"A Theory of Rollover Risk, Sudden Stops, and Foreign Reserves", joint with Sewon Hur.
Journal of International Economics, November 2016.
Emerging economies have accumulated very large foreign reserve holdings since the turn of the century. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a key role in endogenously reducing debt rollover crises (“sudden stops”) by allowing governments to be solvent in more states of the world. Using a dynamic multi-country environment with learning, we find that a relatively small unanticipated increase in rollover risk jointly accounts for (i) the outburst of sudden stops in the late 1990s, (ii) the subsequent increase in foreign reserves holdings, and (iii) the salient resilience of emerging economies to sudden stops ever since. We also show that a policy of pooling reserves may substantially reduce reserves because mutual insurance across countries dampens rollover risk.

Trade-Induced Displacements and Local Labor Market 
Adjustments in the U.S.
minor revisions requested for the Journal of International Economics
This version - November 2017.

Administrative data from the U.S. Trade Adjustment Assistance (TAA) program reveal that, across locations, one extra TAA trade-displaced worker is associated with overall employment falling by about two workers amidst muted geographic mobility. This finding is robust to local import penetration proxies and is corroborated using differences in the exposure of commuting zones to the plausibly exogenous normalization of U.S. trade relations with China in 2000 (see Pierce and Schott, 2016a,b). A Ricardian trade model with endogenous variable markups arising from head-to-head foreign competition can rationalize such a correlation. Following a trade liberalization shock, employment and earnings collapse in the less productive locations since they endogenously exhibit both higher trade-induced job losses and lower job creation, as in the data. When migration is muted in response to the trade shock, inequality increases across locations and induces transitional transfers towards decaying locations, even as aggregate employment and welfare rise.

*This paper supersedes the manuscript previously titled "Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S."

"Inflation, Debt, and Default", joint with Sewon Hur and Fabrizio Perri
This version - November 2017.


We study how the co-movement of inflation and the business cycle affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods in which the co-movement between inflation and the business cycle is positive, real interest rates tend to be low. A positive co-movement of inflation with the cycle raises the returns of nominal bonds in bad times, making them a good hedge against aggregate risk. However, such procyclicality also generates default risk, since nominal debt becomes more expensive for the government when the economy deteriorates. In order to evaluate both effects, we develop a model of sovereign default on domestic nominal debt with exogenous inflation risk and domestic risk averse agents. Countercyclical inflation tends to be substitute with default, while procyclical inflation is complement with it. In good times, when default is unlikely, procyclical inflation yields lower interest rates. In bad times, when default is possible, procyclical inflation can trigger an increase in default risk and spikes in real interest rates.

"Political Distortions and Infrastructure Networks in China: A Quantitative Spatial Equilibrium Analysis", joint with Simon Alder
This version - February 2018.


Using the timing of China's highway network construction and political leadership  cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network's design and implementation are more likely to be closer to the actual network compared to the optimal network arising from a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate effects of distortions in the highway  network.  Altogether, aggregate income is 0.75 percentage points higher with the optimal highway network compared to the actual highway network. Counterfactual networks with political distortions modeled using standard iceberg transportation costs are shown to account for part of these welfare losses. Finally, we use light data regressions to show that political distortions to the optimal network are also associated with slower growth, suggesting that distortions to internal trade costs may be only the tip of the iceberg of the effects of political frictions to the infrastructure network.

"On the U.S. Firm and Establishment Size Distributions", joint with Logan Lewis and Andrea Stella
Draft coming soon.


Work in progress

"Trade liberalization, Income Risk, and Optimal Taxation"

"On the Margins of Growth", joint US Census project with Logan Lewis and Andrea Stella