Cross-Border Banking, Foreign Direct Investment and Gross Capital Flows
(Draft available upon request)
Despite the fact that cross-border gross capital flows and positions across different asset classes have been documented to be large, there is still a lack of understanding of what drives their joint dynamics. We present evidence that banking and FDI gross inflows and outflows are correlated for a large number of countries and across asset categories. The correlations are particularly high for advanced economies. However, there is significant heterogeneity and bilateral gross inflows and outflows do not show this same pattern. We develop a general equilibrium model aimed at capturing the joint dynamics of banking and direct investment gross flows. In our setup, local banks use local deposits to finance local firms with heterogeneous productivity, who then choose whether to expand abroad or not by investing in FDI. The financing conditions of local banks are in turn determined by the global interbank market, which is intermediated by a monopolist global bank subject to a leverage constraint. Hence, financial conditions trickle from the global banking sector to local banks and to local firm's FDI decisions in turn. In this framework, banking and direct investment gross inflows and outflows have rich joint dynamics which are driven by both global financial and country-fundamental shocks.
Beyond Trade, Finance and Development in the Lives and Afterlives of Carlos F. Diaz-Alejandro
(Draft available upon request)
Carlos Federico Diaz-Alejandro was a Cuban (later naturalized American) economist who worked from the 60s until his untimely death in 1985. His writings on Trade, Development, Finance and Economic History inspired a generation of economists in Latin America and beyond. His students and mentees would go on to become renowned academic economists, finance ministers, central bankers, heads of international economic organizations, and even heads of State. His deep insights and intellectually open approach allowed him to maintain close relations with figures in both heterodox economics circles led by structuralists in the Global South, and in more mainstream liberal North American academia at a time when polarization between these worlds was increasing. This essay reconstructs the life of Diaz-Alejandro, drawing primarily from new archival research on his personal papers and correspondence that is held at Columbia University, interviews with his students and friends, as well as a critical reading of his late work and of the reception that it had after his death.
Risky Matchmaking: Bank Lending, Specialization and International Firms
On the Fragility of Mediation: Theory and Experimental Evidence (with Alessandra Casella and Evan Friedman)
Revise and Resubmit at JEEA. (Previously circulated as Mediating Conflict in the Lab) Latest draft June 2024.
Mediation of disputes is increasingly common, often implemented by computer-run algorithms. We test the efficacy of a theoretically optimal mediation algorithm in an experiment where two subjects negotiate how to share a resource. The subjects send cheap talk messages to one another (under direct communication) or to the computer mediator (under mediation), before expressing demands or receiving the mediator's non-binding recommendation. While messages to the computer mediator are more sincere, peaceful resolution is not more frequent. We argue, theoretically and experimentally, that exactly when it is most promising, the mediation mechanism is fragile to any deviation from full sincerity.
Capital Controls and Market Perceptions: Insights from an Investor Survey (with Apoorv Bhargava, Romain Bouis, Annamaria Kokenyne, Umang Rawat and Ratna Sahay)
Published in Shocks and Capital Flows: Policy Responses in a Volatile World, edited by Gaston Gelos and Ratna Sahay, Washington, DC : International Monetary Fund, 2023.
Capital Controls in Times of Crisis – Do They Work? (with Apoorv Bhargava, Romain Bouis, Annamaria Kokenyne, Umang Rawat and Ratna Sahay)
Published as IMF Working Paper No. 2023/067, March 2023
Do Capital Controls Limit Inflow Surges? (with Apoorv Bhargava, Romain Bouis, Annamaria Kokenyne, Umang Rawat and Ratna Sahay)
Published as IMF Working Paper No 2023/050, March 2023
Climate-Related Stress Testing: Transition Risk in Colombia (with Can Sever)
Published as IMF Working Paper No. 2021/261, November 2021
Insuring Against Climatic Disasters: Can Catastrophe Bonds Help Close the Protection Gap? (with Alan Feng)
Last Draft December 2021. Available upon request.