Publications:
Is Inflation Domestic or Global? Evidence from Emerging Markets, joint with R. Bems, F. Caselli, and F. Grigoli, International Journal of Central Banking 18(4): 125-163 (2022). [Published Paper] [Working Paper]
Abstract: Following a period of disinflation during the 1990s and early 2000s, inflation in emerging markets has remained remarkably low. The volatility and persistence of inflation also fell considerably and remained low despite large swings in commodity prices, the global financial crisis, and periods of strong and sustained U.S. dollar appreciation. A key question is whether this improved inflation performance is sustainable or reflects global disinflationary forces that could prove temporary. In this paper, we use a New Keynesian Phillips-curve framework and data for 19 large emerging market economies over 2004–18 to assess the contribution of domestic and global factors to domestic inflation dynamics. We find that long-term inflation expectations, linked to domestic factors, were the main determinant of inflation. External factors played a considerably smaller role. The results suggest that although emerging markets are increasingly integrated into the global economy, policymakers still hold significant leverage in domestic inflation developments.
Reopening strategies, mobility and COVID-19 infections in Europe: panel data analysis, joint with J. Franks, C. Mulas-Granados, M. Patnam, and S. Weber. BMJ Open 12, no. 2 (2022): e055938. [Published Paper]
Expectations' Anchoring and Inflation Persistence, joint with R. Bems, F. Caselli, and F. Grigoli, Journal of International Economics 132 (2021). [Published Paper] [Working Paper] [Replication Files]
Abstract: Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct an index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies since 1989. We then study the response of consumer prices to terms-of-trade shocks and find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.
Monetary Policy Credibility and Exchange Rate Pass-Through, joint with Y. Carrière-Swallow, N. Magud, and F. Valencia; International Journal of Central Banking 17(3): 61-94 (2021) [Published Paper] [Working Paper] [VoxEU]
Abstract: A long-standing conjecture in macroeconomics is that declines in exchange rate pass-through over the past three decades are in part due to improved monetary policy performance. In a large sample of emerging and advanced economies, we find evidence that a relatively more credible monetary policy regime—measured by better-anchored inflation expectations—is associated with lower exchange rate pass-through to consumer prices. The results are robust to controlling for the level and variability of nominal variables and for the import content of the consumption basket.
Growth Accelerations and Reversals in Emerging Market and Developing Economies: External Conditions and Domestic Amplifiers, joint with M. S. Nabar and M. Poplawski-Ribeiro, Open Economies Review (2020). [Published Paper]
Abstract: We investigate how country-specific external demand, external financial conditions, and terms of trade affect medium-term growth in emerging market and developing economies and the occurrence of growth accelerations and reversals. We find that the importance of country-specific external conditions for medium-term growth has increased over time, with external financial conditions accounting for one-third of the increase in average income per capita growth between 1995 and 2004 and 2005–14. Stronger external demand and financial conditions significantly increase the probability of growth accelerations, while a strengthening of any of the three conditions significantly decreases the probability of reversals. Certain domestic policies and structural attributes, including exchange rate flexibility, trade integration, and strong institutional frameworks, can significantly amplify or mitigate the effect that shifts in those external conditions have on growth patterns in emerging market and developing economies.
Gains from anchoring inflation expectations: Evidence from the taper tantrum shock, joint with R. Bems, F. Caselli, F. Grigoli; Economic Letters, Vol. 188, (2019). [Published Paper]
Abstract: Have improvements in monetary policy frameworks increased emerging market resilience to external shocks? This paper exploits the May 2013 taper tantrum episode in the United States to study the reaction of 18 large emerging markets to an external shock, conditioning on their degree of inflation expectations’ anchoring. We find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring, countries with weakly anchored inflation expectations experienced larger exchange rate pass-through to consumer prices and higher inflation. These findings suggest that gains in inflation expectations’ anchoring can improve central bank’s policy trade-offs when facing external shocks.
Boom, Bust, Recovery: Forensics of the Latvia Crisis, joint with O. Blanchard and M. Griffiths, Brookings Papers on Economic Activity, Fall 2013, pp. 325-388. [Published Paper]
Abstract: In spite of the fact that Latvia is a small country, it has been an object of intense attention during the financial crisis because of the economic policies it put in place to get its economy back on track. By maintaining its currency peg, adjusting through internal devaluation and front loading fiscal austerity, this nation of 2 million is now, 5 years later, back on a strong economic footing, although it may have been quite painful to get there. Latvian policymakers, like those elsewhere, reacted too late to the boom, had good relations with parent banks; avoided a large decline in output thanks to deviations from strict currency board rules; had quick productivity gains; and for political purposes, output growth may matter as much or more than its level. In addition, the authors believe the case for Latvia joining the EU is a strong one, perhaps more so than for some of the existing members.
