Filippo Taddei

ACADEMIC Research PAPERs

"Local Currency Denominated Sovereign Loans - A Portfolio Approach to Tackle Moral Hazard and Provide Insurance", with Ugo Panizza, February 2020

This paper studies how the currency composition of public debt affects debt sustainability in developing countries. We show empirically that the debt-to-GDP ratio tends to grow at a faster rate when countries with a high share of foreign currency debt face a currency depreciation. The paper also discusses the moral hazard problems associated with the presence of domestic currency debt and shows that, for the average country, there is no evidence of a positive correlation between local currency borrowing and inflation. However, moral hazard is a concern for countries with weak institutions where we find that a large share of domestic currency debt is associated with higher inflation. The paper also develops a stylized model that emphasizes the complementarities between foreign and local currency borrowing and highlights that they are complements rather than substitutes. The key intuition is that, while foreign currency debt reduces the incentives to debt monetization, local currency improves debt sustainability by providing a better hedge against external shocks. The paper concludes that the policy framework should consider encouraging a mix of foreign and domestic currency borrowing. This is likely to be particularly useful for low-income countries that are jointly characterized by weak institutions (hence, the importance of the commitment device associated with foreign currency debt) and large external shocks (hence, the importance of the insurance element associated with the presence of domestic debt). 

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"Financial Frictions, International Capital Flows and Welfare", July 2018

Lamfalussy Fellowship Paper, ECB Working Paper, No 2167 

 The connection between the financial crisis and global imbalances is controversial. This paper argues that this relationship is likely to be connected to the existence of heterogenous financial frictions in different domestic credit markets. By developing a general equilibrium model where adverse selection and limited pledgeability coexist, this work highlights why adverse selection may play a pivotal role in determining the different (often opposing) welfare effects of international capital flows on originating and destination countries. This perspective also advances an analytical framework that is flexible enough to analyze the global effects on investment allocation of the ”Saving Glut”, of the policies facilitating financial integration and macro-prudential policy.

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"Indexed Sovereign Debt: An Applied Framework", Working Paper, with Lucas Bertinatto, David Gomtsyan, Guido Sandleris and Horacio Sapriza, May 2017

In recent years, some countries have issued sovereign bonds indexed to real variables such as GDP. Other countries are discussing the possibility of implementing similar instruments, especially in relationship to the persistent volatility in the Euro debt market. This paper analyzes the portfolio and welfare effects of introducing this type of debt contracts in a standard DSGE model with sovereign default risk. Our quantitative analysis, calibrated to the Argentine economy, shows that GDP-indexed sovereign debt contracts reduce the probability of default, decrease consumption volatility and increase welfare. More surprisingly, GDP-indexed debt makes the government more willing to hold non-contingent assets at the same time. We develop significant insights regarding the shape of the optimal contract under which the government minimizes defaults.

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"Intergenerational altruism and house prices: evidence from bequest tax reforms in Italy", with Giorgio Bellettini and Giulio Zanella, European Economic Review (Lead Article), Volume 92, 1-12, February 2017 

The degree of intergenerational altruism is estimated in a benchmark Barro-type OLG framework with imperfect altruism, exploiting the exogenous variation generated by reforms of the tax treatment of bequests and inter vivos real estate donations enacted in Italy between 2000 and 2001. Using longitudinal information on the housing stock and house prices in 13 large Italian cities between 1993 and 2004, the structural parameter of interest is estimated via the effect of the reform on house prices. We estimate a degree of intergenerational altruism ranging between 0.2 and 0.3, a magnitude consistent with existing parametrization for the US economy. This suggests that intergenerational altruism may be similar across advanced economies.

