Publications
"Did the Unconventional Monetary Policy of the U.S. Hurt Emerging Markets?" (with Matthew Canzoneri, Robert Cumby and Behzad Diba)
Open Economies Review, 2021, Vol. 32
Working Papers
"The Macroeconomic Effects of Carbon Pricing: The Role of Bank Credit" (with Givi Melkadze)
R&R at Journal of Economic Dynamics and Control
This paper quantifies the role of bank lending in shaping the short-run effects of climate policy on the economy. Using carbon price surprises from the European Union’s Emissions Trading System, we document that higher carbon prices, while successfully reducing emissions, lead to lower economic activity, lower bank capital and higher credit spreads. We interpret these empirical facts through the lens of a dynamic stochastic general equilibrium model with polluting and non-polluting sectors, nominal price rigidities, and credit market frictions both in the financial and non-financial sectors. The model matches well the empirical impulse responses of key aggregates to a carbon policy shock. Counterfactual simulations suggest that the bank credit channel plays a quantitatively meaningful role in the transmission of carbon policy shocks. Finally, implications for the design of macroprudential and monetary policies are explored.
"US Tariffs, Emerging Markets, and Monetary Policy" (with Matthew Canzoneri, Behzad Diba and Ergys Islamaj)
R&R at International Journal of Central Banking
We explore the macroeconomic consequences of tariff shocks and monetary policy in a two country DSGE model: the “US” economy has price rigidities and financial frictions; the “EM” economy has price rigidities, dollar denominated foreign debt (original sin), and financial frictions described by Aoki et al. (2021). The Fed implements an Ample Reserves Regime in which the interest rate on reserves can be held constant; the EM follows a Taylor Rule. We assess the role played by the pricing decisions of exporters, the exchange rate regime, and original sin. We also analyze the tax burden of tariffs and the destructive nature of tariff wars. Finally, we use our model to discuss issues that arose in the first half of 2025: (1) the long run effects of “large” US tariffs on output, the trade balance, and tariff revenue; (2) the proposed Mar-a-Lago Accord; and (3) the unexpected depreciation of the dollar.
"Distributional Effects of Exchange Rate Stabilization in Emerging Markets"
This paper develops a two-sector, two-agent New-Keynesian model of a small open economy to highlight an exchange-rate stabilization motive in emerging market economies. Exchange-rate stabilization in the model serves to mitigate the procyclical effects of foreign shocks on the real wages of poor workers in the non-traded sector. The welfare benefit to these workers comes at the expense of households in the traded sector. But some degree of exchange-rate stabilization will always lead to a gain in aggregate welfare. Strongly stabilizing (or fixing) the exchange rate, however, reduces the welfare of both types of households. In an inflation-targeting regime, adding (Ramsey) optimal capital controls as a second policy instrument enhances macroeconomic stability, while sterilized interventions are nearly ineffective in this environment.