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Working papers:
Working papers:
Dominant Currency Pricing Transition, with Marco Garofalo and Roger Vicquery
[Bank of England Working Paper][Oxford Working Paper] [CfM Working Paper] [Slides]
Blog posts: [Bank Underground] [VoxEU Column]
Abstract: We explore an episode of aggregate transition to dominant currency pricing in a large developed economy, relying on transaction-level data on the universe of UK trade between 2010 and 2022. Until 2016, the majority of UK non-EU exports were invoiced in British pounds, the ”producer” currency. However, in the aftermath of the June 2016 Brexit referendum and the subsequent depreciation of the pound, the share of non-EU UK exports invoiced in pounds started to sharply decrease – by more than 20 percentage points. This was mirrored by an increase of similar magnitude in the share of US dollar invoicing, which by 2019 overtook the pound as the main non-EU export invoicing currency. Using shift-share and event-study identification strategies, we show that large foreign-exchange movements can generate a transition in invoicing choices for firms with low levels of operational hedging, that is whose exports are not denominated in the same currency as their import. We find that that this currency-mismatch valuation channel accounts for most of the transition away from producer currency pricing, above and beyond effects from strategic complementarities and market power. Finally, we show that this shift in export pricing paradigm has important aggregate consequences for export pass-through and the allocative effects of price rigidities. Exports exhibit significantly higher elasticity to USD exchange-rate movements after the Brexit referendum: a USD dollar appreciation depresses demand for exports by twice as much than before this ‘dominant currency pricing transition’.Presentations: Bank of England [London, December 2023], University of Oxford [Oxford, December 2023], Joint BIS, BoE, ECB and IMF Spillover Conference [Basel, April 2024], LSE-Oxford Workshop in International Macroeconomics and Finance [London, May 2024]
Sanctions and Currencies in Global Credit, with Marco Garofalo and Roger Vicquery [Working Paper]
Abstract: This paper studies the effect of financial sanctions on the dominance of the US dollar in global credit markets. In the aftermath of the invasion of Crimea in 2014, sanctions imposed by both the US and the EU restricted the provision of financial services to Russian firms. We document how, between 2014 and 2021, the share of global cross-border credit to Russia denominated in US dollars declined from 65% to 25%, while the share denominated in euros rose from 20% to 45%. Relying on confidential bank-level data covering the universe of global banks located in the UK, we show that this shift was driven by banks previously lending to Russia in US dollars, and that banks shifted to euro lending to Russia regardless of whether their ultimate owner was based in a sanctioning jurisdiction or not. We argue that this euroisation relates to an increase in the relative “settlement risk” of US dollar claims, in the context of US extra-territorial sanctions targeting the dollar payment system. We rationalise our findings in a three-country model with financial intermediaries, where sanctions are introduced as both jurisdiction and currency-circuit specific frictions.Work in progress:
Work in progress:
Financial Cooperation in a Fragmented World, with Javier Bianchi, Sebastian Horn and Cesar Sosa-Padilla
Households' Portfolios, Housing and the Heterogenous Transmission of International Shocks, with Giancarlo Corsetti, Joao Duarte and Samuel Mann
The Rise of Inelastic Intermediaries and Exchange Rate Dynamics, with Johannes Eugster and Pinar Yesin
Other work:
Other work:
Religion and mental health,
with Sriya Iyer (2022) in Handbook of Labor, Human Resources and Population Economics (Ed. by Klaus F. Zimmermann)
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