Journal articles
(with Fernando Eguren-Martin)
IMF Economic Review, vol. 70(3), September 2022, pp. 487-519. [Working paper] [slides] [Blog post]
We document how the entire distribution of exchange rate returns responds to changes in global financial conditions. We measure global financial conditions as the common component of country-specific financial condition indices, computed consistently across a large panel of developed and emerging economies. Based on quantile regression results, we provide a characterisation and ranking of the tail behaviour of a large sample of currencies in response to a tightening of global financial conditions, corroborating (and quantifying) some of the prevailing narratives about safe haven and risky currencies. Our methodology thus delivers a more nuanced picture than that obtained with standard regression-based methods, allowing for example to make probabilistic statements about the likelihood of observing large swings in exchange rate returns given the prevailing global financial environment. We also seek to identify the macroeconomic fundamentals associated with different tail dynamics, and find that currencies of countries with higher interest rates, low levels of international reserves and large fiscal deficits display more marked increases in the likelihood of large losses in response to a tightening of global financial conditions.
(with Jacopo Cimadomo, Domenico Giannone, Michele Lenza and Francesca Monti)
Journal of Econometrics, vol. 231(2), 2022, pp. 500-519. [Working paper] [Replication files]
Monitoring economic conditions in real time, or nowcasting, and Big Data analytics share some challenges, sometimes called the three “Vs”. Indeed, nowcasting is characterized by the use of a large number of time series (Volume), the complexity of the data covering various sectors of the economy, with different frequencies and precision and asynchronous release dates (Variety), and the need to incorporate new information continuously and in a timely manner (Velocity). In this paper, we explore three alternative routes to nowcasting with Bayesian Vector Autoregressive (BVAR) models and find that they can effectively handle the three Vs by producing, in real time, accurate probabilistic predictions of US economic activity and a meaningful narrative by means of scenario analysis.
(with Ambrogio Cesa-Bianchi)
Journal of International Economics, vol. 135(C), 2022. [Final manuscript] [Online appendix] [Replication files]
We provide evidence on the international transmission of US financial shocks, and compare their effects to monetary policy and central bank information shocks in a two-country SVAR for the US and the UK. Adverse financial shocks trigger a contraction in the US economy and an increase in credit spreads. The tightening in US credit conditions is quickly transmitted internationally, leading to an increase in credit spreads and a slowdown in economic activity in the UK. As for monetary policy and central bank information shocks, cross-country comovement in credit spreads amplifies the impact of financial shocks on the real economy. Our findings support the notion of an `international credit channel' as a key transmission mechanism for cross-country spillovers.
(with Silvia Domit and Francesca Monti)
International Journal of Forecasting, vol. 35(4), October–December 2019, pp. 1669-1678. [Working paper]
We provide evidence on the international transmission of US financial shocks, and compare their effects to monetary policy and central bank information shocks in a two-country SVAR for the US and the UK. Adverse financial shocks trigger a contraction in the US economy and an increase in credit spreads. The tightening in US credit conditions is quickly transmitted internationally, leading to an increase in credit spreads and a slowdown in economic activity in the UK. As for monetary policy and central bank information shocks, cross-country comovement in credit spreads amplifies the impact of financial shocks on the real economy. Our findings support the notion of an `international credit channel' as a key transmission mechanism for cross-country spillovers.
Estimating central bank preferences : the case of the Bank of England over 1981 - 2007
Annali della Fondazione Luigi Einaudi, vol. 45, 2011, pp. 65-75 (available upon request)
I adapt the methodology for recovering central bank preferences of Favero and Rovelli (2003) to a small open economy to estimate the Bank of England's loss function over the 1981:3-2007:2 sample. I find that prior to the adoption of inflation targeting, the Bank of England attached about 50% more importance to output gap stabilization than to ination stabilization, and around 1% of the weight given to inflation stabilization to interest rate smoothing. Since the adoption of inflation targeting, the relative weight attached to output gap stabilization appears to have fallen sharply, while the importance of interest rate smoothing seems to have slightly increased, suggesting that the Bank of England behaved almost as a pure inflation targeter over the second half of the sample under study.