Research

Foreign Exchange Regimes in (Normal Times and) Times of War: Insights from Ukraine (with Oliver de Groot). Scottish Journal of Political Economy. April 2026

On February 24, 2022, as Russia invaded, the National Bank of Ukraine switched from a flexible to a fixed-exchange rate regime. Was this optimal? We develop a tractable but carefully calibrated open-economy model of Ukraine with nominal rigidities and frictions in international financial markets. We find that the optimal response to small shocks is exchange rate flexibility, whereas to large (invasion size) shocks, currency depreciation is suboptimal and a Taylor-type rule may fail to admit an equilibrium, prompting the switch to a fixed-exchange rate regime. For robustness, we also consider risk-premium and non-tradable supply shocks, international reserves, and capital controls.

Most recent presentations | 56th Annual Conference of the Money, Macro and Finance Society (University of Reading) 9 September 2025  |  The Economic Modelling 2025 Conference – Ukraine: Economic Insights for Future Policy Actions (Trinity College Dublin) 25 August 2025  |  The Special Issue Conference on Ukraine of the Scottish Journal of Political Economy (University of Southampton) 2 July 2025  |  The 9th Annual Research Conference jointly hosted by the National Bank of Ukraine and Narodowy Bank Polski: Economic and Financial Integration in a Stormy and Fragmenting World, 20 June 2025

Defense Spending, Cost of Living, and the Optimal Exchange Rate Regime during Wartime in Ukraine (with Oliver de Groot), (R&R Economic Modelling)

Were either the exceptional defense spending needs of the government or the sharp increase in the cost-of-living of poorer households factors that rationalize the National Bank of Ukraine’s temporary fix of the Hryvnia when Russia invaded in 2022? To test the validity of these explanations, we develop a small open-economy two-agent New Keynesian (SOE-TANK) model of Ukraine featuring: 1) a government that finances military imports and 2) low- and high-income households. We find that the surge in foreign-currency-denominated military spending alone does not justify a temporary exchange-rate peg. However, when the consumption of low-income households is close to subsistence levels, we find that the optimal exchange-rate regime becomes state-contingent: exchange-rate flexibility is desirable for small shocks, whereas for a large-scale invasion shock, a fixed exchange rate dominates a floating regime with a standard Taylor rule.

Nonlinearity and Asymmetry in Defaults and Financial Crises

This paper examines the nonlinearity and asymmetry in default distribution across U.S. banks, mortgages, and corporate loans. Using a New Keynesian model estimated on U.S. data with collateral shocks, it highlights the critical limitations of the first-order Taylor approximation used in the literature. Specifically, this approach fails to capture the nonlinearity and asymmetry in defaults, leading to an underestimation of defaults during financial crises, an overestimation in post-crisis periods, and even the generation of implausible negative default levels during periods of economic stability. In contrast, higher-order approximations account for these complexities, offering a more accurate representation of default behavior.

Most recent presentations | Lancaster University Management School, 16 December 2024 |  University of Liverpool Management School, 19 November 2024

Interest-Rate Smoothing and Financial Stability: Does Faster Monetary Tightening Really Rattle the Financial System? (with Oliver de Groot)

This paper examines the relationship between the degree of interest-rate smoothing in monetary policy and financial stability. For this purpose, we develop a new Keynesian model with bank default. Sensitivity analysis reveals a strong relationship between interest-rate smoothing and the banking sector’s stability. In particular, in response to a real negative economic shock, monetary policy with a higher degree of interest-rate smoothing is associated with lower risks of bank default and thus contributes to financial stability. However, this effect is sensitive to the structure of banks’ balance sheets and is nonlinear. The impact of the monetary policy increases as the economic shock intensifies.

Most recent presentations | The 55th Annual Conference of the Money, Macro and Finance Society (University of Manchester), 5 September 2024   |   The 8th Annual Research Conference Navigating the Changing  Landscape: Central Banks in a New Normal. National Bank of Ukraine, Narodowy Bank Polski, USAID, and the IMF, 20 June 2024    |   The 2024 RCEA International Conference in Economics, Econometrics, and Finance (Brunel University London), 22 May 2024   

Did the Effective Lower Bound Constrain Monetary Policy in the UK?

This paper examines the effects of the Bank of England’s near-zero interest rate policy using a New Keynesian regime-switching model, solved via a piecewise linear solution method. Bayesian estimation techniques are applied to estimate the model’s structural parameters and the expected duration of the effective lower bound (ELB). The findings suggest that the pre-crisis estimated Taylor rule would not have prescribed negative policy rates or implied being at the ELB over 2009–2018. Instead, nominal interest rates remained below the levels implied by a Taylor-type policy rule, in which monetary policy responds to deviations in inflation and output. Unconventional monetary policy tools, such as quantitative easing and forward guidance, prolonged the anticipated duration of the ELB.

Most recent presentations | The 11th Annual MMF PhD Conference (University of Surrey), 11 June 2024