Depositors’ Discipline in Uruguayan Banks, joint with V. Goday and J. Ponce, Revista de economía 12.2 (2005): 167-190. [Published Paper]
This paper uses panel data of Uruguayan private owned banks to investigate the depositors’ reaction to changes in banks’ fundamentals in three subperiods: pre-crisis (from January 2000 to December 2001); crisis (January 2002 to July 2002); and post-crisis (August 2002 to December 2004). We test for depositors’ discipline through the growth of deposits and through changes in the interest rates. We extend the analysis by testing if depositors discipline banks by shortening the maturity of time deposits. Taking into account that depositors’ discipline does not only involve depositors’ reaction but also the subsequent bank’s response, we also look into the significance and velocity of mean reversion in the deposits’ interest rates. We find strong evidence that supports the hypothesis that depositors discipline riskier banks by withdrawing their deposits and weaker evidence on the hypothesis that depositors require higher interest rates and reduce the maturity of their deposits as disciplining actions. Additionally, we find that banks react to depositors’ actions -depositors’ discipline is effective specifically in the post-crisis period.
Working Papers:
Private Participation and its Discontents: Insights from Large-Scale Surveys, joint with S. Albrizio, H. Balima, E. Huang, and C. Ladreit; IMF Working Paper No. 24/216, October 2024 [Working Paper]
This paper investigates public attitudes toward product market regulation (PMR) reforms aimed at fostering private participation and competition in two network sectors—electricity and telecommunications. Despite the benefits of such reforms, including enhanced productivity and lower prices, they often face significant public resistance. We conduct large-scale surveys of 6,300 individuals in three emerging market and developing economies (Mexico, Morocco, and South Africa) to analyze the role of socioeconomic characteristics, beliefs, and perceptions in shaping support for PMR reforms. Our findings reveal that individual beliefs and perceptions, particularly those related to how policies work and market economy views, are major predictors of reform support. Randomized information treatments show that raising awareness about the costs of the status quo and the benefits of PMR reforms significantly increases public support. Among initially skeptical individuals, societal concerns play a larger role in respondents’ reasons for nonsupport, consistent with models of social preferences. However, offering tailored complementary and compensatory measures can further enhance support among those skeptical individuals.
Shifting Perceptions: Unpacking Public Support for Immigrant Workers Integration in the Labor Market, joint with S. Albrizio, H. Balima, E. Huang, and C. Ladreit; IMF Working Paper No. 24/217, October 2024 [Working Paper]
This paper investigates public perceptions and support for policies aimed at integrating immigrant workers into domestic labor markets. Through large-scale surveys involving 6,300 respondents from Canada, Italy, and the United Kingdom, we provide new insights into attitudes toward migrant integration policies and the impact of different information provisions on belief updating. We identify three key factors that shape policy support: pre-existing stereotypes about immigrants, awareness of labor market integration policies for migrants, and, most critically, the perceived economic and social impact of these policies. Our findings reveal that providing information about the economic effects of integrating immigrants in the labor market significantly alters perceptions and increases support for these policies. Notably, explanations of the economic mechanisms underlying these policies are more effective than simply presenting policy effects or real-life stories of integration challenges. The survey also identifies the primary barriers to policy support, with fairness considerations toward unemployed native workers emerging as the top concern. It reveals that addressing individuals’ specific concerns through tailored mitigation measures can enhance support for policies aimed at better integration migrants. Nevertheless, a significant challenge remains in overcoming mistrust in the government’s commitment and ability to effectively implement these policies and accompanying measures.
Monetary Policy Surprises and Inflation Expectation Dispersion, joint with F. Grigoli and S. Lizarazo; IMF Working Paper No. 20/252, November 2020 [Working Paper]
Abstract: Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.
