Research

This paper provides a stylized framework to study the role of the United States as the International Lender of Last Resort to global banks. The model captures a central feature of the international financial system, namely, non-US global banks that invest heavily in US assets but are exposed to dollar liquidity shortages. This situation can give rise to multiple equilibria, one of which resembles a global financial crisis, with a sharp appreciation of the dollar, tighter financial conditions in international markets, weaker global economic activity, and struggling banks. The self-fulfilling nature of the crisis stems from a feedback loop between the exchange rate and the capacity of non-US banks to raise funds. Since the liquidity needs of these banks are often denominated in dollars, the Federal Reserve is better equipped than other central banks to prevent the "bad" equilibrium when the dollar is strong. However, its incentives to intervene -through swap lines- may not be aligned with the rest of the world, because of general equilibrium forces that drive larger and cheaper capital flows into the US during times of global financial stress.

Presented at: 2nd Sailing the Macro Workshop (Sep. 2022), Naples School of Economics PhD Workshop (Sep. 2022), BdF-BoE-BoI International-Macro Workshop (Nov. 2022), SAEe (Dec. 2022), CREi MacroLunch (May 2022/Mar. 2023), Université Paris Nanterre PhD Conference (Apr. 2023), LBS TADC (May 2023), Journal of International Economics Summer School (Poster, Jun. 2023), XXVI Workshop on Dynamic Macro (Jul. 2023), EEA (Aug. 2023), LSE-Oxford Workshop on International Macroeconomics and Finance (May 2024), Theories and Methods in Macroeconomics (May 2025)

This paper studies the interaction between macroprudential instruments in a small open economy using a dynamic stochastic general equilibrium (DSGE) model with financial and nominal frictions. The framework features a tractable yet rich banking sector that captures the distinct transmission channels of countercyclical capital and reserve requirements, with a focus on interest rate spreads and bank balance sheet composition. We examine optimal policy rules under different central bank objectives. Our findings show that countercyclical adjustments to both instruments help smooth the credit cycle, particularly when financial stability is an explicit policy goal. However, unlike capital requirements, tighter reserve requirements can raise inflation and have ambiguous effects on output, potentially conflicting with traditional monetary policy goals. Finally, under a strict separation of instruments and targets, the optimal policy rule assigns reserve requirements to respond to credit fluctuations, while capital requirements are used to stabilize the output gap.

Presented at: EIEF (Mar. 2025), CEMLA LAJCB Conference (May 2025)