Weathering the Storm: Sectoral Economic and Inflationary Effects of Floods and the Role of Adaptation, Bank of England Staff Working Paper No. 1,120 with Rebecca Mari. [Bank Underground post] [2025 AEA Interview] [ECB Economic Bulletin][VoxEU column][e-axes Digest] 

Abstract: When studying the macroeconomic impact of extreme weather events, we are faced with a trade-off: should we focus on the aggregate figures, or should we have a more granular view? Data limitations have made the former approach predominant. This paper takes the alternative path and uses satellite data to study the effects of floods on county-level GDP and inflation across sectors in England from 1998 to 2021. We derive our results from a local projections approach using rainfall z-scores as an instrument for flooding. First, we confirm that floods have a delayed but persistent negative effect on aggregate GDP and that their impact on aggregate inflation is mixed. Second, a sector-level analysis reveals substantial heterogeneity in the timing, magnitude, and direction of the effects that explains well the aggregate dynamics and provides novel insights for monetary policy. Third, we study the response of investments, real estate transactions and production network spillovers as drivers of the sectoral results. Lastly, we use balance sheet data on flood defences expenditure to assess the role of adaptation investments. We find that investments in flood defences reduce the likelihood of floods and can cushion economic losses once flooding occurs.

Public Spending, Green Growth, and Corruption: a Local Fiscal Multiplier Analysis for Italian Provinces, IHEID Working Paper No. HEIDWP11-2024 

Abstract: This paper estimates local fiscal multipliers for green and non-green public works in Italian provinces, and disentangles the geographic and institutional heterogeneities behind them. I construct a fiscal shock by taking the variation of the difference between actual and budgeted spending, and I show that it is exogenous to provincial institutional and macroeconomic conditions. Using local projections, I find that a €1 increase in government spending generates negligible GDP losses in the first two years for overall and non-green projects, while it increases output by €0.98 after 3 years for green projects. These results are smaller than the prevailing estimates in the literature. A triple interaction approach reveals that overall and non-green multipliers are driven by southern provinces, while the green multiplier is driven by the rest of the country, despite the contemporaneous green multiplier being equal to 1.43 in the south. I link the heterogeneity to governance characteristics: higher government effectiveness and institutional quality decrease the overall and non-green multiplier, while they increase the green multiplier. Interestingly, corruption positively affects all multipliers. I show that the effect of corruption can be explained by its role in easing bureaucratic and regulatory burdens. These results suggest that taking national fiscal multipliers at face value can lead to an overestimation of the impact of fiscal expansions.

Trade and Innovation in MENA, EBRD Working Paper No. 267 (2022) with Meryem Gökten, Péter Harazstosi, Zsóka Kóczán, Roberta Lesma, Rozália Pál, and Christoph Weiss 

Abstract: This paper examines trade participation and innovation activities and how they are intertwined in the Middle East and North Africa region. While the level of trade participation of firms in the region is similar to other peer economies, innovation rates are particularly low. Many productive firms, especially smaller firms, might not be able to reap the scale and efficiency benefits from trade and innovation activity because of the weak business environment in the region. The paper shows that innovative firms tend to be more productive when they trade, while exporters tend to grow faster (in terms of sales) when they also invest in innovation. In addition, the use of foreign-licensed technology appears to have a key role in innovation, even after controlling for the effects of trade participation and foreign ownership. The paper also finds that traders and innovative firms were more likely to adapt to the COVID-19 crisis and the associated sharp sales shock. Overall, the results confirm the importance of international technology diffusion in the innovation process through access to foreign markets.

Timing the Market: When to Issue Debt After Disasters, with Alexander Raabe. [ADB Blog] [BCC]

Abstract: We provide the first bond-level evidence that realized natural disaster damage raises sovereign primary market borrowing costs. Linking daily Bloomberg primary market data on 42,100 bond issuances across 48 countries to EM-DAT disaster records over 2000–2022, we find that a one percentage point increase in disaster damages relative to GDP raises yields at issuance by 29 basis points and widens spreads vis-à-vis US Treasuries by 23.3 basis points. Scaling to a 4°C warming scenario implies a disaster premium of 156.6 basis points. In a horse-race against the structural climate vulnerability, realized damages consistently dominate, confirming that the premium captures acute event-specific repricing rather than chronic structural exposure. The premium declines by two thirds over the six months following the disaster, from 53.1 basis points on issuance day to 17.1 basis points, a pattern consistent with investors’ recency bias. Sovereign debt managers face a trade-off between issuing debt right after disasters at elevated cost and delaying issuance until the premium subsides. Multilateral financial institutions can relax this constraint by providing post-disaster liquidity facilities.

Sanctions, Lending, and the Bank Ownership Channel, with Guido Ardizzone. [Draft available upon request]

Abstract: We study how economic sanctions affect domestic bank lending using a panel of 1,886 banks in 56 emerging market economies over 1995–2021. Foreign-owned banks reduce loan growth by 12.8 percentage points more than domestic private banks when their host country is sanctioned; state-owned banks show no differential response. A funding squeeze is behind the lower credit. When we decompose by sanction type, the effect concentrates in episodes where financial sanctions are active. The contraction is not driven by bilateral legal compliance: foreign banks whose parent country formally participates in the sanctions coalition do not cut lending significantly more than other foreign banks. Instead, the response is concentrated among foreign banks whose parent countries are geopolitically aligned with the United States; US-aligned foreign banks reduce lending by 14.7 percentage points more than domestic private banks, while non-aligned foreign banks show no differential response. These results identify integration into the US dollar payment network as the operative channel through which sanctions compress domestic credit.

Il supporto alla crescita economica degli investimenti verdi: un'analisi empirica per le province italiane, Economia Italiana, 46(2), 2024, 127-171.