Publications / Forthcoming / Under Review
Protection for Free? An Analysis of U.S. Tariff Suspensions An Analysis of U.S. Tariff Suspensions , January, 2017, forthcoming, The Review of Economics and Statistics (with Rod Ludema and Anna Maria Mayda, Georgetown University)
Abstract: How does information supplied by firms influence policy? How efficient is legislative bargaining within Congress? To answer these questions, this paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model of legislative bargaining in which firms influence legislators by transmitting information about the value of protection, using verbal messages and lobbying expenditures. We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006. We find that, controlling for lobbying expenditures, an increase in the number of import-competing firms expressing opposition to a suspension significantly reduces the probability of the suspension being granted, suggesting that firm messages do indeed contain policy-relevant information. We further find that lobbying expenditures by proponent and opponent firms sway this probability in opposite directions. The effect of the number of opponents is significantly larger than that of both opponent and proponent lobbying. We estimate that the greater information content of verbal opposition fully accounts for its larger impact relative to opponent lobbying and explains about three quarters of its greater effect relative to proponent lobbying, with the remaining one quarter explained by legislative bargaining costs.
Beggar-thy-Neighbor Effects of Exchange Rates? A Study of the Renminbi, November 2016 forthcoming, American Economic Journal: Economic Policy, (with Aaditya Mattoo, World Bank and Arvind Subramanian, Peterson Institute), IMF Working Paper No. 12/88, [Wall Street Journal column on the paper]
Abstract: This paper estimates the effect of China’s exchange rate changes on exports of developing countries in third markets. We develop an identification strategy in which the degree of competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit variation across exporters, importers, products and time—afforded both by disaggregated trade data and bilateral exchange rates—to estimate this “competitor country effect.” We find robust evidence of a statistically and quantitatively significant effect. Our estimates suggest that a 10 percent appreciation of China’s real exchange rate boosts a developing country’s exports of a 4-digit HS product to third markets on average by about 1.5-2.5 percent.
Establishing Rules of the Game for the International Monetary System, Central Banking Journal. 2016.
What is Responsible for India’s Sharp Disinflation? (with Sajjid Chinoy, JP Morgan, and Pankaj Kumar, RBI), Monetary Policy in India: A Modern Macroeconomic Perspective. (Eds.) Chetan Ghate and Ken Kletzer. Springer Verlag: India, 2016. (IMF WP No. 16/166).
Abstract: We analyze the dramatic decline in India’s inflation over the last two years using an augmented Phillips Curve approach and quantify the role of different factors. Our results suggest that, contrary to popular perception, the direct role of lower oil prices in India’s disinflation was relatively modest given the limited pass-through into domestic prices. Instead, we find that inflation is a highly persistent process in India, reflecting very adaptive expectations and the backward looking nature of wage and support price-setting. As a consequence, we find that a moderation of expectations, both backward and forward, and a rationalization of Minimum Support Prices (MSPs), explain the bulk of the disinflation over the last two years.
Monetary Transmission in Developing Countries : Evidence from India (with Peter Montiel, Williams, and Rajeswari Sengupta, IGIDR, Mumbai), Monetary Policy in India: A Modern Macroeconomic Perspective. (Eds.) Chetan Ghate and Ken Kletzer. Springer Verlag: India, 2016. (IMF WP No. 16/167).
Abstract: We examine the strength of monetary transmission in India, using a conventional structural VAR methodology. We find that a tightening of monetary policy is associated with a significant increase in bank lending rates and conventional effects on the exchange rate, though pass-through to lending rates is only partial and exchange rate effects are weak. We could find no significant effects on real output or the inflation rate. Though the message for the effectiveness of monetary transmission in India is therefore mixed, our results for India are more favorable than is often found for other developing countries.
India-US Trade and Investment: Have They Been Up To Potential? (with Devesh Roy, IFPRI), Global Economy Journal, Volume 16, Issue 3, 2016, Pages 539–567.
