Published &
Forthcoming Papers

Recent Evolutions in the Global Trade System: From Integration to Strategic Realignment.

2025 (with Francois de Soyres, Alexandre Gaillard, and Ana Maria Santacreu) ECB Forum on Central Banking 2025.

This paper analyzes recent structural transformations in the global economic system, emphasizing the increasing geopolitical fragmentation and strategic realignments driven primarily by technological competition. We focus on China’s rise as a technological competitor. We introduce novel quantitative metrics such as the Export Similarity Index, the Partner Similarity Index, and the Ideal Point Distance to examine global shifts in trade patterns and sectoral competition. Our findings highlight competitive pressures in critical sectors, including machinery and advanced manufacturing, with implications for geopolitical alignment and economic stability. We explore strategic policy responses by major economies, with a particular focus on the evolving policy stance of the Euro Area, and assess emerging vulnerabilities stemming from changing patterns of import dependence. We conclude by discussing the broader implications of these developments for economic resilience and policy strategy in an increasingly fragmented global economy.

Measuring Geopolitical Fragmentation: Implications for Trade, Financial Flows, and Economic Policy

with François de Soyres, Keith Richards, and Ana Maria Santacreu
Forthcoming, Federal Reserve Bank of St. Louis Review.
International Finance Discussion Papers (IFDP) | St Louis Fed Working Paper | IPD Data

Recent geopolitical tensions have revived interest in understanding the economic consequences of geopolitical fragmentation. Using bilateral trade flows, portfolio investment data, and detailed records of economic policy interventions, we revisit widely-used geopolitical distance metrics, specifically the Ideal Point Distance (IPD) derived from United Nations General Assembly voting. We document substantial variability in measured fragmentation, driven significantly by methodological choices related to sample periods and vote categories, especially in the wake of Russia’s 2022 invasion of Ukraine. Our results show robust evidence of increasing fragmentation in both trade flows and economic policy interventions among geopolitically distant country pairs, with particularly strong effects observed in strategically important sectors and policy motives. In contrast, financial portfolio allocations exhibit weaker, more heterogeneous, and context-sensitive responses. These findings highlight the critical importance of methodological transparency and careful specification when assessing geopolitical realignments and their implications for international economic relations.

Working Papers

  • The green metamorphosis of a small open economy, with Pappa, E. and Seoane, H. D.
    Submitted.
    CEPR WP | Working paper

    We develop a model of green transition for a small open economy with endogenous energy efficiency, where production combines energy and traditional factors with limited short-run substitutability. Brown energy taxes reduce energy use and improve long-run efficiency but raise costs, causing inflation and output losses in the short run. Green public investment or subsidies avoid inflation and output losses but impose significant fiscal costs, raising spreads and reducing consumption. Without policies to mitigate debt increases, these measures do not improve welfare. Mixed policies using carbon tax revenues to finance green subsidies or investment are welfare-improving.

  • The trend-cycle connection, with Seoane, H. D.
    Working Paper

    Long-run growth in Latin America over the last 50 years has been low and volatile in the presence of frequent Sudden Stops. We develop a theory that links long-run growth, financial frictions, and Sudden Stops in Emerging countries. Our theory exploits the fact that reversals in trade balance during Sudden Stops occur through sharp declines in imports, particularly of imported investment, rather than increases in exports. Imported investment, in turn, has a permanent impact on economic growth. We find that trend growth deteriorates during Sudden Stops and, even though trend shocks play a crucial role, financial frictions and shocks have a significant impact on its dynamics. We apply our model to the Sudden Stops in Argentina since the 1950s and find that financial crises have a strong permanent effect on the trend. Hence, to a large extent, the trend is the cycle.

  • Exit strategies from Quantitative Easing: the role of the fiscal-monetary policy mix.
    New draft coming soon!

    As a consequence of the policy responses to the COVID-19 crisis, central bank balance sheets, public debt, and liquidity increased in many developed economies. As the economies recover and inflation far exceeds the target, central banks face a challenge in how to manage their balance sheet. I study the macroeconomic effects of reducing the central bank balance sheet size, i.e., Quantitative Tightening (QT). I construct a Regime-Switching New Keynesian DSGE model calibrated to the US economy. The economy fluctuates between a monetary-led regime, a fiscally-led regime, and the zero lower bound on the monetary policy interest rate. The macroeconomic effects of QT crucially depend on the fiscal-monetary policy mix. In a monetary-led regime, QT effectively reduces inflation at the cost of increasing the government debt-to-GDP ratio. In contrast, unwinding the central bank balance sheet in a fiscally-led regime has little impact on inflation. The negative demand effect driven by QT is not enough to counteract the stimulative impact of negative real interest rates and fiscal stimulus.

Selected work in progress

  • On the sources of sovereign debt crises: an endogenous regime-switching approach, with Foerster, A. T. and Seoane, H. D.

  • Monetary Policy Normalization: The Role of Rate Hikes, Mortgages and Treasuries, with Martin Arazi