Research

PUBLICATIONS IN REFEREED JOURNALS

Drivers of consumer prices and exchange rates in small open economies (joint with Vesna Corbo) Journal of International Money and Finance, Volume 122, April 2022. Also available as Sveriges Riksbank Working Paper N. 387 

We study the fluctuations of exchange rates and consumer prices in two small open economies, Sweden and Canada, using a structural Bayesian VAR. Four domestic and two global shocks are identified through zero and sign restrictions. For both economies, we find that the main driver of consumer price inflation is the global demand shock. A negative global demand shock is not only deationary for the small open economy, but also depreciates its currency. Hence, the observed exchange rate pass-through following this shock is of opposite sign to what is usually expected. Finally, exogenous shocks to the exchange rate are less important drivers of exchange rate movements than in many other structural models.

WORKING PAPERS

Global and local drivers of Bitcoin trading vis-à-vis fiat currencies (with Maurizio Habib, David Tercero-Lucas) ECB Working Paper N.2868

We analyse the drivers of Bitcoin transactions against 44 fiat currencies in the largest peer-to-peer crypto exchanges. Momentum and volatility in the cryptoasset market, as well as volatility and liquidity in global financial markets do matter forBitcoin trading. There is suggestive evidence of a global crypto cycle driven by speculative motives. However, in emerging and developing economies (EMDEs), Bitcoin seems to offer also transactional benefits, since trading increases when the value of the domestic currency is unstable. Proxies of banking depth and digitalisation are negatively correlated with the currency loadings on the global factor, indicating that crypto-assets may offer a speculative alternative to traditional finance when this is not available, especially in EMDEs where the share of younger risk-prone population is higher. Our results clearly point to potential financial stability risks from cryptoisation in EMDEs with low levels of financial development and unstable fiat currencies.

Effects of foreign and domestic central bank government bond purchases in a small open economy DSGE model: Evidence from Sweden before and during the coronavirus pandemic  (with Yildiz Akkaya, Carl-Johan Belfrage, Ingvar Strid) Sveriges Riksbank Working Paper N. 421

This paper evaluates the macroeconomic effects of foreign and domestic central bank government bond purchases on the Swedish economy before and during the Corona pandemic using a small open economy DSGE model with segmented asset markets. In this model, the effects of foreign and domestic quantitative easing on the Swedish economy occur mainly through the exchange rate channel. The calibrated model is able to broadly capture the movements in foreign and domestic bond yields, capital flows and the Krona exchange rate associated with QE since the global financial crisis in 2007-2009. We find that foreign quantitative easing strengthened the Krona exchange rate and had modestly negative effects on Swedish GDP and inflation. Domestic QE, on the other hand, depreciated the Krona and had modestly positive macroeconomic effects. In 2015-2019 the government bond purchases on average depreciated the Krona by 2.5 percent, increased GDP by 0.2 percent, and increased inflation by 0.2 percentage points. The government bond purchases following the pandemic, which were more limited in size, had roughly half of these effects.

Domestic and External Sovereign Debt (joint with Spyridon Sichlimiris) Sveriges Riksbank Working Paper N. 345 (submitted) Latest version here (R&R IER)

We develop a model of domestic and external sovereign debt, where market segmentation, in conjunction with financial repression, makes sovereign default costly. In a small open economy characterized by a scarcity of domestic private saving instruments, the government can financially repress domestic bondholders to issue cheap domestic debt, by imposing capital controls. However, under these market conditions, domestic debt issuance features a decreasing marginal benefit. The government counteracts this costly side of financial repression, by issuing also external debt in the international financial market, extending further its debt capacity. A default temporarily disrupts the trade in these segmented debt markets. Among other empirical regularities of emerging and developing economies, our model can replicate the domestic and external sovereign debt levels, while crucially being in line with the evidence on negative real interest rates on sovereign debt.

Technology news, creative destruction and economic fluctuations (joint with Spyridon Sichlimiris), updated version of Towards technology-news-driven business cycles,  Sveriges Riksbank Working Paper N. 360 (R&R JMCB)

VMACS, April 8th, 10-min presentation

We identify an inflationary technology news shock as the leading source of U.S. business cycle fluctuations, using a structural vector error correction model. This shock is an important driver of Total Factor Productivity in the long run, while not affecting it in the short run. The technology news shock acts like a demand shock: it induces positive comovement both in real quantities - GDP,  consumption, investment, hours - and between real quantities and inflation. Anticipated technological changes became the main drivers of the U.S. business cycle after the 80's, due to the improved transmission through the financial sector. 

When domestic and foreign QE overlap: evidence from Sweden (joint with P. Stockhammar), updated version of Sveriges Riksbank Working Paper N. 404 (Reject and Resubmit, EER) 

We estimate the effects of domestic and foreign quantitative easing (QE) programmes on a small open economy, Sweden, using a structural BVAR model. Domestic QE raised GDP, lowered unemployment and depreciated the currency, while effects on inflation are less clear. The ECB QE had large positive effects on both GDP and inflation in Sweden, also due to the endogenous response of domestic QE to the foreign one. In terms of transmission channels, domestic QE improved lending conditions for households and lowered expected future rates, while foreign QE improved financing conditions for firms. 

SUERF note

TFP news, stock market booms and the business cycle: Revisiting the evidence with VEC models  (joint with Spyridon Sichlimiris) Sveriges Riksbank Working Paper N. 388 

Beaudry and Portier (2006) provide support for the "news view" of the business cycle, using a vector error correction model. We show that this result hinges on a cointegrating relationship between TFP and stock prices that is not stationary, thus making the estimates not reliable. If we alter the TFP measure and change the model specification, we can recover the news shock through their identification. However, the news shock leads to a stock market boom with a negligible impact on economic activity. Our findings are in line with studies that identify news shocks without relying on VEC models.

Composition of Sovereign Debt and Financial Development: A Dynamic Heterogeneous Panel Approach (joint with Spyridon Sichlimiris) Latest version here