Abstract. This paper documents stylized facts about the evolution of trade and foreign direct investment (FDI) between India and the United States over the last four decades. We ask the question: does India-US trade and FDI deviate from its potential i.e. the level that would have been predicted by standard determinants? Using an augmented gravity model and a large sample of countries over 1970-2009, we find that while India’s exports to the US are 34% higher than predicted, US exports to India are in line with its potential. Notably, we find strong reversals in the nature of these trading relationships over time. India loses its over-trading status while US turns out to be under-exporting to India in the period after 1990. We also find significant variation in trade performance across product categories. For primary and intermediate goods during post-1990, US exports to India turn significantly below normal. Conducting similar analysis for bilateral FDI flows for the period 1985-2009, we show that while US direct investments in India are in line with predictions based on fundamentals, India has actually been an under-investor in the US market.
Abstract: This paper examines the behavior of quarterly inflation in India since 1994, both headline inflation and core inflation as measured by the weighted median of price changes across industries. We explain core inflation with a Phillips curve in which the inflation rate depends on a slow-moving average of past inflation and on the deviation of output from trend. Headline inflation is more volatile than core: it fluctuates due to large changes in the relative prices of certain industries, which are largely but not exclusively industries that produce food and energy. There is some evidence that changes in headline inflation feed into expected inflation and future core inflation. Several aspects of India’s inflation process are similar to inflation in advanced economies in the 1970s and 80s.
Lobbying Expenditures on Migration: A Descriptive Analysis, (with Giovanni Facchini Nottingham University, and Anna Maria Mayda, Georgetown University), CESifo Econ Stud, 2015 61 (3-4): 560-604.
Abstract: In this article we carry out a descriptive analysis of lobbying expenditures on migration in the USA between 1998 and 2005. While political action committees (PAC) contributions and lobbying are in general positively correlated, our results suggest that this is not the case when it comes to lobbying on migration. As a result, any analysis of the role of lobbying in migration should not focus on PAC contributions alone. Comparing lobbying on migration and trade, we find that substantially more resources are spent on the latter than on the former. Finally, lobbying on migration appears to be more concentrated than lobbying on trade both across sectors and across organizations.
Monetary Policy and Bank Lending Rates in Low-Income Countries: Heterogeneous Panel Estimates, (with Peter Moniel, Peter Pedroni, Williams College, and Antonio Spilimbergo, IMF), Journal of Development Economics, 2014, 111, 117-131.
Abstract: This paper studies the transmission of monetary shocks to lending rates in a large sample of advanced, emerging, and low-income countries. Transmission is measured by the impulse response of bank lending rates to monetary policy shocks. Long-run restrictions are used to identify such shocks. Using a heterogeneous structural panel VAR, we find that there is wide variation in the response of bank lending rates to a monetary policy innovation across countries. Monetary policy shocks are more likely to affect bank lending rates in the theoretically expected direction in countries that have better institutional frameworks, more developed financial structures, and less concentrated banking systems. Low-income countries score poorly along all of these dimensions, and we find that such countries indeed exhibit much weaker transmission of monetary policy shocks to bank lending rates than do advanced and emerging economies.
Wall Street, Capitol Hill, and K Street: Political Influence and Financial Regulation, (with Deniz Igan), Journal of Law and Economics, 2014, Vol. 57, No. 4, pp. 1063-1084. [Simon Johnson's column on the paper]. (Working paper version Three’s Company: Washington, Wall Street and K Street with supplemental appendix)
Abstract: This paper explores the link between the political influence of the financial industry and financial regulation in the run-up to the global financial crisis. We construct a detailed database documenting the lobbying activities, campaign contributions, and political connections of the financial industry from 1999 to 2006 in the United States. We find strong evidence that spending on lobbying by the financial industry and network connections between lobbyists and the legislators were positively linked to the probability of a legislator changing positions in favor of deregulation. The evidence also suggests that hiring connected lobbyists who had worked for legislators in the past enhanced the effectiveness of lobbying activities.
How Does Trade Evolve in the Aftermath of Financial Crises?, 2014 (with Abdul Abiad and Petia Topalova, IMF), (IMF Working Paper No. 11/3), IMF Economic Review, 62: 213-247
Abstract: International trade collapsed in 2008-09, particularly in countries that experienced a financial crisis. Was this collapse unique or part of a broader historical pattern? Using an augmented gravity model and 179 episodes from 1970-2009, we find that financial crises are associated with sharp declines in imports of the crisis country—19 percent, on average, in the year following a crisis—and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country fall modestly and then remain close to or even above the predicted level. The protracted drop in imports post-crisis is consistent with evidence of a sustained depreciation of the exchange rate and impaired credit conditions following crises.
