Publications and working papers
Media coverage: Central Banking
Abstract: Exchange rate movements affect the economy through changes in net exports, i.e. the trade channel, and through valuation changes in assets and liabilities denominated in foreign currencies, i.e. the financial channel. In this paper, I investigate the macroeconomic and financial effects of U.S. dollar (USD) exchange rate fluctuations in small open economies. Particularly, I examine how the financial channel affects the overall impact of exchange rate fluctuations and assess to what extent foreign currency exposure determines the financial channel’s strength. My empirical findings indicate that, if foreign currency exposure is high, an appreciation of the domestic currency against the USD is expansionary and loosens financial conditions, which is consistent with the financial channel of exchange rates. Moreover, I estimate a small open economy New Keynesian model, in which a fraction of the domestic banks’ liabilities is denominated in USD. In line with the empirical results, the model estimates reveal that an appreciation against the USD can be expansionary depending on the strength of the financial channel, which is linked to the level of foreign currency exposure. Finally, the model suggests that the financial channel amplifies the effects of foreign monetary policy shocks.
Spillovers of U.S. Unconventional Monetary Policy to Emerging Market Economies: The Role of Capital Flows (with Michael Hachula and Christian Offermanns)
Journal of International Money and Finance, Volume 73, 2017
Abstract: We employ a structural global VAR model to analyze whether U.S. unconventional monetary policy shocks, identified through changes in the central bank’s balance sheet, have an impact on financial and economic conditions in emerging market economies (EMEs). Moreover, we study whether international capital flows are an important channel of shock transmission. We find that an expansionary policy shock significantly increases portfolio flows from the U.S. to EMEs for almost two quarters, accompanied by a persistent movement in real and financial variables in recipient countries. Moreover, EMEs on average respond to the shock with an easing of their own monetary policy stance. The findings appear to be independent of heterogeneous country characteristics like the underlying exchange rate arrangement, the quality of institutions, or the degree of financial openness.
What really drives public debt: a hollistic approach (with Alex Pienkowski)
IMF Working Paper No. 137, Volume 15, 2015
Abstract: This paper presents a novel approach to details the propagation of shocks to public debt. The modeling technique involves a structural vector auto-regression (SVAR) with an endogenous debt accumulation equation. It explores how the main drivers of sovereign debt dynamics – the primary balance, the interest rate, growth and inflation – interact with each other. Such analysis is particularly useful for debt sustainability analysis. We find that some interactions exacerbate the impact of shocks to the accumulation of debt, while other act to stabilize debt dynamics. Furthermore, the choice of monetary policy regime plays an important role in these dynamics – countries with constrained monetary policy are more at risk from changes in market sentiment and must rely much more on fiscal policy to restrain debt.