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"International Capital Flows and Credit market Imperfections: a Tale of Two Frictions", with Alberto Martin, Journal of International Economics, Volume 89, Issue 2, March 2013, Pages 441–452

The financial crisis of 2007–08 has underscored the importance of adverse selection in financial markets. This friction has been mostly neglected by macroeconomic models of financial imperfections, which have focused almost exclusively on the effects of limited pledgeability. In this paper, we fill this gap by developing a standard growth model with adverse selection. Our main results are that, by fostering unproductive investment, adverse selection: (i) leads to an increase in the economy's equilibrium interest rate, and; (ii) it generates a negative wedge between the marginal return to investment and the equilibrium interest rate. Under international financial integration, we show how this translates into excessive capital inflows and endogenous cycles. We also extend our model to the more general case in which adverse selection and limited pledgeability coexist. We conclude that both frictions complement one another and show that limited pledgeability exacerbates the effects of adverse selection. 

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"Innovation, Growth and Aggregate Volatility from a Bayesian Non Parametric Perspective", with Antonio Lijoi, Pietro Muliere and Igor Pruenster, Electronic Journal of Statistics, Volume 10, No. 2, 2179-2203, 2016

In this paper we consider the problem of uncertainty related to growth through innovations. We study a stylized, although rich, growth model, in which the stochastic innovations follow a Bayesian nonparametric model, and provide the full taxonomy of the asymptotic equilibria. In most cases the variability around the average aggregate behaviour does not vanish asymptotically: this requires to accompany usual macroeconomic mean predictions with some measure of uncertainty, which is readily yielded by the adopted Bayesian nonparametric approach. Moreover, we discover that the extent of the asymptotic variability is the result of the interaction between the rate at which the economy creates new sectors and the concavity of returns in sector specific technologies.

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 Policy CONTRIBUTIONS

EU - The Economic Potential of Defence Spending, joint with Katya Vashkynskaya and Mikael Sonkin (short summary here), Current Economics, June 2024

Reducing Low-income Country Debt Risks - The Role of Local Currency-denominated Loans from International Institutions, joint with Jesse Griffiths, and Ugo Panizza,  ODI briefing Note, May 2020

The European Impossible Trinity: Central Bank Independence, Fiscal Autonomy and Effective Response to the Lockdown Crisis and its Aftermath, April 2020, Forthcoming in "Governing with Numbers", Il Mulino

COVID-19'S Historic Economic Impact, In the U.S. and Abroad, April 2020, HUB Johns Hopkins 

Understanding COVID-19'S Impact in Italy and Europe, March 2020, HUB Johns Hopkins 

The trajectory of the Jobs Act and the politics of structural reforms between counter-reforms and ambiguity (with Tommaso Nannicini and Stefano Sacchi), Contemporary Italian Politics, 2019 (In Italian: La Parabola del Jobs Act e la Politica delle Riforme Strutturali tra Controriforme e Ambiguità, in Politica in Italia, edited by Edoardo Bressanelli and David Natali, Il Mulino, 2019)

La Sfiducia nel Lavoro degli Italiani, June 10th 2019, Il Foglio

European Integration and Political Ownership: Fiction and Reality behind Structural Reforms and Risk-Sharing, in Responses of European Economic Cultures to Europe's Crisis Politics, edited by Josef Hien and Christian Joerges, European University Institute Press, 2018

Il Governo del Cambiamento è una Prima Repubblica Squattrinata, November 3rd 2018, Il Foglio

Perchè uscire dall'Euro fa crollare il credito per investimenti pubblici e privati, in Cosa succede se usciamo dall'Euro? Quanto costerà e chi ne pagherà il prezzo, 2018, IBL libri

Imparare dagli errori, la lezione per il futuro, March 15th 2017, La Stampa

Quel che ho imparato con la mia esperienza in Segreteria Nazionale, March 10th 2017, Corriere di Bologna

Uscita dall'Euro: una patrimoniale sui risparmi delle famiglie, February 18th 2017, La Repubblica 

Il mercato per davvero e il cambiamento produttivo, January 5th 2017, Il Foglio

Tutta la Verità sui voucher, December 21st 2016, Unità

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