Emigration and Wages in Source Countries: A Survey of the Empirical Literature, in Robert E. B. Lucas, ed., International Handbook on Migration and Economic Development, Cheltenham: Edward Elgar, 2014, pp. 241–266.
Abstract: This chapter summarizes the emerging empirical literature on the effect of emigration on wages in a source country. The evidence can be broadly divided into four categories: (i) case studies, (ii) simulation exercises, (iii) studies using regional variation and finally, (iv) national level studies. Overall, a substantial body of the evidence points towards a strong and positive relationship between emigration and source country wages. Importantly, the effect has been found to be statistically and economically significant. The estimates from the national-level studies across a wide range of countries range from two percent to five and a half percent increase in wages owing to a 10 percent emigrant supply shock. The impact of emigration on wages has important implications in source countries, for wage inequality across schooling groups and for national income distribution between labor and other factors.
Dynamics of Firm Lobbying, (with William Kerr, Harvard Business School and William Lincoln, University of Michigan),( NBER Working Paper No. w1757), American Economic Journal: Economic Policy, 2014, 6(4): 343-79 (NBER WP No.17577).
Abstract: How is economic policy made? In this paper we study a key determinant of the answer to the question: lobbying by firms. Estimating a binary choice model of firm behavior, we find significant evidence for the idea that barriers to entry induce persistence in lobbying. The existence of these costs is further confirmed in studying how firms responded to a particular policy change: the expiration of legislation relating to the H-1B visa. Due to its influence on firm behavior, we argue that this persistence fundamentally changes the environment in which legislation is made.
India's External Sector: Do We Need To Worry? (with C. Rangarajan), Economic and Political Weekly, 2013.
Abstract: The deterioration in India’s current account has led to a series of debates in the policy arena relating to sustainability, the importance of exchange rates in influencing the trade balance, and the role of high and rising inflation. Against this background, this article takes a step back and analyses the performance of the external sector in India since 1990. It estimates the sustainable current deficit to GDP ratio to be 2.3%. Importantly, even to sustain a 2.3% CAD, India would need net capital infl ows of the order of at least $50-70 billion annually over the next five years. Given the uncertainty around both the push factors (e g, rising global risk aversion) as well as the pull factors (slower growth in India) that determine capital flows, attracting such magnitudes of flows could very well be an uphill task.
Has India's Growth Story Withered? Economic and Political Weekly, 2013.
Abstract: This paper analyzes the growth performance in India over the past two decades. We use several statistical and economic methodologies to estimate the growth rate of potential output. The annual growth rate of potential output is estimated for 2011 to be in the range of 7.7-8.2 percent. All the estimation techniques suggest that there was a big boost to potential growth between 2002 and 2007, but since then it has not increased significantly. Based on statistical approaches and conditional on moderate annual growth forecasts of 7-7.5 percent between 2012 and 2014, there is some evidence that the recent decline in growth is likely to be driven by structural factors. Most of the methodologies indicate that output gap continues to be positive, suggesting caution in further loosening the monetary policy stance. Overall, while the Indian growth story may/may not have withered, the evidence does give indications that the growth story may have faltered.
Financial and Distributional Implications of the Food Security Law, Economic and Political Weekly, 2013.
Abstract: The financial implications of the National Food Security Bill, which has now become law, are going to be huge. This analysis points out that one needs to take into account not only the cost of the food subsidy but also the costs of setting up or running new institutions and bureaucracies, and the costs that are likely to arise if there are political pressures to protect the existing beneficiaries. There are still more imponderables, and the fi nal cost could add up to much more than what is now estimated.
Democracy and Reforms, (with Paola Giuliano, UCLA and Antonio Spilimbergo, IMF) (NBER Working Paper No w18117, IZA DP No. 4032, CEPR DP No. 7194), American Economic Journal: Macroeconomics, 2013, 5(4): 179-204
Abstract: Empirical evidence on the relationship between democracy and economic reforms is scarce, limited to few reforms and countries and for few years. This paper studies the impact of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital, public, and banking sectors, product and labor markets, agriculture, and trade for 150 countries over the period 1960?2004. Democracy has a positive and significant impact on the adoption of economic reforms but there is no evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.
