Research

Job market paper:

Geopolitical Risks and Economic Expectations: The Role of Trade Linkages.

Abstract: I study the impact of domestic and foreign geopolitical risk (GPR) on economic expectations, and how trade linkages affect the transmission of foreign risks. Using monthly professional forecasts since 1995, I start by estimating the effect of GPR events on the distribution of expectations across 32 advanced and developing economies. I find that while changes in GPR do not shift median GDP forecasts, they increase their dispersion. I then assess how trade substitutability and concentration influence the cross-country transmission of GPR. I construct new country-level indicators based on granular product-level data and find that countries which have exports that are easy to substitute (the international demand for these exports is elastic) are more affected by foreign GPR shocks. Perhaps surprisingly, for these countries, foreign GPR shocks dominate domestic GPR shocks.

Publications:

Do tax revenues track economic growth? Comparing panel data estimators, with J. Corrales and J. Mojica, Economic Modelling, vol. 140, p.106867, 2024

Abstract: Determining how economic growth affects tax revenues is crucial for fiscal sustainability, economic stabilization, and policy design. The current literature on tax buoyancy presents contrasting estimates, highlighting the need for a systematic discussion of the trade-offs associated with different estimators. This paper provides new empirical evidence by reviewing a range of panel data estimators in a large sample of 172 countries from 1990 to 2019. We find evidence of lower estimates for tax responses to economic activity in the short term relative to previous literature, suggesting a limited automatic stabilization power of tax systems. The heterogeneity in our results within and across income groups underscores the importance of choosing the appropriate estimator. Our results remain broadly unchanged when we introduce new control variables to disentangle discretionary from automatic tax revenue variations, indicating that economic cycles do not significantly influence the timing of tax policies.

Work in progress:

Other days other ways? Fiscal and monetary policy reaction functions over the past seven decades, with G. Cheng and B. Hofmann (please do not cite or share)

Abstract: We provide a long-term perspective on monetary and fiscal policy reaction functions in 17 advanced economies over the period 1950 to 2021. We find that both monetary policy (MP) and fiscal policy (FP) have become more counter-cyclical over time. However, FP exhibits pronounced asymmetry, with stronger counter-cyclical reactions during economic downturns than upturns, while MP responds more symmetrically through economic cycles. Our results also indicate that FP has become more sensitive to interest rates over time, while, MP shows limited responsiveness to public debt levels. Using higher-frequency data, we also show that fiscal deficits remain persistent long after recessionary episodes, whereas MP normalizes more rapidly. We argue that these systematic policy response patterns have contributed to the observed trends of declining policy rates and increasing debt levels.

Fiscal Policy and Market Discipline in Crisis: Evidence From the Covid-19 Outbreak (draft available upon request)

Abstract: This study analyzes the effect of fiscal policy announcements on sovereign credit default swap (CDS) spreads during the COVID-19 pandemic using weekly data for a panel of 61 advanced and emerging economies. Results indicate mixed impact on CDS spreads in response to fiscal policy announcements, with negative reactions in countries with low precrisis CDS spreads and positive reactions in countries with high precrisis CDS spreads. However, no distinction is found when considering precrisis sovereign ratings or income group classifications. This suggests that during the crisis, fiscal policy announcements in countries with weak fiscal credibility may decrease market confidence in public finances, while announcements in countries with stronger precrisis fiscal credibility may increase confidence.

Climate Shocks and Inflation Expectations: Evidence from Mexican Data, with G. Suedekum

Abstract: Climate change is making extreme weather events more frequent, and concerns about their inflationary effects are on the rise. Using data from the Bank of Mexico’s Survey of Professional Forecasters, we assess the impact of climate shocks on various aspects of inflation expectations, including levels, uncertainty, and disagreement (Rich and Tracy, 2020). We estimate the impulse reactions of inflation expectations to climate shocks and then compare these to those from other adverse events, such as risk-off episodes and oil price hikes. Our preliminary results suggest that inflation expectations are sensitive to climate shocks and behave similarly to other adverse events.

Policy contributions

Much Money, Little Capital, and Few Reforms: The 2023 banking turmoil, International Center for Monetary and Banking Studies, 2024

The Art and Science of Patience, Relative Prices and Inflation, International Center for Monetary and Banking Studies, 2023

Annual Economic Report 2023, Bank for International Settlements, 2023

Climate and Debt, International Center for Monetary and Banking Studies, 2022

Debt: The Eye of The Storm, International Center for Monetary and Banking Studies, 2022