"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 Displacement Multipliers: Theory and Evidence using the U.S. Trade Adjustment Assistance*"
New version - April 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. This finding is robust to local Bartik-style import penetration measures, suggesting a role for within-industry heterogeneity. A Ricardian trade model with endogenous variable markups can rationalize such a trade displacement multiplier. In the medium run following a trade liberalization, employment and earnings collapse in the less productive locations because of both higher trade-induced job losses and lower job creation, as in the data. Earnings inequality increases and prompts transitional transfers towards decaying locations, even as aggregate employment rises amidst muted geographic mobility.

*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 - March 2017.


We show that the co-movement of inflation and domestic consumption growth affects real interest rates and the likelihood of debt crises. In particular, a positive co-movement of inflation and consumption lowers risk premia as it makes returns on nominal domestic government debt negatively correlated with domestic consumption. However, such procyclicality also generates default risk since the debt becomes more risky for the government when the economy deteriorates. We calibrate a model of sovereign default on domestic nominal debt, in the presence of exogenous inflation risk and domestic risk averse agents, to assess these joint equilibrium properties of nominal debt, default, and interest rates. Compared to the countercyclical inflation economy, the procyclical inflation economy enjoys a sizable ``inflation procyclicality discount'' as it features lower real interest rates despite higher default risk. However, in bad times, the procyclical economy faces higher real interest rates due to sharper default risk spikes. These findings are consistent with the evidence across advanced economies and have implications for the debate on the secular decline 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