Mobile Internet, Collateral, and Banking, with A. D'Andrea, P. Hitayezu, R. Kpodar and N. Limodio, IMF working paper n. 24/70, March 2024
Combining administrative data on credit, internet penetration and a land reform in Rwanda, this paper shows that the complementarity between technology and law can overcome financial frictions. Leveraging quasi-experimental variation in 3G availability from lightning strikes and incidental coverage, we show that mobile connectivity steers borrowers from microfinance to commercial banks and improves loan terms. These effects are partly due to the role of 3G internet in facilitating the acquisition of land titles from the reform, used as a collateral for bank loans and mortgages. We quantify that the collateral's availability mediates 35% of the overall effect of mobile Internet on credit and 80\%or collateralized loans.Bank Financing of Global Supply Chains, with L. Alfaro, M. Brussevich and C. Minoiu, CEPR Discussion Paper n. 20164, April 2025
Finding new suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018--2019 U.S.-China trade tensions. We match data on shipments to U.S. ports with the U.S. credit register to analyze trade and bank credit relationships at the bank-firm level. We show that importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and to find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit demand, drawing on bank credit lines and taking out loans at higher rates. Banks offering specialized trade finance services to Asian markets eased both financial and information frictions. Tariff-hit firms with specialized banks borrowed at lower rates and were 15 pps more likely and 3 months faster to establish new supplier relationships than firms with other banks. We estimate the cost of searching for suppliers at $1.9 million for the average U.S. importer (or 5% of annual sales revenue).Who Pays for Your Rewards? Redistribution in the Credit Card Market, with S. Agarwal, A. F. Silva and C. Wix, CEPR Discussion Paper n. 17733, December 2023
We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.International trade spillovers from domestic COVID-19 lockdowns, with S. Aiyar, D. Malacrino and A. Mohommad, CEPR Discussion Paper n. 17395, revision requested, Canadian Journal of Economics
While standard demand factors perform well in predicting historical trade patterns, they fail conspicuously in 2020, when pandemic-specific factors played a key role above and beyond demand. Prediction errors from a multilateral import demand model in 2020 vary systematically with the health preparedness of trade partners, suggesting that pandemic-response policies have international spillovers. Bilateral product-level data covering about 95 percent of global goods trade reveals sizable negative international spillovers to trade from supply disruptions due to domestic lockdowns. These international spillovers accounted for up to 60 percent of the observed decline in trade in the early phase of the pandemic, but their effect was short-lived, concentrated among goods produced in key global value chains, and mitigated by the availability of remote working and the size of the fiscal response to the pandemic.Public debt and r-g at risk, with U. Wiriadinata, (also as IMF working paper n. 20/137), January 2022, revision requested, Oxford Open Economics
As interest rate-growth differentials (r-g) turned negative in many countries, governments consider pursuing fiscal expansion and the potential risks involved. Using a large sample of advanced and emerging economies, our analysis suggests that high public debts can lead to adverse future r-g dynamics. Specifically, countries with higher initial public debt experience (i) a shorter duration of negative r-g episodes and a higher probability of reversal, (ii) higher average r-g, and (iii) a more right-skewed r-g distribution, that implies higher down-side risks. Furthermore, high-debt countries experience larger increases in interest rates in response to (iv) an unexpected decline in domestic output and (v) an increase of global volatility. Results are stronger when public debts are denominated in foreign currencies.Bank Technology Adoption and Productivity, with A. Rebucci and G. Zhang, January 2024
We build and estimate a model of growth and finance in which banks adopt technology embedded in capital goods produced by entrepreneurs, and agents choose whether to be workers or capital goods-producing entrepreneurs. In this setting, aggregate firm productivity affects bank efficiency and vice versa. We find that closing down the adoption of banking technology reduces aggregate productivity growth by 16.7 percent. Empirical evidence based on US Call Report Data is consistent with the bank technology adoption mechanism at the core of the model.When They Go Low, We Go High? Measuring Bank Market Power in a Low-for-Long Environment, with D. Igan, M.S. Martinez Peria and N. Pierri, IMF working paper n. 2021/149
We examine trends in bank competition since the early 2000s. The Lerner index—arguably the most commonly used measure—shows evidence of a marked increase in market power in advanced economies, especially after the global financial crisis. But other frequently used indicators of banking sector competition seem much more muted. We show that the significant drop in policy rates that occurred in the aftermath of the crisis could explain the seeming disconnect. Adjusting the Lerner index for the impact of policy rates reveals that market power has been fairly constant in advanced economies—consistent with the other signals and similar to the pattern observed in emerging markets.Tracking the Economic Impact of COVID-19 and Mitigation Policies in Europe and the United States, with S. Chen, D. Igan and N. Pierri, Covid Economics, 36, July 2020
We use high-frequency indicators to analyze the economic impact of COVID-19 in Europe and the United States during the early phase of the pandemic. We document that European countries and U.S. states that experienced larger outbreaks also suffered larger economic losses. We also find that the heterogeneous impact of COVID-19 is mostly captured by observed changes in people’s mobility, while, so far, there is no robust evidence supporting additional impact from the adoption of non-pharmaceutical interventions. The deterioration of economic conditions preceded the introduction of these policies and a gradual recovery also started before formal reopening, highlighting the importance of voluntary social distancing, communication, and trust-building measures.Assessing Bias and Accuracy in the World Bank-IMF's Debt Sustainability Framework for Low-Income Countries, IMF working paper no. 14/48 with A. Berg, E. Berkes, C. Pattillo and Y. Yakhshilikov, March 2014, revision requested, World Bank Economic Review.
