• Trade Invoicing Currencies and Exchange Rate Pass-through: The Introduction of the Euro as a Natural Experiment [SSRN Working paper]., with Felipe Benguria. New version Sep 2022 (under review)

A recent literature emphasizes the prominence of dominant currencies in international trade invoicing, and the role of invoice currencies in the transmission of exchange rate shocks. In this paper, we examine the introduction of the euro as a once-in-a-century natural experiment which induced a substantial shifting in invoice currencies, allowing us to test existing theories. We use unique data on the invoice currencies of the universe of export and import transactions of a small open economy trading with the Eurozone over the period 1997-2010. Before the euro, exports to the Eurozone were dominated by the US dollar, and euro legacy currencies were rarely used. The introduction of the euro led a substantial number of firms to swiftly switch their invoice currencies to euros, which eventually accounted for 40\% of all transactions. We first study the determinants of the adoption of the euro in exports to the Eurozone, finding a key role for strategic complementarities and for the invoice currency of imported inputs. In the core of our analysis, we show how firms switching from dollars to euros faced a radical transformation of their exchange rate pass-through, in line with recent theories. While the literature has studied trade invoice currencies in settings in which these are very persistent firm-level choices, our findings validate the conjecture that large--scale policy changes can lead to changes in these choices, and simultaneous changes in exchange rate pass-through.

Keywords: Invoicing Currencies, Exchange Rates, Pass-through, Euro, Dominant Currency

JEL Classification: F1, F3, F4

  • Is Finance the Most Binding Constraint or Complaint? [SSRN Working paper]. New version Jul 2022 (under review)

In global surveys, firms tend to state that access to finance is their main obstacle to operate or grow. But complaining about finance does not necessarily imply the firm is financially constrained. We exploit the idea that firms facing external finance constraints should reinvest more heavily in their internal funds, as many canonical models predict. Using global firm surveys (2006-2019), we find that the profit reinvestment rate is correlated to various revealed measures of constraints. In fact, reinvestment is higher for firms that are young, small, have less tangible assets, and have greater external finance needs. Most important for our central point, we do not find more reinvestment for firms that complain about finance being an obstacle. This lack of a higher reinvestment among complaining firms is robust to alternative measures of profit reinvestment and a number of alternative confounders. Taken together, our findings suggest that these self-assessments of a “main obstacle” might be due to reasons other than constraints in financing capital expenditures. Private sector growth analysis should not rely solely on stated measures of financial obstacles.

  • Commodity prices, currencies, and the threat of operational disruptions: Labor strikes at copper mines [SSRN Working paper].

The threat of short-term supply disruptions may matter for commodity prices, although their magnitude is hard to detect, for example, due to anticipation, storage and the relatively short duration of strikes. This article uses a century of labor strikes in Chile copper mines (1910-2010) to explore their effect on global commodity returns. Around strikes, copper displays cumulative abnormal returns (CAR) close to 200 basis points (bps). Consistent with the threat of supply disruptions, the effect comes almost fully from strikes at larger mines (CAR of 500 bps). In spite of strikes being transitory events, we also find a mirroring appreciation of the USD/CLP commodity currency. Out-of-sample forecasts for strikes during the decade 2000-2010 are reasonably accurate, suggesting that the commodity market response to such events has not varied much over time.

Public holidays are regulations that directly reduce workers’ labor supply, shutting down part of the economy. These popular policies have valuable benefits, but also have opportunity costs from foregone market economic activity and tax revenues. A pervasive challenge to measure these costs is that a country’s holidays are endogenous to income and preferences. Also, public holidays increase demand for subcategories of GDP, with an ambiguous magnitude on the whole economy.

This paper presents a global panel of national holidays (2000-2019) for over 200 countries. Beyond long-run trends, it introduces a novel ”high frequency” identification coming from public holidays falling on a weekend. For many countries that do not replace these ”lost holidays”, this mechanism transitory increases working days for a year, in a way that is arguably orthogonal to other determinants of growth.

We find an hours-worked elasticity of GDP around 0.25-0.50; so an extra holiday would be 50-75% cheaper than what a proportional effect may predict. As expected, the effect is stronger in activities that are more likely to be interrupted by these holidays, like industry and manufacturing. In contrast, we find no effect on broad activities that are likely to continue (mining, agriculture). It is reassuring that these ”high frequency” holidays are also related to fewer work-related accidents and to more short-run happiness. We also find that tax revenues and expenditures have some exposure to holidays.


We examine the debt advantages of wholly-owned state-owned enterprises (WSOEs), due to an implicit sovereign insurance against default. Our model explains conditions that increase those advantages in bond yields. In our global sample of bonds, we find that bond issues of WSOEs, have a 57 bps discount in their yield to maturity vis-à-vis comparable corporations. The effect is even larger when we benchmark against partial state-owned firms. This cheaper debt finance is stronger during crises yet disappears for sovereigns with low creditworthiness. This lower cost of debt “inflates” the profits of the median WSOE by 13%.

  • The Reinvestment by Multinationals as a Capital Flow: Crises, Imbalances and the Cash-Based Current Account. Journal of International Money & Finance. 124 (June 2022). [Last Working paper SSRN] [Published] (with E. Hansen)

When the affiliate of a foreign corporation saves a dollar of its profits, the host country records it as an inflow of retained earnings foreign direct investment (REFDI). If invested, this dollar arithmetically generates a current account deficit, even though cash does not cross borders. This study explores the empirical macroeconomics of REFDI, which globally comprises half of FDI inflows. Using international capital flows (1980–2018), we show that REFDI behaves like national savings in its procyclicality. Unpacking FDI in the analysis also makes a difference in the investment cycle. Moreover, we decompose the long-run saving-to-investment correlation, finding a role for REFDI in the Feldstein-Horioka puzzle. Adjusting the current account for REFDI matters since REFDI lowers the probability of macroeconomic crises and sudden stops. Overall, REFDI is stronger in countries receiving more FDI and it was also strong during the recent commodity boom. We are not challenging that the balance of payments works on nationality and accrual bases. However, our results suggest that the external balance assessment of countries should adjust for REFDI because it tends to have a different propensity to be invested and to build up vulnerabilities.

  • The development of Venture Capital in Latin America: A Comparative Perspective. CEPAL Review 128. June 2019 [Published] (with Ernesto Stein)

Venture capital (VC) contributes to the financing of high-growth companies. In Latin America and the Caribbean, as a fraction of GDP, this type of capital is lower than in China and India; aslo well below developed economies. Nonetheless, between 2005 and 2011, regional VC investments grew by 30% per year. In comprison to other regions of the world, Venture capital investments in Latin America and the Caribbean tend to be larger, focus less on high-technology industries and are more likely to be funded from abroad. Transactions in Latin America and the Caribbean are made by less experienced investors and in fewer rounds than in comparator countries. Venture capital growth has been quite procyclical. The evidence shows that VC investments are in the early stages of development, with apparently more money than high-technology ideas

Papers under review

Some Working papers

Bad Neighbors: Bordering Institutions as Comparative (Dis)Advantage (November 20, 2017).

How do Currencies Globalize? Firm-level Evidence on the early Adoption of the Euro (link)

Why don’t all exporters benefit from Free Trade Agreements? Estimating utilization costs

The collective action of exporters [slides]