Exiting from Lockdowns: Early Evidence from Reopenings in Europe, joint with J. Franks, C. Mulas-Granados, M. Patnam, and S. Weber; IMF Working Paper No. 20/218, October 2020 [Working Paper]
Abstract: European authorities introduced stringent lockdown measures in early 2020 to reduce the transmission of COVID-19. As the first wave of infection curves flattened and the outbreak appeared controlled, most countries started to reopen their economies albeit using diverse strategies. This paper introduces a novel daily database of sectoral reopening measures in Europe during the first-wave and documents that country plans differed significantly in terms of timing, pace, and sequencing of sectoral reopening measures. We then show that reopenings led to a recovery in mobility—a proxy for economic activity—but at the cost of somewhat higher infections. However, the experience with reopening reveals some original dimensions of this trade-off. First, the increase in COVID-19 infections after reopening appears less severe in fatality rates. Second, a given reopening step is associated with a worse reinfection outcome in countries that started reopening earlier on the infection curve or that opened all sectors at a fast pace in a relatively short time. Finally, while opening measures tend to have an amplification effect on subsequent cases when a large fraction of the economy is already open, this effect appears heterogenous across sectors.
Commodity Terms of Trade: A New Database, joint with S. Kebhaj; IMF Working Paper No. 19/21, January 2019 [Working Paper] [Regularly updated database]
Abstract: This paper presents a comprehensive database of country-specific commodity price indices for 182 economies covering the period 1962-2018. For each country, the change in the international price of up to 45 individual commodities is weighted using commodity-level trade data. The database includes a commodity terms-of-trade index—which proxies the windfall gains and losses of income associated with changes in world prices—as well as additional country-specific series, including commodity export and import price indices. We provide indices that are constructed using, alternatively, fixed weights (based on average trade flows over several decades) and time-varying weights (which can account for time variation in the mix of commodities traded and the overall importance of commodities in economic activity). The paper also discusses the dynamics of commodity terms of trade across country groups and their influence on key macroeconomic aggregates.
Disagreement about Future Inflation: Understanding the Benefits of Inflation Targeting and Transparency, joint with S. Brito and Y. Carrière-Swallow; IMF Working Paper No. 18/24, January 2018. [Working Paper]
Abstract: We estimate the determinants of disagreement about future inflation in a large and diverse sample of countries, focusing on the role of monetary policy frameworks. We offer novel insights that allow us to reconcile mixed findings in the literature on the benefits of inflation targeting regimes and central bank transparency. The reduction in disagreement that follows the adoption of inflation targeting is entirely due to increased central bank transparency. Since the benefits of increased transparency are non-linear, the gains from inflation targeting adoption have accrued mainly to countries that started from a low level of transparency. These have tended to be developing countries.
U.S. Monetary Policy Normalization and Global Interest Rates, joint with C. Caceres, Y. Carrière-Swallow, and I. Demir; IMF Working Paper No. 16/195, September 2016. [Working Paper]
Abstract: As the Federal Reserve continues to normalize its monetary policy, this paper studies the impact of U.S. interest rates on rates in other countries. We find a modest but nontrivial pass-through from U.S. to domestic short-term interest rates on average. We show that, to a large extent, this comovement reflects synchronized business cycles. However, there is important heterogeneity across countries, and we find evidence of limited monetary autonomy in some cases. The co-movement of longer term interest rates is larger and more pervasive. We distinguish between U.S. interest rate movements that surprise markets versus those that are anticipated, and find that most countries receive greater spillovers from the former. We also distinguish between movements in the U.S. term premium and the expected path of risk-free rates, concluding that countries respond differently to these shocks. Finally, we explore the determinants of monetary autonomy and find strong evidence for the role of exchange rate flexibility, capital account openness, but also for other factors, such as dollarization of financial system liabilities, and the credibility of fiscal and monetary policy.
Global Financial Conditions and Monetary Policy Autonomy, joint with C. Caceres, and Y. Carrière-Swallow; IMF Working Paper No. 16/108, June 2016. [Working Paper]
Abstract: Is the Mundell-Fleming trilemma alive and well? International co-movement of asset prices takes place alongside synchronized business cycles, complicating the identification of financial spillovers and assessments of monetary policy autonomy. A benchmark for interest rate comovement is to impose the null hypothesis that central banks respond only to the outlook for domestic inflation and output. We show that common approaches used to estimate interest rate spillovers tend to understate the degree of monetary autonomy enjoyed by small open economies with flexible exchange rates. We propose an empirical strategy that partials out those spillovers that are associated with impaired monetary autonomy. Using this approach, we revisit the predictions of the trilemma and find more compelling evidence that flexible exchange rates deliver monetary autonomy than prior work has suggested.