How Effective Is Monetary Transmission in Developing Countries? A Survey of the Empirical Evidence, (with Peter Montiel), (IMF Working Paper No.12/143), Economic Systems, 2013, Elsevier, vol. 37(2), pages 187-216
Abstract: This paper surveys the evidence on the effectiveness of monetary transmission in developing countries. We summarize the arguments for expecting the bank lending channel to be the dominant means of monetary transmission in such countries, and present a simple model that suggests why this channel may be both weak and unreliable under the conditions that usually characterize those economies. Next, we review the empirical methodologies that have been employed in the recent literature to assess monetary policy effectiveness, both in developing countries as well as in industrial and emerging economies, essentially based on vector autoregressions (VARs). It is very hard to come away from this review of the evidence with much confidence in the strength of monetary transmission in developing countries. We distinguish between the “facts on the ground” and “methodological deficiencies” interpretations of the absence of evidence for strong monetary transmission. We suspect, however, that “facts on the ground” are indeed an important part of the story. The fact that a wide range of empirical approaches have failed to yield evidence of effective monetary transmission in developing countries, and that the strongest evidence for effective monetary transmission has arisen for relatively prosperous and more institutionally developed countries such as some central and Eastern European transition economies (at least in the later stages of their transition) and Tunisia, makes us doubt whether methodological shortcomings are the whole story. If this conjecture is correct, the stabilization challenge in developing countries is acute indeed, and identifying the means of enhancing the effectiveness of monetary policy in such countries is an important challenge.
Trade Liberalization and Wage Inequality in India: A Mandated Wage Equation Approach (with Debkusum Das, Delhi University), India Growth and Development Review, 2013, Vol. 6 Issue: 1, pp.113 - 127.
Abstract: This paper uses an empirical approach based on the “mandated wage equations” to examine the relationship between trade liberalization and urban manufacturing wages in India. The main result in the paper is that trade reforms have been associated with a rise in the relative wages of medium-skilled workers (defined as having completed secondary schooling). We do not find any evidence for trade reforms to be associated with an increase or decrease in wage inequality between low and high-skilled workers. The results are consistent with the predictions of the Stolper-Samuelson theorem.
Monetary Transmission in Low-Income Countries: Effectiveness and Policy Implications, February, 2012 (with Peter Montiel, Williams College and Antonio Spilimbergo, IMF), IMF Economic Review, 2012, 60, 270–302.
Abstract: This paper reviews the monetary transmission mechanism in low-income countries (LICs). We use monetary transmission in advanced and emerging markets as a benchmark to identify aspects of the transmission mechanism that may operate differently in LICs. In particular, we focus on the effects of financial market structure on monetary transmission. The weak institutional framework prevalent in LICs drastically reduces the role of securities markets. Consequently, traditional monetary transmission through market interest rates and market-determined asset prices are weak or nonexistent. The exchange rate channel, in turn, tends to be undermined by heavy central bank intervention in the foreign exchange market. The weak institutional framework also has the effect of increasing the cost of bank lending to private firms. Coupled with imperfect competition in the banking sector, this induces banks to maintain chronically high excess reserves and to invest in domestic public bonds or (when possible) in foreign bonds. With the financial system not intermediating funds properly, the bank lending channel also becomes impaired. These factors undermine both the strength and reliability of monetary transmission, which has important implications for the conduct of monetary policy in LICs.
The Power of Political voice: Women’s Political Representation and Crime in India, (with Lakshmi Iyer, HBS, Anandi Mani, Warrick, and Petia Topalova, IMF), American Economic Journal, Applied Economics, 2012, 4(4): 165–93.
Abstract: Using state-level variation in the timing of political reforms, we find that an increase in female representation in local government induces a large and significant rise in documented crimes against women in India. Our evidence suggests that this increase is good news, as it is driven primarily by greater reporting rather than greater incidence of such crimes. In contrast, we find no increase in crimes against men or gender-neutral crimes. We also examine the effectiveness of alternative forms of political representation: Large scale membership of women in local councils affects crime against them more than their presence in higher-level leadership positions.
Explaining Inflation in India: The Role of Food Prices, (with Devesh Roy, IFPRI), Brookings-NCAER India Policy Forum. Volume 8, 2011-12.
