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In a nutshell
In a nutshell
In my research, I question how countries develop in an environment and through times of economic and financial crises. I discuss how crises express systemic dynamics, constraints and limits that evolve in an uncertain and fluctuating global ecosystem.
I am interested in understanding the determinants and factors that fragilize economies worldwide: What shocks and vulnerabilities lie at the origins of crises? A systemic approach to economic and financial systems broadens the lessons drawn from historical episodes by reinforcing our theories through intersectional hindsights.
I also study how policy announcements intermingle with economic developments to shape the unfolding and sequencing of crises. From that perspective, I pursue research regarding how national policies interact with regional and international institutions to develop global financial arhitecture and systems able to provide adequate stabilizing buffers.
I am particularly interested in the insights provided by narrative approaches:
Narrative economics treats qualitative soft textual data to extract information on agents' communications, perceptions, sentiments and motivations and their role in aggregate developments.
IDA in the Debt Crisis - Exploring feasible new deals through comparability of treatment and new loans
with Ishac Diwan & Martin Kessler (FDL)IDA in the Debt Crisis - Exploring feasible new deals through comparability of treatment and new loans
FDL Policy Note 06, May 2023
Several low- and lower-middle income countries with access to concessinal world bank financing are now negotiating a debt restructuring program or are coined at high risk of debt distress. Debt Restucturings entail the sharing of losses by the different creditors. The goal of this note is to estimate the sizeof losses, at the current juncture of the debt crisis, and how they can be distributed across the creditor portfolio.
Among 73 IDA clients, around 20 countries would need some kind of debt restructuring to to bring back external debt stocks to sustainable levels. Effort sharing is usually derived from Comparability of Treatment rules. We contribute to ongoing discussions on the topic by developping a new fair rule for comparability of treatment, which we think is needed to account for wide ranges of concessionality levels. We conclude by discussing how IDA could transform its restructuring losses in new loans to support countries' transitions out of unsustainability.
The resistible rise of external debt in the Global South (2011-2021)
with Daniel Cohen (FDL)The resistible rise of external debt in the Global South (2011-2021)
FDL Working Paper 03, March 2023
The recent era of low interest rates and ample liquidity caused a large increase in external indebtedness throughout the Global South. This note documents both the magnitude and the rising diversity of the debt involved, at a time when markets are shutting down. We build upon the latest World Bank International Debt Statistics, recategorizing countries based on their vulnerability before the Covid crisis hit and their level of development.
Total external debt of Developing Economies and Emerging Market countries (without China) reached new heights, totaling an overall $6388 billion in 2021, an increase of 64,6% over the last decade. In 2021, out of a total of $2936 bn of Public and Publicly-Guaranted (PPG) Debt, $1746 billion was owed to private creditors, out of which, $1320 bn to private bondholders (45% of the total against 32% in 2011).
In DSSI countries, China and private creditors have more than doubled their share, and respectively reached 21% and 23% of the total against 12% and 8% in 2011. Between 2011 and 2021, China and private creditors account for 58% of the increase in indebtedness.
Non-DSSI LMICs saw the most dramatic increase of debt owed to private creditors. Between 2011 and 2021, private creditors explain 78% of PPG debt accumulation of LMICs, representing 53% of the total in 2021. Bondholders represented 70% of their private creditors in 2011 against 84% by 2021.
For non-DSSI UMICs, private creditors retain the majority of loans through time.
For eligible countries, the DSSI initiative helped ensure that net flows and net transfers remain significantly positive.
For LMICs, the outcome is more uneven. Although aggregate flows remain positive, a number of LMICs are in negative net transfer territory.
The UMIC group experienced a steep fall in net transfers between 2011 and 2021, from +4,2% of PPG Debt Stock in 2011 to -2,8% in 2021. And all the more so that they rely on private capital.
The fact that net transfers have turned negative for a significant number of LMICs and UMICs, highlights that it has become imperative for these countries to find new sources of finance.
