Research

Working papers

From Sovereign to Corporate Risk: The Driving Role of Financial Uncertainty
Sovereign stress does not always spill over to the corporate sector. This paper uncovers the conditions under which risk contagion arises and identifies the firms most exposed. Using monthly sovereign and corporate credit default swap (CDS) spreads for France, Germany, and Italy from 2005 to 2016, I document that the transmission is both regime-dependent and heterogeneous across firms. First, financial-market uncertainty is the key vector of risk transmission. A panel threshold model shows that sovereign shocks have no effect on corporate credit risk when financial uncertainty is low. Conversely, in high-uncertainty regimes, a 10% increase in sovereign CDS raises corporate CDS by about 2\%. Second, firms are differently exposed to sovereign risk: high idiosyncratic volatility and high leverage amplify the propagation of sovereign stress. By contrast, fiscal fundamentals and firms’ sectoral exposure to government policy do not account for the observed nonlinear pattern. Overall, the results indicate that the spillover operates primarily through financial rather than fiscal mechanisms, highlighting the role of market volatility and firm-level financial constraints in the transmission of sovereign risk.

Preference Shocks and Policy Responses to Transition Risk, with S. Carattini and G. Melkadze [NBER Working Paper]
Central banks and financial surveillance authorities need to cope with the potential realization of financial stability risks, adopting preventive measures or using liquidity once crises materialize. Transition risk --- the stability risk associated with decarbonization --- is a case in point. Such risk not only comes from policy changes, but also preference shocks. Hence, this paper develops an environmental DSGE model with financial frictions and examines responses to shocks, including a novel angle on preference shocks. We show that these demand rebalancing forces generate larger macro-financial instability than carbon pricing for a given change in emissions, while delaying environmental gains. We then compare policy responses according to their timing. Ex-ante macroprudential policies that reduce banks’ exposure to transition risk dampen financial amplification, whereas ex-post interventions, such as quantitative easing, provide only partial stabilization once losses have materialized. Overall, our results indicate that market-led adjustments to transition risk are more destabilizing than carbon pricing, whereas preventive financial measures outperform ex-post interventions, supporting the case for early action.

Environmental Dynamic Stochastic General Equilibrium Models, with B. Annicchiarico,  S. Carattini, C. Fischer, G. Heutel and A. Sardone (Under Review)
Environmental dynamic stochastic general equilibrium (E-DSGE) models have experienced a recent boom in the literature. These microfounded macroeconomic models allow researchers to explore questions related to environmental policy that often cannot be addressed as effectively through other techniques, including questions about the relationship between policy and business cycles, transition dynamics, and the role of monetary policy or financial intermediaries. As the scope of the E-DSGE literature has expanded, modeling choices have diversified, creating a need for synthesizing its key methods, mechanisms, and results. This paper summarizes the main methodological building blocks of E-DSGE models, distills a broad set of results and policy implications, and highlights avenues for future research.

Work in progress

Distorsionnary fiscal policy and transition risk, with S. Carattini, G. Heutel and G. Melkadze

Time-inconsistency and Reputation in Climate Policy, with A. Titton