Abstract. This paper conducts a forensic examination of inflation in India with a focus on food price inflation, using a disaggregated high-frequency commodity level dataset spanning the last two decades. First, we document stylized facts about the behavior of overall inflation in India. We establish that low inflation has historically been a rare occurrence in the Indian economy in the last two decades; the long-term trend in the inflation rate exhibits a U-shaped pattern with a structural break in the trend in 2000 and an inflection point in 2002. The long-term trend in food inflation has followed a pattern similar to overall inflation. Domestic and international food price inflation rates have been moderately correlated, though there is significant variation across commodities based on their tradability. Furthermore, we find food price inflation to be consistently higher than non-food, quite persistent, and having a significant pass-through to non-food inflation. Further, the price of food relative to non-food co-moves strongly with aggregate inflation rate. Next, we explicitly quantify the contribution of specific commodities to food price inflation. We find that animal source foods (milk, fish), processed food (sugar, edible oils), fruits and vegetables (e.g. onions) and cereals (rice and wheat) are the primary drivers of food price inflation. Finally, we conduct case studies of some of the top contributors to food price inflation. Combining the insights from macro as well as micro analyses, the paper suggests specific policy implications.
Exchange Rates and Wages in an Integrated World, (with Antonio Spilimbergo, IMF), American Economic Journal, Macroeconomics, 3, 2011, pp. 1-33.
Abstract: We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981-2005, we find that the elasticity of domestic wages to real exchange rate is 0.15 after a year for countries with high barriers to external labor mobility, but about 0.40 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.
A Fistful of Dollars: Lobbying and the Financial Crisis, (with Deniz Igan and Thierry Tressel, IMF) (NBER WP No. w17076), NBER Macroeconomics Annual, 2011, Volume 26.
Abstract: Has lobbying by financial institutions contributed to the financial crisis? We use detailed information on financial institutions’ lobbying and mortgage lending to answer this question, and find that lobbying was associated with more risk-taking during 2000-07 and worse outcomes in 2008. Lobbying lenders originated riskier mortgages, securitized at faster intensity, and expanded more. They suffered from higher delinquencies, experienced negative returns during key bank failures, but positive returns with the bailout announcement, and had a higher bailout probability. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the crisis.
Do Interest Groups Affect US Immigration Policy?, (with Giovanni Facchini, Essex and Anna Maria Mayda, Georgetown), Journal of International Economics, 2011, Volume 85, Issue 1, September, pp. 114-128. (supplemental appendix)
Abstract: While anecdotal evidence suggests that interest groups play a key role in shaping immigration policy, there is no systematic empirical analysis of this issue. In this paper, we construct an industry-level dataset for the United States, by combining information on the number of temporary work visas with data on lobbying activity associated with immigration. We find robust evidence that both pro- and anti-immigration interest groups play a statistically significant and economically relevant role in shaping migration across sectors. Barriers to migration are lower in sectors in which business interest groups incur larger lobby expenditures and higher in sectors where labor unions are more important.
Policies, Enforcement, and Customs Evasion: Evidence from India, (with Arvind Subramanian, Peterson Institute for International Economics and Petia Topalova, IMF), Journal of Public Economics, 2008, Vol 92, Pages 1907-1925.
Abstract: We examine the effect of tariff policies on evasion of customs duties, in the context of the trade reform in India of the 1990s. By exploiting the variation in tariff rates across time and products, we identify a robust positive elasticity of evasion with respect to tariffs. A second contribution of the paper is to provide some evidence on the impact of enforcement. While we cannot identify the direct impact of enforcement on evasion, we can establish the extent to which enforcement-related factors, such as product characteristics that determine the ease of detection of evasion, affect the evasion elasticity. The results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs.
Health Aid and Infant Mortality, (with David Newhouse, World Bank), Journal of Health Economics, 2009, Volume 28, Issue 4, July, Pages 855-872.
Abstract: This paper examines the relationship between health aid and infant mortality, using data from 118 countries between 1973 and 2004. Health aid has a beneficial and statistically significant effect on infant mortality: doubling per capita health aid is associated with a 2 percent reduction in the infant mortality rate. For the average country, this implies that increasing per capita health aid by US$1.60 per year is associated with 1.5 fewer infant deaths per thousand births. The estimated effect is small, relative to the 2015 target envisioned by the Millennium Development Goals. It implies that achieving the MDG target through additional health aid alone would require a roughly 15-fold increase in current levels of aid.
