jaume , D,; Yslas, R., and Tobal, M.
Journal of Financial Services Research, (2022): 1-21.
Link Here: https://link.springer.com/article/10.1007/s10693-022-00391-2.
Abstract. Results of previous studies of the relationship between bank competition and bank risk-taking have differed in findings but most have used the same sort of barriers to perfect competition, such as entry barriers and differences in bank default risk. This study suggests that banks that compete more effectively in the deposit market using nonprice features such as differences in services and advertising gain market power and such market power gives them incentives to take less risk. Banks that compete less effectively take more risk. Empirical evidence supports the predictions of the model.
A Model of Wage and Employment Effects of Service Offshoring, Tobal, M.
Canadian Journal of Economics, Volume52, Issue1, February (2019): 303-338.
Link Here: https://onlinelibrary.wiley.com/doi/full/10.1111/caje.12373.
Abstract. This paper develops a two-sector model of trade in goods and intermediate tasks that differ in tradability and skill intensity. A skill-abundant country with high productivity is shown to offshore more unskilled tasks than skilled tasks, without relying on a particular correlation structure between tradability and skill intensity. With putty-clay technology that allows retraining in the long run, transition from the non-offshoring to the offshoring equilibrium generates wage and employment effects that switch from negative to positive as tradability declines, with the switches occurring at a higher degree of tradability for skilled tasks. This is consistent with the empirical literature.
Currency Mismatch in the Banking Sector in Latin America and the Caribbean, Tobal, M.
International Journal of Central Banking, 14(1) (2018), 317-364.
Link Here: https://www.ijcb.org/journal/ijcb18q0a8.htm.
Abstract. Existing literature uses data based on the residence principle to proxy for currency mismatch. This paper collects data on assets and liabilities broken by currency of denomination in the banking sector in Latin America and the Caribbean. I show that the information used in the literature cannot substitute for data broken down by currency and present new facts. I observe a reduction in long foreign currency positions, with several banking sectors taking short positions after 2006. Employing a methodology that accounts for time-varying unobservable characteristics, this reduction is shown to be partially explained by the implementation of prudential policies.
A PREVIOUS VERSION OF THE MANUSCRIPT WAS TITLED: Currency Mismatch: New Database and Indicator for Latin America and the Caribbean (Cemla Research Papers 12 (2013)).
Regulatory Entry Barriers, Rent Shifting and the Home Market Effect, Tobal, M.
Review of International Economics 25.1 (2017): 76-97.
Link Here: https://onlinelibrary.wiley.com/doi/full/10.1111/roie.12256.
Abstract. This paper introduces regulatory entry barriers in a model of the home market effect. The entry barriers generate local rents that have unexpected but significant implications. First, the home market effect is magnified. Second, when countries are sufficiently unequal in size and rents are sufficiently large, symmetric reductions in trade costs reduce welfare in the small country. Third, entry barriers increase the large country's market size and, surprisingly, can increase its welfare. Fourth, a unilateral increase in trade protection shifts foreign rents to the home country. This rent-shifting effect amplifies the standard production relocation motive for trade policy intervention.
Policy Work
The paper will examine the events causing a geographic reconfiguration of global value chains, leading to Mexico becoming a potential host of certain production processes that were previously located elsewhere. Combining anecdotal and indirect evidence of nearshoring processes in Mexico with academic review, the article will provide an analytical framework and empirical analysis to identify sectors that could benefit the most from nearshoring decisions and assess the possible effects on sectoral and aggregate output growth. The authors will also propose relevant policy recommendations. A conceptual framework and empirical strategy will be used to analyze theoretical nearshoring opportunities, identifying the possible sectors with a larger likelihood of outsourcing activities shifting from China or other Asian countries toward Mexico.
You can find it HERE: https://americas.georgetown.edu/publications/nearshoring-possible-scenarios-of-its-size-and-impact-on-mexico-s-economy
Monetary Policy and Financial Stability in Emerging Market Economies, with Lorenzo Menna.
Latin American Journal of Central Banking, Volume 1, Issues 1–4, (2020).
