Abstract: In this paper we document empirical evidence regarding the unintended consequences of financial regulatory changes on market liquidity of Mexican sovereign debt. We find mixed impacts: in the context of Basel 2.5, Basel III and the Liquidity Coverage Ratio, we find negative effects, while in the case of the Dodd-Frank Act and the Volcker Rule we find positive effects. The difference in results can be explained by the fact that some of the regulatory changes mainly imposed additional constraints on government debt holdings, while others were designed to enhance transparency and thus reduce uncertainty as well as information asymmetries. Moreover, our estimates suggest that the aggregate effect of the regulatory changes decreased the weekly turnover ratio of Mexican sovereign debt securities by 18 percent. Our results hold under different liquidity measures and different econometric specifications.

[Paper]

Abstract: A powerful country can raise a smaller sovereign's borrowing costs without imposing a single tariff or sanction, simply by threatening to, repricing its default risk well before any of that risk is realized. I study this channel using the pressure that Donald Trump directed at Mexico during his 2016 campaign and first year in office, a setting that isolates the geoeconomic shock from Mexico's own fiscal position. Using a synthetic-control estimator on daily credit default swap data, I find that this pressure raised Mexico's sovereign spread by 24 basis points on average. A textual analysis of Trump's social-media posts corroborates this interpretation: the spread responds to his threats, more to trade threats than migration threats. I then trace how this Mexico-specific repricing transmits to asset prices: a one-basis-point increase in the spread depreciates the peso by 5.3 cents and lowers Mexican equity returns by 0.11 percent, with financial and tradable-goods sectors most exposed. A quantitative sovereign-default model, in which the pressure tilts the income process toward adverse states, rationalizes the repricing as the price of a genuine shift toward adverse income states and implies a welfare cost of 0.02 percent of lifetime consumption for the transitory episode, and an average consumption contraction of 0.13 percent. As complementary, higher-frequency evidence that avoids time aggregation, filtering and sufficient-statistic methods put the consumption drop at 0.35 percent.

Presentations: Midwest Macroeconomics Conference at Texas Tech (2023), UMN-UWM Workshop (2024), JIE Summer School at Oxford (2024), 18th FIW Research Conference `International Economics' at WU Vienna (2026), UMN-UWM Workshop (2026), Econometric Society NASM at Emory University (2026), AEA's Poster Session (2027, scheduled).

Awards: Juli Plant Grainger Institute Summer Fellowship (2023), Humane Studies Fellowship (2026)

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Abstract: We study how central banks can use foreign exchange forwards to stabilize exchange rates and support financial stability, using the Bank of Mexico’s introduction of domestic non-deliverable forwards (DNDFs) in 2017. Across announcements of the policy intervention, option implied volatility fell by 0.38 percentage points, with larger effects at shorter maturities. Announcements also reduced the risk-neutral probability of large depreciations, while the implementation of the policy via auctions had no significant effects. We rationalize these findings in a small open economy with collateral constraints and self-fulfilling currency crises. The central bank's provision of insurance against future depreciation through DNDFs dampens the feedback between depreciation and deleveraging in self-fulfilling crises by sustaining external debt and supporting collateral values. Anticipation of DNDF interventions appreciates the currency and reduces exchange rate risk before the contracts are issued. Quantitatively, DNDFs generate larger welfare gains than macroprudential taxes on external debt in states with high debt.

Presentations:  UMN-UWM Workshop (2024), Midwest Economics Association (2025), Midwest Macroeconomics Conference at Kansas City Fed (2025), 20th Annual Economics Graduate Student Conference in St. Louis (2025), 6th Biennial Conference in Financial Stability at Banco de México (2025)

Awards: Juli Plant Grainger Institute Summer Fellowship (2024)

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Abstract: This paper uses firm-level data to test the so-called markup channel of uncertainty shocks. To that end, we measure markups based on a production function approach using quarterly data from US Compustat. We identify uncertainty shocks from macroeconomic data using a Bayesian VAR with Stochastic Volatility. Contrary to the predictions of DSGE models with nominal price rigidities, we find that markups are procyclical to uncertainty disturbances. Specifically, a one-standard-deviation shock to uncertainty decreases markups by approximately 0.30 percentage points. The effect is long-lived, lasting up to three years for most uncertainty measures. We find that the conditional procyclicality of uncertainty is robust to several sensitivity checks. Our results are consistent with previous findings in the literature that rely on aggregate measures of markups and alternative identification strategies of shocks to uncertainty.