Trade Liberalization and Wage Inequality: Evidence from India, (with Utsav Kumar, Conference Board, New York), Review of Development Economics, 2008, Vol. 12, Issue 2, pp. 291-311.
Abstract: We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to most earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization-induced productivity increases at the firm level, which get passed on to industry wages. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India. This is consistent with the magnitude of tariff reductions being relatively larger in sectors with a higher proportion of unskilled workers.
Emigration and Wages in Source Countries: Evidence from Mexico, Journal of Development Economics, 2007, no. 82, pp. 180-199.
Abstract: This paper presents the first econometric study of the effect of emigration on national wages in a source country. I examine empirically the effect of Mexican emigration to the United States on wages in Mexico using data from the Mexican and US censuses from 1970-2000. The main result in the paper is that emigration has a strong and positive effect on Mexican wages. There is also evidence for increasing wage inequality in Mexico due to emigration. Simple welfare calculations based on a labor demand-supply framework suggest that the aggregate welfare loss to Mexico due to emigration is small. However, there is a significant distributional impact between labor and other factors.
Stolper-Samuelson is Dead and Other Crimes of Both Theory and Data, (with Donald Davis, Columbia University), in Ann Harrison eds. Globalization and Poverty: University of Chicago Press and the National Bureau of Economic Research, 2007.
Emigration and Brain-Drain: Evidence from the Caribbean, The B.E. Journals in Economic Analysis & Policy, Berkeley Electronic Press, 2007, Vol 7, Issue 1 (Topics), Article 24, covered in the BBC.
Abstract: This paper quantifies the magnitude and nature of migration flows from the Caribbean and estimates their costs and benefits. The Caribbean countries have lost 10?40 percent of their labor force due to emigration to OECD member countries. The migration rates are particularly striking for the high-skilled. Many countries have lost more than 70 percent of their labor force with more than 12 years of completed schooling?among the highest emigration rates in the world. The region is also the world?s largest recipient of remittances as a percent of GDP. Remittances constituted about 13 percent of the region’s GDP in 2002. Simple welfare calculations (under very conservative assumptions of elasticities) suggest that the losses due to high-skill migration (ceteris paribus) outweigh the official remittances to the Caribbean region.
Effect of Fed Announcements on Emerging Markets: What Determines Financial Markets' Reactions? (with Papa N'Diaye, and Lam Nguyen, IMF), January 2017, IMF Working Paper No. 14/109. (revised and resubmitted, IMF Economic Review)
Abstract: This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.
How do Central Bank Governors Matter? Macroeconomic Policy, Regulation and the Financial Sector, March 2017, (with Ariell Reshef, Paris School of Economics). (revise and resubmit, Journal of Money, Credit, and Banking)
Abstract: Do employment and educational characteristics of central bank governors affect financial regulation? To answer this question, we construct a new and unique dataset based on curriculum vitae of all central bank governors around the world in 1970-2011, and merge this with data on financial regulation and other variables. The proportion of governors that had past experience in finance increases from 10 percent in 1980 to 30 percent in 2010. Past experience in finance matters, and the effect is large: Over the average duration in office (5.6 years), a central bank governor with financial sector experience deregulates three times more than a governor without financial sector experience. Experience in finance after tenure as governor is not important. Similar results hold for past experience at the International Monetary Fund; in contrast, past experience at the Bank of International Settlements and the United Nations have the opposite effect, slowing the pace of deregulation. Our findings are consistent with the view that past work experiences of central bankers shape their beliefs and preferences, which, in turn, are consequential for policy outcomes.
Rules of the Monetary Game, March 2016, (with Raghuram Rajan, RBI), RBI Working Paper No. 04/2016.
