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From Sovereign to Corporate Risk: The Driving Role of Financial Uncertainty
This paper studies the determinants of the risk transmission from sovereign to corporate entities. Relying on monthly credit default swap (CDS) spread data for France, Germany, and Italy between 2005 and 2016, I show that the credit risk spillover is nonlinear and heterogeneous. Using a panel threshold model, I find that a 10% increase in sovereign credit risk has a nonsignificant effect on the corporate one if this surge occurs in ``business-as-usual" periods. Conversely, it raises between 1.76% and 2.13% in periods of high financial-market volatility, respectively in Europe and in the US. Sovereign risk affects the corporate sector through two main channels. Highly uncertain and highly indebted firms are more vulnerable to rises in sovereign risk in regimes of high financial uncertainty. These results point out that sovereign risk shocks spill over the corporate sector, affecting the real economy under financial and idiosyncratic uncertainty and credit supply shocks.
Macroeconomic and Environmental Effects of Climate Policy Uncertainty: A Sectoral Reallocation Perspective, Job Market Paper
This paper investigates sectoral reallocations in an economy where climate policy is uncertain. To this end, it develops a Dynamic General Equilibrium model with two sectors - a polluting one and a non-polluting one, along with climate externality and endogenous firm entry. Climate policy uncertainty stems from the possibility that the government may introduce a carbon tax in the next period. I show that, compared to a scenario without climate policy uncertainty, the probability of implementing carbon taxation prompts entrepreneurs to curtail investment in polluting firms' entry while promoting entry into the non-polluting sector. Through general equilibrium effects, these sectoral reallocations deteriorate welfare, generate a drop in economic activity, and increase CO2 emissions. I provide additional empirical evidence through a VAR model that supports these results. Overall, this paper points out the economic and environmental costs of climate policy uncertainty.
JobMarketPaper_Mourelon.pdfTransition Risk: Sources and Policy Responses, with Stefano Carattini, Garth Heutel and Givi Melkadze [NBER Working Paper]
Transition risk is a major source of concern for financial surveillance authorities and central banks. Yet, the literature has so far focused mostly on climate policy shocks. This paper explores other sources of transition risk, which are also relevant for financial stability. We consider subsidies favoring the transition to a low-carbon economy and preferences changes among both consumers and investors. We then focus on policy responses to these risks. The core of the paper is a DSGE model that includes greenhouse gas emissions and a financial sector plagued with frictions from a principal-agent relationship between lenders and banks. Our results suggest that alternative sources of transition risk are an important threat to financial stability and that they have important policy implications.
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