Abstract. During the 1990s and early 2000s, the consensus was that central banks had to adjust interest rates only in response to inflation and (possibly) output. Such consensus was questioned in the aftermath of the Global Financial Crisis and during the present pandemic. In contrast with most of the traditional literature, some observers argued that financial crises are endogenous events, claiming that central banks also had to dampen the accumulation of financial imbalances; that is, they had to “lean against the wind.” However, this debate has mostly focused on advanced economies (AEs), overlooking important characteristics of emerging market economies (EMEs). Based on more recent literature, we set the terms of the debate for EMEs in this paper. We argue that the relationship between monetary policy and financial stability differs in these economies because, unlike in AEs, the financial conditions are strongly dependent on capital flows. This characteristic of EMEs makes the trade-offs their central banks face more complex.
Financial and Price Stability in Emerging Markets: The Role of the Interest Rate, with Lorenzo Menna
Bank for International Settlements (BIS) Working Papers Series (WP 717): https://www.bis.org/publ/work717.pdf.
Abstract. The Global Financial Crisis opened a debate on whether inflation target regimes must be relaxed and allow for monetary policy to address financial stability concerns. Nonetheless, this debate has focused on the ability of the interest rate to “lean against the wind” and, more generally, on the accumulation of systemic risk arising from the macro-financial challenges faced by advanced economies. This paper extends the debate to the case of emerging markets by borrowing features from the New-Keynesian model with financial frictions of Curdia and Woodford (2016) and the empirical approach of Ajello et al. (2015) and by using these features to develop a small, open economy framework in which domestic credit plays a critical role. In line with the findings of a recent literature on the Global Financial Cycle, in our setup, a large dependence of domestic financial conditions on capital flows diminishes the effectiveness of monetary policy in dampening financial risks. Indeed, after careful calibration for the Mexican economy, we find that capital account openness reduces the optimal policy rate even below the level that would have prevailed in the absence of endogenous financial crisis and systemic risk.
Measuring and Understanding Trade in Service Tasks, Chiquiar, D.; Yslas, R.; and Tobal, M.
International Labour Review, 158.1 (2019): 169-190.
Abstract. Improvements in Information and Communication Technologies (ICT) have had differential impacts on the costs of offshoring service tasks. As a result, services with stronger tradability characteristics are at a higher risk of being offshored. This has increased the need for coming up with proper measures of service tradability and to better understand the labor market implications of service offshoring. This paper reviews a literature that has proposed measures of service tradability, investigated the casual effects of service offshoring and developed theoretical models to rationalize the associated stylized facts. The review suggests that skill-intensity and tradability are key determinants of wage and employment effects. Nonetheless, the lack of widely accepted definitions and measures of tradability, the absence of high quality data on service trade flows and the difficulty of measuring import competition at higher disaggregation levels pose difficulties to attain further empirical progress. The theoretical literature must produce a new generation of models that could rationalize the stylized facts.
Export Survival and Foreign Financing, with Laura D'Amato and Máximo Sangiacomo
Bank for International Settlements (BIS) Working Papers Series (WP 877): https://www.bis.org/publ/work877.pdf
Abstract. Exporting is a finance-intensive activity. But credit markets are frequently underdeveloped and domestic financing tends to be scarce in developing countries, for which a strong export sector is crucial for economic development. Thus, this paper investigates whether foreign financing provides better financing conditions than domestic financing and/or otherwise unavailable external finance, thus increasing export survival rates in a developing country. To that end, it assembles a unique dataset, rarely available for other countries, containing information on foreign credit obtained by Argentine exporters. Based on the empirical models conventionally used in the export survival literature—specifically the probit random effects and the clog-log setups—we provide evidence of a positive link between foreign financing and export survival. This finding is confirmed using an instrumental variable approach.
Macro-Financial Policy Challenges in the Face of a Complex Environment: The Case of Mexico, with Daniel Chiquiar
The International Trade Journal 29.5 (2015): 361-375.
Abstract. Emerging economies face a complex environment as of April 2015, mostly as a result of a slowdown in global growth, an increased risk of capital flow reversals, and a reduction in the price of oil. Due to the effects of this reduction on external and fiscal balance, the environment is particularly adverse for oil-exporting countries. This article reviews the different channels through which the environment entails financial risk for emerging economies, focusing on Mexico, an emerging and oil-exporting country. Our analysis reveals that this country faces several macro-financial policy challenges stemming from the aforementioned financial risks.
Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean
Banco de México Working Papers, 2017-21, December 2017
Abstract. This paper gathers and systemizes self-reported information about exchange rate flexibility and FX regulation in Latin America and the Caribbean for a period of twenty years beginning in 1992. The results show that, in countries in which the use of limits, liquidity and reserve requirements on FX positions was more common, the frequency of use of these instruments was particularly high during the transition towards more flexible exchange rate regimes. The exception refers to economies with a long tradition of financial dollarization in which the prudential policies were more spread out over time, possibly due to countercyclical adjustments of the regulatory instruments. Along these lines, policymakers reported that the first goal in using the regulation was to reduce currency mismatches, but, in the flexible regimes that were adopted during the 2000s the instruments were also used to dampen volatility in the exchange rate.
Global Value Chains in Mexico: A Historical Perspective, with Daniel Chiquiar
Banco de México Working Papers, 2019-6, April 2019
Abstract. This paper performs a historical analysis of Mexico's insertion into Global Value Chains (GVCs) and links it to the notion of competition underlying traditional theoretical models of international trade. In contrast with existing studies, it uses both new analytical tools pertaining to the GVC literature and tools based on the traditional notion of comparative advantage. This combination allows identifying three periods: (i) since NAFTA's signature until 2001, Mexico deepened its insertion into GVCs and reallocated resources to the production of more skilled-intensive goods; (ii) this higher GVC participation vanished when China entered the WTO; and (iii) since the second half of the 2000s, Mexico recovered the ground lost due to higher integration in the automotive sector and a reallocation of resources to the production of more unskilled-intensive goods, likely generated by an efficient response to competition with China. Hence, Mexico used two different models of GVC insertion entailing production processes with different characteristics in terms of skill-usage.
Profit-Shifting and Welfare Enhancing Trade Protection: An Incomplete Contracts Model
Available at https://www.cemla.org/PDF/investigacion/inv-2012-01-04.pdf.
Others
I TAKE PART OF DEARDORFF´S TREE OF INTERNATIONAL TRADE ECONOMISTS: CLICK HERE.
I TAKE PART OF THE INTERNATIONAL FINANCE AND BANKING SOCIETY´S (IFABS) CONFERENCE SCIENTIFIC COMMITTEE: CLICK HERE.
Selected Academic Working Papers and Work in Progress
The Impact of Credit Rating Agencies on Financial Markets, with Lorenzo Menna.
Do remittances complement or substitute consumption credit? The relevance of heterogeneous effects in the Mexican context, with David, Heres; Jaume, D. and Tellez de la Vega, E.
Abstract. This paper investigates the heterogeneous effect of remittances on consumption credit. To this end, we build a municipality-level dataset to link the flow of remittances to consumption credit changes, distinguishing them by loan type and borrower characteristics. Our data allow us to assess the complementarity or substitutability between remittances and the different types of consumer credit, as well as the effect of remittances on credit default. We instrument remittances with a municipality-level exposure to US unemployment to isolate its effect. We find a substitution effect that is concentrated on low-income borrowers who use remittances to pay off loans with the highest interest rates and the shortest maturities. That is, remittances make it easier for low-income borrowers to meet their obligations and could thus, in this manner, facilitate access to financial services in the long run. There is also a complementary effect for loans with the lowest interest rates and the longest maturities, regardless of the borrower’s income.
Old and New firms: a Relevant Distinction for credit structural shocks," with Lorenzo Menna and Meneses, Oscar.
Can Regulatory Policies Foster Women’s Financial Inclusion? The Role of Loan Loss Provisioning, with Becerra, A; Jaume, D, Tellez de la Vega, E., and Tobal, M. FIND IT HERE: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4895743.
Does the composition of public sector financing affect the size of crowding out? Evidence from Mexico, with Isha Agarwal; Jaume, D; Tellez de la Vega, E.
Unveiling capital flow dynamics: Beyond the traditional business cycle, with Mendoza, E.; Menna, L., and Tobal, M.
Books and Chapters
Two Models of FX Market Interventions: The Cases of Brazil and Mexico, with Renato Yslas
Joint Research Network of Central Banks of the Americas, November 2018.
Banco de México Working Papers, 2016-14, August 2016
Abstract. This paper compares empirically the implications of two distinct FX interventions models within the context of Inflation Targeting Regimes. To this purpose, it applies the VAR methodology developed by Kim (2003) to the cases of Mexico and Brazil. Our result can be readily summarized in three points. First, FX interventions have had a short-lived effect on the exchange rate in both Mexico and Brazil. Second, the Brazilian model of FX intervention entails higher inflation costs and this result cannot be entirely explained by differences in the level of pass-through. Third, each model yields interaction between exchange rate and conventional monetary policies (interest rate setting) of a different nature.