Abstract: Aggressive monetary policy actions by one country can lead to significant adverse cross-border spillovers on others, especially as countries contend with the zero lower bound. If countries do not internalize these spillovers, they may undertake policies that are collectively suboptimal. Perhaps instead, countries could agree to guidelines for responsible behavior that would improve collective outcomes. This paper puts forward some of the practical issues that need to be considered in framing possible rules of the monetary game. We argue that policies could be broadly characterized and rated based on analytical inputs and discussion. Policies that generally have positive or domestic effects could be rated Green, policies that should be used temporarily and with care could be rated Orange, and policies that should be avoided at all times could be rated Red. We provide a brief review of the some of the frameworks that have been used in the literature to measure and analyze spillovers. We make the case that models may reflect the policy biases of those devising them, and may be at too early a stage to be able to draw strong conclusions from them. Therefore, while more empirical analysis should be undertaken, it should be seen as an input to a dialogue rather than definitive, with the analysis being refined as we understand outcomes better. The paper also discusses the specific role of the IMF in this context.
The Transmission of Monetary Policy Within Banks: Evidence from India, April 2016, (with Abhiman Das, IIM Ahmedabad, and N.R.Prabhala, University of Maryland).
Abstract: India’s central bank frequently injects liquidity into banks or drains liquidity by altering the cash balances that banks must maintain with it. We analyze the lending responses within banks to these quantitative tools of monetary policy. We use internal data from over 125,000 branches of banks, and estimate empirical specifications that control for time-varying unobserved heterogeneity in banks and geographies. We show that the within-bank variation in lending is economically significant, and is explained by a rich suite of branch asset, liability, and organizational variables. Branches that are larger, make loans with smaller ticket size, are deposit rich, make shorter term loans, have fewer non-performing assets, and greater managerial capacity respond more to monetary policy. Responses are more sluggish in state-owned banks. Thus, besides the external financing frictions faced by banks, internal frictions within banks significantly explain the lending responses to funding shocks.
India's Exports: The New Normal? August 2017, (with Sajjid Chinoy, JP Morgan, Siddhartha Nath, RBI)
Abstract: Contrary to the perception of India being a closed economy, exports to GDP have doubled over the last 15 years, and at 20% of GDP India’s are at the same as Indonesia’s. Furthermore, we estimate that the slowdown in export growth over the last decade explains at least two thirds of the headline GDP slowdown, thereby underscoring the increasing imports of exports.
Furthermore, India’s merchandise exports have undergone a quiet revolution over the last two decades with new-age engineering, electronic and pharmaceutical exports gradually replacing India’s traditional exports of leather, textile, gems and jewelry. In this paper, using sectoral and firm level data, we ascertain what drives India’s exports. Sectoral data reveal that export volumes are largely driven by changes in partner country growth. Interestingly, this is particularly true in the engineering and electronics sector. That said, we find a structural break around 2005 — well before the global financial crisis and the subsequently documented de-globalization — after which these partner country growth elasticities have fallen sharply, with the decline being largest in India's new age exports. In contrast, changes in the exchange rate and supply side constraints, at the margin, are not found to impact India’s export volumes.
Using firm level data broadly produces the similar results. Controlling for external demand conditions and domestic supply constraints, we find little evidence that exchange rate movements hurt competitiveness at the firm level. In fact, the value of imported intermediates increases significantly in response to an appreciation of the rupee. There is however, interesting variation across sectors, with firms in sectors with lower domestic value added content such as drugs and pharmaceuticals, exhibiting a sharper increase in the value of imported intermediates, and a muted response of exports to an appreciation of the exchange rate; while firms in sectors with domestic high value added such as textiles showing a larger response of exports to exchange rate movements.
Work in Progress:
Anatomy of a Banking Panic (with Abhiman Das, IIM Ahmedabad, N.R.Prabhala, University of Maryland, and Nirupama Kulkarni, CAFRAL)
The Anatomy of India’s Credit Cycle (with Viral Acharya, NYU, and N.R. Prabhala, University of Maryland)
Sequestration, Lobbying, and Contracts (with Deniz Igan, IMF, and Senay Agca, George Washington University)
Rules of the monetary game, VoxEU, June 16, 2016.
Denmark: Financial Sector Assessment Program, Macroprudential Policies - Technical Note, IMF, December, 2014.
How do Changes in Investor Base and Financial Deepening Affect Emerging Market Economies (with Nicolás Arregui, Luis Brandao-Marques, Johannes Ehrentraud, and Hibiki Ichiue), Global Financial Stability Report, April, 2014, Chapter 2.