Work in progress
Global Risk Shocks and Inflation in Small Open Economies
with Juan Michelsen
Abstract: Global risk shocks (GRS) are important and recurrent drivers of business-cycle fluctuations, yet their implications for CPI across countries remain largely unexplored. Using a novel high-frequency GRS proxy and country-specific proxy-BVARs, we document substantial heterogeneity in CPI responses across 20 small open economies, in sign, magnitude, timing, and persistence. We propose a mechanism linking dominant-currency pricing, export destinations, and inflation. During global risk-off episodes, dollar appreciation makes dollar-invoiced exports more expensive in destinations whose currencies depreciate, reducing export demand and dollar receipts. Compared with economies exporting mainly to the U.S., this creates larger dollar-liquidity shortfalls, raises dollar funding costs, and amplifies currency depreciation and local-currency import prices. A parsimonious model formalizes this mechanism, and panel local projections support its predictions.
(Draft available soon!)
Monetary Policy and Sovereign Debt: Evidence from European Banks
with Britta Gehrke
selected for access to confidential bank balance-sheet data via the ECB Microdata Pilot Project .