Abstract. We decompose firms’ investment responses to monetary policy into a cost-of-debt channel and an information-effect channel. Identification of the cost-of-debt component exploits the ECB’s 2016 Corporate Sector Purchase Programme (CSPP) announcement. We show that the CSPP announcement reduced the government-yield spread of eligible bonds. We replicate the announcement’s effects in a stylized model of the corporate bond market with varying degrees of segmentation. In a second step, we instrument firm borrowing costs using European firms’ heterogeneous and sticky exposure to loan types differentially affected by the CSPP. We estimate an investment semi-elasticity of 19.1 attributable solely to the borrowing-cost channel — 62% larger than the corresponding semi-elasticity to contemporaneous monetary policy shocks for the same firms comprising of both channels.

Presentations: EDGE Conference 2025, European University Institute

Abstract. This paper studies the causal effect of default costs on sovereign default probabilities. I exploit high-frequency changes in litigation-induced default costs around legal news-shocks from creditor lawsuits. A one ppt increase in the default-penalty-to-GDP ratio leads to a 1.38 ppt drop in default probability, indicating that direct economic costs are a central reason creditors expect repayment. I develop these results in a model of international borrowing with endogenous default and heterogeneous bond contracts. Here, similarly, adopting more punitive debt portfolios reduces default probabilities and risk premiums. However, the same mechanism can also lead shortsighted governments to pursue high-debt-high-default-cost regimes, heightening financial instability.

Presentations: CEPR Paris Symposium 2024, 96th International Atlantic Economic Conference, Philadelphia, PA, USA. European University Institute.

Abstract. In this paper, we develop two complementary approaches for benchmarking the public debt trajectories of Low-Income Countries (LICs) to assess their dynamic stability. We compare the evolution of the overall public debt-to-GDP ratios of reference LICs with the historical experiences of other countries with similar characteristics, which are now further down the path of economic development and have not experienced public debt stress events. We rely on both direct comparison and a novel application of the synthetic control method (SCM). These public debt trajectories that are dynamically stable from a historical perspective can provide insights into the debt sustainability analysis for LICs.

Presentations: IMF Sovereign Debt Workshop.

Abstract. The COVID-19 pandemic has caused the most universal health and socio-economic crisis in recent history. However, the magnitude of the economic damage has differed widely; some countries were hit particularly hard, while others have managed to weather the storm much better. In this paper, we use cross-country regression analysis to identify factors that help explain the differences in the growth impact of the COVID-19 shock. Our findings underscore the critical role of balancing health and economic concerns in managing the pandemic as both a country’s exposure to the coronavirus and the stringency of containment measures are strongly correlated with its growth performance. In addition, our results shed light on several aspects of economic resilience. Good governance, provision of fiscal support and strong macroeconomic fundamentals all helped cushion the economic impact. By contrast, a lack of economic diversification – reflected in overreliance on the tourism sector or oil production – has significantly amplified the shock.

UN DESA Policy Paper