"Commodity Prices, Sovereign Risk, and Macroeconomic Stability" (Job Market Paper)
(Updated draft coming soon!)
I study how fluctuations in commodity prices affect interest rates in commodity-exporting emerging economies (EMEs), and how fiscal rules shape their response to such movements. Using a panel of EMEs, I find that increases in commodity prices reduce interest rate spreads, although the magnitude of this effect varies with fiscal rules. Motivated by this empirical evidence, I develop a sovereign default model with endogenous fiscal policy governed by a cyclically adjusted budget balance (CAB) rule. The model features two sectors, one of which exports commodities whose prices are subject to exogenous international fluctuations. These prices follow a regime-switching autoregressive process that captures prolonged booms and busts. Using the model calibrated to Chile, I show that during booms, interest rates fall and become less sensitive to commodity price movements, whereas during busts they rise and become more responsive to these fluctuations, reflecting tighter borrowing constraints and higher default-risk expectations. Finally, by comparing different degrees of fiscal discipline under the CAB rule, I show that stricter rules lower debt levels and reduce the volatility of the trade balance and government spending.
Awards: (*) Dr. Walter J. Primeaux Jr. and Natalie A. Primeaux Scholarship; (**) Best Third-Year Paper Award, U of Houston.
"Sovereign Default under Commodity Price Uncertainty: The Role of Structural Shocks in Metal Markets"
(Draft coming soon)
I study the dynamic effects of copper price shocks on sovereign risk, distinguishing between copper supply, aggregate demand, and copper-specific demand shocks. I adopt a two-stage empirical approach in which I first identify structural shocks in the global copper market using a structural vector autoregression with sign restrictions, based on annual data on copper production, world real GDP, and real copper prices over 1960-2024, and then estimate their effects on sovereign risk using local projections with externally identified shocks in a panel of 31 net copper-exporting economies over 2001-2015. The results show that aggregate demand shocks reduce sovereign risk by 5-10% at medium horizons, while copper supply shocks have weaker and less persistent effects, and copper-specific demand shocks have limited short-run effects but become more relevant over time. Aggregate demand shocks account for up to 10.2% of the variance of sovereign risk at short horizons, whereas supply shocks become more important at medium horizons. The effects are stronger in economies with higher copper exposure, consistent with the role of export revenues and fiscal capacity in shaping sovereign risk. Overall, I show that the impact of commodity price shocks depends critically on their underlying source and on countries’ degree of exposure.
"Government Transfers and Financial Incentives on Retirement Choices"
I evaluate the effects of government transfer programs on retirement decisions using quasi-experimental methods (difference-in-differences) with large-scale micro-level administrative data.
"Fiscal Sustainability of the Sovereign Pension Reserve Fund: Financial Projections 2020-2050" (with L. González), Fiscal Studies Series N° 2020/10, Ministry of Finance, Chile, 2020. (In Spanish) Media Coverage.
"A Projection Model for the Solidarity Pension System" (with L. González), Annual Public Finance Report 2019, Chapter 4, pages 78-92, Ministry of Finance, Chile, 2018. (In Spanish)
"Assessing the Financial Sustainability of the Collective Pension System" (with L. González), Annual Public Finance Report 2018, Chapter 4, pages 78-97, Ministry of Finance, Chile, 2017. (In Spanish)
"Sick-Leave Insurance in Chile: Diagnosis and Policy Proposals" (with I. Poblete), Working Papers Series N°10, Social Security Regulatory Authority, Chile, 2017. (In Spanish)
"An Analysis of Mental Health-Related Leaves of Absence from Work in Chile", Policy Reports, Social Security Regulatory Authority, Chile, 2016. (In Spanish)