Research
Research interest
International Macroeconomics and Finance, Empirical Banking, Natural disasters, Climate change
Working Papers
The Impact of Natural Disasters on Capital Flows: Preparedness and Exposure Matter
Natural disasters increase economic losses worldwide, with severe weather events now costing $143 billion annually. Although research has examined various macroeconomic impacts of disasters, their relationship with international capital flows has received little attention so far. This paper shows that a country’s ability to respond to disasters, rather than the likelihood of physical disasters, drives cross-border investment. In particular, investors react the most in countries that are usually unaffected by disasters and unprepared to handle them when they occur. Portfolio and bank flows show the strongest reactions, with a 0.1 percentage point increase in population exposure leading to changes of between 0.5 and 4.4 percentage points of GDP, up to twice the average size of flows. In contrast, FDI remains stable, suggesting that long-term strategic investments are less sensitive to disaster events. The reaction of portfolio flows goes beyond domestic events. While internal disasters reduce flows, external disasters increase portfolio equity inflows by 3.8 percentage points, suggesting that investors reallocate to safer markets within country groups.
Green FDI and Environmental Policy Uncertainty
-joint with Joëlle Noailly
-Draft available at request
To achieve higher investment flows in green technologies and mitigate potential climate transition risks, governments are increasingly competing to attract Foreign Direct Investments (FDI) in specific environmental technologies. However, we lack empirical evidence on whether these climate policies actually increase greenfield environmental technology investment and associated job creation, key measures of the success of these policies. In this paper, we show for the first time that the Renewable Portfolio Standard (RPS), a US policy that requires utilities to source electricity from renewable energy, successfully attracts investment in greenfield environmental technology by $840 million and creates 649 additional jobs on average in states enacting RPS. However, these effects take six to seven years to materialise and are overestimated by $90 million and 110 jobs when the impact of cross-state renewable energy trading effects is ignored.
Financial Institutions and Climate Shocks: Pre-emptive vs. Reactive Lending Adjustments in the Case of El Niño
-joint with Alvaro Alejandro Hinostroza Lamilla and Gerald Alex Cisneros Rojas
Financial institutions are increasingly exposed to climate change through their balance sheets. Nonetheless, the way in which they process climate information remains poorly understood. This paper examines whether financial institutions respond reactively to natural disasters or pre-emptively to climate forecasts, using Peruvian credit registry data. Relying on revisions to El Niño probability forecasts as an exogenous climate news shock, we find that financial institutions engage in forward-looking risk management during El Niño episodes. Specifically, a 10-percentage-point revision increases credit growth by 0.5 basis points, compared to the typical 6 basis points of month-to-month credit growth changes. In addition, the same forecast revision increases bank capitalisation by over 1 percentage point, compared to the average capital position of 18%. The increased lending amounts to 54 million soles per month, equivalent to 6.5% of new loans issued nationwide each month. These pre-emptive adjustments occur in response to forecast revisions alone, independent of actual disasters.
Publications
Deleveraging and Foreign Currency Loan Conversion Programs in Europe
-joint with Pınar Yeşin, Comparative Economic Studies
This paper first reviews the developments in the size and composition of the European banking sectors’ balance sheets since the Global Financial Crisis and then assesses the impact of foreign currency loan conversion programs on systemic risk. Aggregate data from 2009Q1 to 2019Q3 indicate three major developments. First, the deleveraging process in Europe has been sizeable, while credit growth may be hampered in several countries. Secondly, macroprudential measures and conversion programs have only partially achieved their goal of lowering financial dollarization in Central and Eastern Europe. Lastly, systemic risk remains elevated in the non-euro area.