Does Supply or Demand Drive the Credit Cycle? Evidence from Central, Eastern, and Southeastern Europe, joint with G. Everaert, N. Che, N. Geng, G. Impavido, Y. Lu, C. Saborowski, J. Vandenbussche, and L. Zeng, IMF Working Paper No. 15/15, January 2015 [Working Paper]
Abstract: Countries in Central, Eastern, and Southeastern Europe (CESEE) experienced a credit boombust cycle in the last decade. This paper analyzes the roles of demand and supply factors in explaining this credit cycle. Our analysis first focuses on a large sample of bank-level data on credit growth for the entire CESEE region. We complement this analysis by five case studies (Latvia, Lithuania, Montenegro, Poland, and Romania). Our results of the panel data analysis indicate that supply factors, on average and relative to demand factors, gained in importance in explaining credit growth in the post-crisis period. In the case studies, we find a similar result for Lithuania and Montenegro, but the other three case studies point to the fact that country experiences were heterogeneous.
After the Boom—Commodity Prices and Economic Growth in Latin America and the Caribbean, IMF Working Paper No. 14/154, August 2014. [Working Paper]
Abstract: After skyrocketing over the past decade, commodity prices have remained stable or eased somewhat since mid-2011—and most projections suggest they are not likely to resume the upward trend observed in the last decade. This paper analyzes what this turn in the commodity price cycle may imply for output growth in Latin America and the Caribbean. The analysis suggests that growth in the years ahead for the average commodity exporter in the region could be significantly lower than during the commodity boom, even if commodity prices were to remain stable at their current still-high levels. Slower-than-expected growth in China represents a key downside risk. The results caution against trying to offset the current economic slowdown with demand-side stimulus and underscore the need for ambitious structural reforms to secure strong growth over the medium term.
Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances, joint with J. L. Torres, IMF Working Paper No. 12/38, January 2012 [Working Paper]
Abstract: In this paper we use a general equilibrium model with heterogeneous agents to assess the macroeconomic and welfare consequences in the United States of alternative fiscal policies over the medium-term. We find that failing to address the fiscal imbalances associated with current federal fiscal policies for a prolonged period would result in a significant crowding-out of private investment and a severe drag on growth. Compared to adopting a reform that gradually reduces federal debt to its pre-crisis level, postponing debt stabilization for two decades would entail a permanent output loss of about 17 percent and a welfare loss of almost 7 percent of lifetime consumption. Moreover, the long-run welfare gains from the adjustment would more than compensate the initial losses associated with the consolidation period.
Regime Switching Interest Rates and Fluctuations in Emerging Markets, joint with K. Mertens, EUI Working Papers 2009/22, June 2009. [Working Paper] [Version Dec 2010]
Abstract: Many emerging economies have experienced current account reversals followed by large declines in economic activity. These sudden stops are reflected in their real interest rates, which alternate between tranquil times, when the level is relatively low and stable, and crises, during which interest rates are higher and more volatile. We embed an estimated regime switching process of interest rates into a small open economy model with financial frictions. Our model nests infrequent dramatic crises within regular business cycles, successfully matches the key second and higher order moments of the macroeconomic aggregates and produces plausible endogenous dynamics during crises. We find that the occurrence of sudden stops can account for the empirical regularities of emerging market business cycles. Financial frictions are essential for explaining emerging market fluctuations, but almost exclusively because of their effects in crises.
The Volatility Costs of Procyclical Lending Standards: An Assessment Using a DSGE Model, joint with S. Sgherri, IMF Working Paper No. 09/35. [Working Paper]
Abstract: The ongoing financial turmoil has triggered a lively debate on ways of containing systemic risk and lessening the likelihood of boom-and-bust episodes in credit markets. Particularly, it has been argued that banking regulation might attenuate procyclicality in lending standards by affecting the behavior of banks’ capital buffers. This paper uses a two-country DSGE model with financial frictions to illustrate how procyclicality in borrowing limits reinforces the “overreaction” of asset prices to shocks described by Aiyagari and Gertler (1999), and to quantify the stabilization gains from policies aimed at smoothing cyclical swings in credit conditions. Results suggest that, in financially constrained economies, the ensuing volatility reduction in equity prices, investment, and external imbalances would be sizable. In the presence of cross-border spillovers, gains would be even higher.