Research:

Working Papers:

Centrality, Risk, and Equity Returns Across Developed and Emerging Markets

I show that a country’s position in the global trade network (i.e., trade centrality) shapes how its financial markets load on global risk. In developed markets, greater trade centrality amplifies exposure to global shocks, whereas in emerging markets it dampens it. This divergence reflects different modes of trade integration. Emerging markets face extensive-margin frictions, so stronger ties within segmented blocs shift risk toward local shocks and lower global sensitivity. Developed markets are fully integrated at the extensive margin; for them, deeper trade on the intensive margin amplifies global exposure. To account for these patterns, I build a no-arbitrage model in which dividend growth combines local, global, and centrality-scaled components. Heterogeneous loadings on global volatility shocks generate opposite slopes across groups, matching the data and identifying trade-network structure as a driver of global risk transmission.

The Risky Capital of Emerging Markets

(with Espen Henriksen and Ina Simonovska)

Paper

NBER Working Paper No. 20769, revised April 2024, R&R at the AEJ Macro

We build a panel of stock market returns across 37 developed and developing countries spanning five decades. We document: (1) higher and more volatile returns in poorer over richer countries; (2) higher returns in countries with more sensitive dividends to changes in global predictable growth. We quantitatively explore whether consumption-based long-run risk can reconcile these patterns. When we estimate the parameters that govern the U.S. investor's consumption growth and each market's dividend growth process, the model generates higher risk premia in emerging over developed markets, and predicts levels and volatilities of stock market returns that are at par with data.

Publications:

De-dollarization? Not so fast

Economics Letters, March 2024. (with Jon Hartley)

De-dollarization refers to the reduction of the reliance of foreign countries on the US dollar. This phenomenon generates concern about the U.S. dollar as a global currency. We construct new data on the currency denomination of central bank currency reserves, foreign exchange transaction volume, denomination of global debt securities, and the invoicing of trade. This paper presents empirical evidence suggesting that these concerns are misplaced, finding US dollar dominance remains unchanged up through late 2023, nearly two years after the 2022 Russian invasion of Ukraine and several years after the 2020 COVID-19 pandemic. Meanwhile euro and renminbi influence have since declined. These findings have implications for reserve currency resilience, U.S. dollar dominance, U.S. sanctions policy, international spillovers of U.S. monetary policy, and U.S. government borrowing costs.

Links:

Paper

Website

Policy work:

Report on The Cost of Capital: Scaling up Private Finance in EMDEs, led by Cesaire Meh (IFC)

Work in progress:

Global Returns to Capital (with Ina Simonovska)

International beliefs network and currencies (with Riccardo Colacito, Max Croce and Alireza Moslemihaghighi)

We construct a multicountry model in which bilateral trade imbalances must be financed through international intermediaries who are subject to trading frictions. Multiple intermediaries can intermediate the same country-pair imbalance and they are allowed to differ in their beliefs about the future external debt capacity of each country. By no arbitrage, currency adjustments are determined by the entire network of intermediary expectations, with more weight given to intermediaries featuring higher local centrality. We use this model to test novel empirical predictions linking exchange rates and current account imbalances to survey data from Consens Economics across G-10 currencies and China from 1990 to 2023.

Page updated

Google Sites

Report abuse