"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.
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
New 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..

Work in progress

"Trade liberalization, Income Risk, and Optimal Taxation"

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

"Roads, Corruption, and Growth in China", joint with Simon Alder