HERE IS AN EXTERNAL REVIEW OF THE MANUSCRIPT: CHICAGO POLICY REVIEW
Understanding Migration Policy. The Human and Economic Implications of Twenty-First Century Immigration Policy, 141, with Alfonso Cebreros, Daniel Chiquiar and Mónica Roa
The Human and Economic Implications of Twenty-First Century Immigration Policy. Upjohn Institute.Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/9780880996570
Abstract. To effectively debate immigration policy we need to be better informed. This book helps by presenting a group of prominent scholars who use data to help unravel the facts. They address immigration’s fiscal impacts, immigrants’ generational assimilation, enhanced U.S. enforcement, and alternatives for those seeking refugee status. Together, they help move us from the personal to the analytical, providing us a rational appraisal of immigration and the policies currently before use.
Blog Posts
World Bank, Mendoza, E., Lorenzo Menna, and Martin Tobal (June 2024). Unveiling Capital Flow Dynamics: Beyond the Traditional Business Cycle. https://blogs.worldbank.org/en/allaboutfinance/unveiling-capital-flow-dynamics--beyond-the-traditional-business?cid=SHR_WBLTweetable_EN_EXT%E2%80%A6.
VOX LACEA, Rubens Moura, Lorenzo Menna and Martin Tobal (March 2024). The Overlooked Aspect of the Federal Reserve’s Landings: Insights from Historical Data.https://vox.lacea.org/?q=blog/federal_reserve_landings.
Foco Económico, Lorenzo Menna and Martín Tobal (October 2022). Tenencias de inversionistas extranjeros en América Latina durante la pandemia: ¿Factores permanentes o transitorios? https://dev.focoeconomico.org/2022/10/03/tenencias-de-inversionistas-extranjeros-en-america-latina-durante-la-pandemia-factores-permanentes-o-transitorios/.
VOX LACEA, Lorenzo Menna & Martin Tobal (September 2022). Non-resident holdings in LATIN AMERICA: Permanent or Transitory Factors? Retrieved from http://vox.lacea.org/?q=blog/nonresident_holdings_latam.
World Bank, Martin Tobal; Sandra Aguilar, Emilio Gutiérrez; David Jaume, and David Heres (may 2022). Thermal stress and financial distress: Extreme Temperatures and firms' loan defaults in Mexico. Retrieved from https://blogs.worldbank.org/allaboutfinance/thermal-stress-and-financial-distress-extreme-temperatures-and-firms-loan-defaults.
World Bank, Gutierrez, E., David Jaume, and Martin Tobal (april 2021). Do credit supply shocks affect employment in middle-income countries? Retrieved from Do credit supply shocks affect employment in middle-income countries? (worldbank.org).
Chiquiar, D., & Tobal Martín (December 2018). Cadenas Globales de Valor y Especilización: Usando Métodos Alternativos. Retrieved from http://focoeconomico.org/2018/12/18/cadenas-globales-de-valor-y-especializacion-usando-metodos-alternativos-por-daniel-chiquiar-y-martin-tobal/
Chiquiar, D., & Tobal Martín (June 2018). Argentina, México y Brasil: Trazando Lazos Comerciales. Retrieved from http://focoeconomico.org/2018/06/04/8609/
Chiquiar, D., & Tobal Martín (November 2017). Tendencias Político-Electorales, Comercio en Servicios y Mercado Laboral. Retrieved from http://focoeconomico.org/2017/11/02/tendencias-politico-electorales-comercio-en-servicios-y-mercado-laboral/
Chiquiar, D., & Tobal Martín (April 2017). Brecha del Producto y Ciclo Financiero Global. Retrieved from http://focoeconomico.org/2017/04/11/brecha-del-producto-y-ciclo-financiero-global/
Chiquiar, D., & Tobal Martín (October 2016). México y China: Ventajas Comparativas y Competencia Global. Retrieved from http://focoeconomico.org/2016/10/24/mexico-y-china-ventajas-comparativas-y-competencia-global/
Chiquiar, D., & Tobal Martín (June 2016). La Voz de los Emergentes y el Ciclo Financiero Global. Retrieved from http://focoeconomico.org/2016/06/06/la-voz-de-los-emergentes-y-el-ciclo-financiero-global/
Chiquiar, D., & Tobal Martín (December 2015). La Posición de México en la Cadena Global de Valor. Retrieved from http://focoeconomico.org/2015/12/21/la-posicion-de-mexico-en-la-cadena-global-de-valor/