Presentations: ITAM Alumni Conference (2024), Midwest Macroeconomics Conference at Kansas City Fed (2025)

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Abstract: Financial uncertainty generates pernicious effects over economic activity such as investment delay and capital outflows (i.e., flight-to-quality effect), thus it is important to measure it and to design strategies that might mitigate it. Based on recent work, we construct a daily financial uncertainty measure for the Mexican financial markets. Our two-step approach consists of extracting a common factor from 5 financial time series that account for global, currency, sovereign, equity, and corporate risk, afterwards we use an EGARCH model, which accounts for the asymmetric response to news of the financial variables, to extract the conditional variance of the residuals and average them to obtain our measure of financial uncertainty. The uncertainty measure captures relevant local and global events related to elections, crises, and major government decisions. We assess the impact of financial uncertainty on economic activity, the correlation between our measure and other indicators of uncertainty, the relationship between financial conditions and financial uncertainty, and the effect of uncertainty on holdings of government debt by foreign lenders.

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Abstract: We produce a measure of the pre-COVID economic effect of the 2018 presidential election outcome in Mexico and the subsequent economic changes that the economy experienced. We use the Synthetic Control methodology to estimate a counterfactual for Mexico's GDP per capita in 2010 United States dollars. The result indicates a reduction of $332.00 US dollars by the fourth quarter of 2019. A placebo test indicates that the result is statistically significant at a level of 7.14%. The comparison between counterfactual and observed income shows that GDP had a positive trend until the second quarter of 2018. Starting in the third quarter of 2018, the Mexican economy fell below that trend and displayed a different path with a negative slope. Our results are robust to alternative specifications. Additionally, we show that, at least for the previous presidential term that started in 2012, there was no first-year-of-government effect that was discussed by economists in the media to explain the contraction in 2019. We also find that there was no immediate negative impact on the Mexican economy of the election of Donald J. Trump as president of the United States in 2016, considering that he had an anti-NAFTA rethoric in campaign.

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Abstract: Mexico grew -0.1% in 2019. That rate is well below the average between 1980 and 2018, which is 2.4%. Our hypothesis is that the Mexican economy suffered a pre-COVID fall in its trend growth. To validate the hypothesis we proceed as follows: i) analyze the dynamics of some macroeconomic variables in the first year of the current (2018-2024) and the three previous presidential terms; ii) measure the change in the trend in economic activity and estimate the probability of the economy being in a low growth regime (in a statistical sense) using a three-state Markov switching model; iii) estimate a multivariate regime Markov switching model with the growth of five variables. We summarize our findings into two main results: i) there is a common pattern in macro variables in the first year of a new administration. The main distinguishing feature of the current administration is the reversal of the trade balance in 2019; ii) Mexico moved towards a low growth regime at the end of 2018. We propose, without establishing causality, that the source of the fall in trend growth comes from large changes in economic policy in 2018 and 2019. These changes translated into a negative shock to trend growth. We list four alternative hypotheses. We propose a test for theories explaining the change in 2019: to explain simultaneously the fall in growth and the change of sign of the trade balance. Our theory could account for both facts.

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Abstract: This paper studies how trade concentration amplifies the effect of global trade policy uncertainty on sovereign credit risk. When exports are concentrated in a few destinations, higher uncertainty increases the likelihood of adverse export revenue realizations that can trigger sovereign default. We formalize this mechanism in a small open economy model with sovereign borrowing and default, where trade concentration raises income volatility, and higher volatility increases default risk. Our main result shows that trade concentration magnifies the impact of uncertainty: the same increase in trade policy uncertainty leads to a larger rise in default risk and sovereign spreads in more concentrated economies. Consistent with the model, cross-country panel evidence indicates that trade policy uncertainty generates significantly larger increases in sovereign CDS spreads in countries with more concentrated export structures, and panel local projections show that this amplification is dynamic and persistent.

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Abstract: Sovereign credit ratings significantly influence economic decisions and activity, making their monitoring crucial. We propose an application of Fisher’s (1936) permutation test to assess the likelihood of Mexico belonging to specific credit rating categories at different time periods. By analyzing the dynamics of 5-year credit default swaps across 68 advanced and emerging market economies, we find evidence suggesting that Mexico’s CDS exhibits a dynamic similar to those associated with speculative grade ratings. To enhance the robustness of our findings, we conducted tests using credit ratings from other reputable agencies like Fitch and Moody’s. The results consistently indicate that Mexico’s CDS has exhibited a dynamic comparable to those economies with speculative grade ratings.

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