Working Papers

Dominant Drivers of Current Account Dynamics (with Jaewoo Lee and Mingzuo Sun)

[Forthcoming IMF Working Paper]

Abstract: We estimate shocks that explain most of the variation in the current account both at business cycle frequencies and over the long run for G7 countries. Using a standard open-economy macro model, we explore which macroeconomic shocks are behind the empirical dominant drivers of the current account at business-cycle frequency. Rather than financial shocks or aggregate shocks to supply or demand, shocks to relative demand between home and foreign goods are found to play the most important role in driving the current account. 

The Macroeconomic Consequences of Import Tariffs and Trade Policy Uncertainty (with Malte Rieth)

[IMF Working Paper]

Abstract:  We estimate the macroeconomic effects of import tariffs and trade policy uncertainty in the United States, combining theory-consistent and narrative sign restrictions in Bayesian SVARs. We find mostly adverse consequences of protectionism, in aggregate and across sectors and space. Tariff shocks are more important than trade policy uncertainty shocks. Tariff shocks depress trade, investment, and output persistently. The general equilibrium import elasticity is -0.8. Historically, NAFTA/WTO raised output by 1-3% for twenty years. Undoing the 2018/19 measures would raise output by cumulatively 4% over three years. The findings imply higher gains of trade than partial equilibrium or static trade models, and that trade policy is little effective at redistributing economic activity across U.S. sectors or states.

Not All Energy Transitions Are Alike: Disentangling the Effects of Demand- and Supply-Side Policies on Future Oil Prices  (with Andrea Pescatori and Martin Stuermer)

[Updated WP Version] [IMF Working Paper]

Abstract:  We use structural scenario analysis to show that the climate policy mix—supply-side versus demand-side policies—leads to different oil price paths in a net-zero emissions scenario. If emission reductions were only driven by demand-side climate policies, oil prices would decline to 25 USD per barrel by 2030, benefiting consuming countries. Vice versa, if there were only supply-side climate policies to curb oil production, prices would increase to 130 USD per barrel, benefiting countries that keep on producing. As policies are formulated at the country level and hard to predict, the transition raises uncertainty about the price outlook. 

Journal Publications

Abstract: The energy transition requires substantial amounts of metals, including copper, nickel, cobalt, and lithium. Are these metals a bottleneck? We identify metal-specific demand shocks, estimate supply elasticities, and study the price impact of the transition in a structural scenario analysis. Prices of these four metals would reach previous historical peaks but for an unprecedented, sustained period in a net-zero emissions scenario, potentially derailing the energy transition. Their production value would rise nearly four-fold to USD 11 trillion for the period 2021 to 2040. These four metals markets alone could become as important to the global economy as the oil market.

The Multifaceted Impact of US Trade Policy on Financial Markets (with Lukas Menkhoff and Malte Rieth)

Abstract:  We study the multifaceted effects of trade policy shocks on financial markets using a structural vector autoregression identified via event day heteroskedasticity. We find that restrictive US trade policy shocks affect US and international stock prices heterogeneously, but generally negatively. They increase market uncertainty, lower US interest rates, and lead to an appreciation of the US-Dollar. The effects are significant for several weeks or quarters. Decomposing the trade policy shocks further suggests that trade policy uncertainty dominates tariff level effects. Chinese trade policy shocks against the US further hurt US stocks. 

Qualitative versus Quantitative External Information for Proxy Vector Autoregressive Analysis (with Helmut Lütkepohl)

Abstract: A major challenge for proxy vector autoregressive analysis is the construction of a suitable external instrument variable or proxy for identifying a shock of interest. Some authors construct sophisticated proxies that account for the dating and size of the shock while other authors consider simpler versions that use only the dating and signs of particular shocks. It is shown that such qualitative (sign-)proxies can lead to impulse response estimates of the impact effects of the shock of interest that are nearly as efficient as or even more efficient than estimators based on more sophisticated quantitative proxies that also reflect the size of the shock. Moreover, the sign-proxies tend to provide more precise impulse response estimates than an approach based merely on the higher volatility of the shocks of interest on event dates.

Work in Progress

Demand for Safe Assets and Spillovers from the Global Dollar Cycle (with Cian Allen, Rudolfs Bems and Racha Moussa)

Abstract: US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery.