1) The Macroeconomic Effects of Uncertainty and Risk Aversion Shocks

Single authored.

Abstract: Inspired by standard risk neutral measures of volatility, this paper identifies two types of volatility shocks, namely quantity and price of risk shocks, which can intuitively be interpreted as uncertainty and risk aversion shocks, respectively. Identification is achieved in a shock-restricted SVAR framework using narrative restrictions. We find that uncertainty shocks have large negative effects on output, while risk aversion shocks are particularly damaging to asset prices and are deflationary. We also quantify to which extent risk aversion shocks can exacerbate the real effects of uncertainty shocks, thereby providing an estimate of the quantitative relevance of the risk-premium channel of uncertainty shocks. Our results suggest that both uncertainty and risk aversion shocks were important drivers of the Great Financial Crisis. For the COVID recession, uncertainty shocks were the main drivers while risk aversion played a more limited role.

Published: European Economic Review, Volume 153, May 2023, 10442


2) The Heterogeneous Effects of Carbon Policies: Macro and Micro Evidence

Joint work with A. Cesa-Bianchi (Bank of England), F. di Pace (Bank of England), & A. Haberis (Bank of England).

Abstract: This paper investigates both the aggregate and firm-level responses to carbon pricing shocks using a large panel of countries member of the EU Carbon ETS. On average, carbon pricing shocks lead to an increase in inflation, a fall in output and equity prices, and a tightening in financial conditions. The average responses mask a large degree of heterogeneity: the effects are larger for countries with high CO2 intensity. To sharpen identification, we exploit granular firm-level data and document that firms with higher CO2 emissions are the most responsive to carbon pricing shocks. We develop a theoretical model with green and brown firms that account for these empirical patterns.

[Working Paper]  

3) The Macro-Financial Effects of Climate Policy Risk: Evidence from Switzerland

Single authored.

Abstract: This paper quantifies empirically the macroeconomic and financial risks induced by climate policies in Switzerland. To do so, we develop a new index of Climate Policy Risk (CPR) using text-analysis techniques on a large dataset of Swiss media articles. The identification of CPR shocks is achieved by using narrative restrictions around events which are likely to have coincided with an increase in the probability of adopting tighter climate policies. We find that CPR shocks lead to a significant decline in real GDP and are associated with a decline in firm-level CO2 emissions. Using firm-level equity price data and rolling linear panel regressions, we document that climate policy risk is increasingly reflected in asset prices. We further find that CO2-intensive firms perform significantly worse than their greener counterparts following events which increased transition risk.

[Working Paper (revised)] [Working Paper (OLD)]  

4) Foreign Exchange Interventions with UIP and CIP Deviations: The Case of Safe-Haven Economies

Joint with P. Bacchetta (UNIL, SFI, CEPR) & K. Benhima (UNIL, CEPR)

Abstract: We examine the opportunity cost of foreign exchange (FX) intervention when both CIP and UIP deviations are present. We consider a small open economy that receives international capital flows through constrained international financial intermediaries. Deviations from CIP come from limited arbitrage or through a convenience yield, while UIP deviations are also affected by risk. We show that the sign of CIP and UIP deviations may differ for safe haven countries. We examine the optimal policy of a constrained central bank planner in this context. We find that there may be a benefit, rather than a cost, of FX reserves if international intermediaries value more the safe haven properties of a currency that domestic households. We show that this has been the case for the Swiss franc and the Japanese Yen.

[Working Paper]