The World Bank and the IMF have adopted a debt sustainability framework (DSF) to evaluate the risk of debt distress in Low Income Countries (LICs). At the core of the DSF are empirically-based thresholds for each of five different measures of the debt burden (the “debt threshold approach” DTA). The DSF contains a rule for aggregating the information contained in these five different variables which we label the “worst-case aggregator” (WCA) in view of the fact that the DSF considers a breach of any one of the thresholds sufficient to indicate a high risk of debt distress. However, neither the DTA nor the WCA has heretofore been subject to empirical testing. We find that: (1) the DTA loses information relative to a simple proposed alternative; (2) the WCA is too conservative (predicting crises too often) in terms of the loss function used in the DSF; and (3) the WCA is less accurate than some simple proposed alternative aggregators as a predictor of debt distress.Aid and Vulnerability, MoFiR working paper n° 88.
Managing and identifying risks are a key challenge for Low Income Countries (LICs), which are extremely vulnerable to exogenous shocks. However, the use of risk management tools by developing countries is quite limited. The paper discusses in which ways aid could strengthen the capacity of LICs to deal with vulnerability to external shocks and to manage capital flows. We provide some novel empirical evidence on the potential role of aid as output stabilizer and shock absorber in recipient countries, and on aid unpredictability.Vulnerability, debt and growth in the Caribbean: A Fan Chart Approach, IDB Technical Note n° 577, with L. Andrian, V. Mercer-Blackman and A. Rebucci.
High government debts, weak economic growth, vulnerability to external shocks and the design of sound fiscal consolidation strategies are among the most critical issues that some of the Caribbean countries has currently to deal with. Stabilization programs may harm economic growth but, under certain conditions, they could be expansionary. The main result of this analysis is that the uncertainty about the future evolution of debt increases when the volatility of exogenous shocks affecting fiscal revenues are properly accounted for into the debt sustainability analysis.Debt Sustainability Framework in HIPCs: A Critical Assessment and Suggested Improvements, revised May 2008, with M. Arnone and L. Bandiera (an earlier version, External Debt Sustainability: Theory and Empirical Evidence appeared as Catholic University of Piacenza Working Paper n° 33)
This paper presents an assessment of the external debt literature related to the IMF-World Bank HIPC Initiative and proposes to extend the present debt sustainability framework. We argue that a comprehensive debt sustainability analysis requires a fully-fledged government budget constraint, which includes not only the external position, but also public domestic debt and the feedback effects of the choices on deficit financing. We also suggest considering uncertainty and the risk of default, to carefully evaluate the resource required to finance poverty reduction policies, and to develop a legal framework to deal with private creditors. As a result, debt relief should be tailored on specific country needs and it should be part of a more comprehensive development policy, aimed at reducing poverty, built on the fully-fledged government budget constraint and designed for providing a permanent exit from debt dependence and an incentive to strengthen institutions and policies.Spillovers from Emerging Markets: Firm-Level Evidence (with P. Beltran and L. Franz)
The Cost of Waiting (with J. Gamboa-Arbelaez and M. Moreno-Badia)
Democracy and Its Unequal Effect on the Benefits and Costs of Capital Inflows (with M. Eberhardt and H. Lim)