For an African Liquidity & Stability Mechanism: Addressing African Vulnerabilities to unlock Africa's potential
with Ibrahim Elbadawi (ERF), Daniel Cohen (FDL) & Sébastien Villemot (FDL)For an African Liquidity & Stability Mechanism: Addressing African Vulnerabilities to unlock Africa's potential
FDL Policy Note 01, June 2022
African countries are now under the threat of a new debt crisis whilst access to international capital markets is becoming increasingly difficult for many issuers across the continent. At the same time, financing needs for investments in education, health and infrastructure require more external financing. This dilemma cannot be solved without a more stable and liquid market in African government bonds. This policy brief argues that such a market can be achieved by combining specific tools under a regional African financial arrangement. This toolbox would need to adapt to the diversity of needs of each of the countries. One such tool is the Liquidity and Sustainability Facility (LSF) which supports the liquidity of African bonds by providing a repurchase agreement facility. The second applies to commodity exporters, who have a fundamental problem of illiquidity leading to boom-bust cycles. A Commodity Hedging Facility (CHF) would provide a stabilization mechanism by supporting their intervention on futures markets. Third, a Credit Enhancement Facility (CEF) which would provide a rolling guarantee on new issuances, and fourth a Debt Restructuring Financing Facility (DRFF) would help reduce debt in a market-friendly approach when needed. The facility would require a capital base provided by African countries themselves, akin to other RFAs, complemented by donor resources, possibly including a reallocation of Special Drawing Rights. We estimate that about $40 to 80 billion of callable capital would be sufficient to make it sustainable
The four horsemen of the apocalypse:
New narrative evidence on economic, currency, banking and sovereign crises
The four horsemen of the apocalypse:
New narrative evidence on economic, currency, banking and sovereign crises
Over the last 50 years, developing and emerging markets have displayed more hectic growth patterns than advanced economies: their business cycle is twice as volatile, and they have been exposed to twice as many financial crises. This research studies how the two phenomena are related. I consider this question through an empirical and narrative study of economic, currency, banking and sovereign crises between 1970q1 and 2020q1 for 54 countries worldwide. I notably provide a comprehensive econometric dating of business cycles. I develop a narrative methodology to treat IMF archives and apply it to (i) date candidate currency (and sovereign) crises and (ii) study the shocks and vulnerabilities at the origins of crises. Differences in growth volatility are not explained by a higher frequency of recessions but by higher intrinsic volatility during these phases.
Financial crises contribute 2 times more to aggregate volatility in less advanced markets. These countries are indeed highly exposed to multiple crises episodes occurring during recessions and associated to drastic economic losses. The more markets are developed, the lower the probability for crises to spill-over through the economy and multiply. Currency crises are frequent and central events. They play a critical role in driving business cycle volatility in non-advanced markets (roughly 50%).
Die vier apokalyptischen Reiter,
Albrecht Dürer.
Albrecht Dürer.
co-authored with Chiara Fratto, Borislava Mircheva, David de Padua & Hélène Poirson (all IMF)IMF Working Paper n°2021/014
The COVID-19 crisis induced an unprecedented launch of unconventional monetary policy through asset purchase programs by emerging market and developing economies. Against this background, we present a new dataset of asset purchase program (APP) announcements and implementation between March and August of 2020, for 31 emerging markets and 9 small advanced economies. The dataset covers the various approaches to APPs reflected in 29 different variables; country-specific narratives; and published transactions data. We use daily financial data to measure their effects on bond yields, exchange rate, and external borrowing costs using an event study, country-specific regressions, and panel regression. Our results confirm statistically significant evidence of APPs on bond yields; they are mixed for other variables.
Innovative communication by the Bank of Jamaica on Inflation Targeting.
Not a direct application of our article, which focuses on asset purchases programs. But a definite illustration of the importance and numerous possibilities behind communication.
Not a direct application of our article, which focuses on asset purchases programs. But a definite illustration of the importance and numerous possibilities behind communication.
This article aims at assessing the main characteristics of the business cycle of 80 developed and developing countries. By comparing the possibility for these economies to enter or to exit a recession and the associated consequences, it aims at complementing existing literature with regard to scale and/or frequency of the study. Following the usual definition of a recession, an algorithmic classification tends to show that, surprisingly, developed and developing countries face similar probabilities to enter or to exit a recession, respectively around 5% and 18%. This aspect contradicts existing literature, which often advocates a greater volatility of developing countries’ business cycle with more frequent recessions. However emerging markets and economies face output per capita losses around twice as important as advanced ones when they undergo a recession. These observations are then tested using a non-linear parametric Markov-Switching Model. If the statistical validity of this method is bound by data availability, it echoes in a really good manner the pattern derived using a non-parametric approach. Estimating the model on the cyclical component of the series, derived using an HP filter, fits the best previous remarks. It also replicates other major characteristics. Indeed while developed countries form a rather homogeneous group, developing countries demonstrate greater heterogeneity. Latin American countries appear as the most vulnerable ones whereas Asian countries perform better than all other groups.
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