Digital Finance

Central Bank Digital Currency and Quantitative Easing, with L. Somoza and T. Terracciano [paper][poster]

We study how issuing a central bank digital currency (CBDC) interacts with the monetary policy, i.e., standard policy or quantitative easing. We reach three main conclusions. First, the equilibrium impact of introducing a CBDC depends on the ongoing monetary policy. Second, under both monetary policies, there exist conditions for which issuing a CBDC is neutral to the economy. Third, issuing a CBDC under quantitative easing can negatively affect the lending and might render this policy quasi-permanent. Commercial banks optimally use their excess reserves to accommodate retailers’ demand for CBDC deposits, making quantitative tightening problematic.

Presentations: ECB Forum on Central Banking (Poster Session, June 2022), The Future.s of Money - Paris (June 2022), 26th Spring Meeting of Young Economists (SMYE, May 2022), ASSA 2022 Virtual Annual Meeting (AEA Poster Session, January 2022), Day-Ahead Workshop on Financial Regulation at the University of Zurich (October 2021), Swiss Finance Institute Research Days (June 2021), 14th Financial Risks International Forum (March 2021), Finance BB seminar at the University of Geneva (January 2021)

Honors: finalist for the ECB's Young Economist Prize 2022 [link]

Media coverage: Financial Times - Alphaville, LSE blog

CBDC and Banks: Threat or Opportunity?, with L. Somoza

A Central Bank Digital Currency (CBDC) would reduce bank deposits while providing households with superior payment technology. We develop a structural model of the banking sector, calibrate it, and introduce a CBDC to run counterfactual analyses. We find that banks have limited ability to compensate for the reduction in funding and that channeling funds back to the banking sector would reduce this negative impact. Nevertheless, banks would exploit this new funding channel to capture part of the consumer surplus stemming from technological innovation.

Presented at the Swiss Finance Institute Research Days (June 2021)

Quantitative Tightening in a CBCD World (work in progress)

Central banks are starting to reverse their quantitative easing (QE) policies, slowly pulling back the stimulus they have provided during the 2008 crisis and the recent pandemic. Meanwhile, they are also considering issuing a retail central bank digital currency (CBDC), i.e., central bank reserves available to the general public. The introduction of a CBDC could transform excess reserves, accumulated through asset purchase programs, into central bank deposits to accommodate households’ demand for CBDC. However, would QE tapering be possible once central bank reserves are decentralized and held by households? I aim at using a quantitative framework to study these dynamics and provide a realistic estimate of their magnitude. I am currently developing a dynamic structural model that I intend to estimate using the deep equilibrium nets (a deep learning-based method).

Venture Capital

The Government as Venture Capitalist, with A. Maino and L. Somoza

We study the role of Government Venture Capital (GVC) in the European Union. We investigate GVC investment style, the impact on target firms, and the aggregate effects on the VC industry, as opposed to Private Venture Capital (PVC) investments. We find that GVCs invest more in specific economic sectors such as healthcare and industrial, and outside of VC hubs. We look at EU-granted patent data to draw the link between GVCs and innovation, and we find that GVC investments correlate with higher numbers of patents registered after the investment. Moreover, GVCs exit fewer investments than PVCs, suggesting lower performance. These findings indicate that GVCs can identify innovative companies and prioritize positive externalities over profit maximization. We use an asset pricing model with heterogeneous tastes to study the role of GVCs in catalyzing PVC investments. We find that PVCs invest less in startups previously funded by GVCs, in line with empirical evidence. At aggregate level, public investments can crowd-in private ones if they focus on “mainstream” startups. Finally, it exists an optimum amount of GVC investments to catalyze PVC ones.

Presented at the Swiss Finance Institute Research Days (June 2021)

Network and Risk in Venture Capital Investing

Does the network of venture capital firms affect the risk they are willing to take in their investment decisions? I develop a theoretical model of the venture capital investing process and I empirically test its implications. The model considers a representative venture capital fund that decides whether to invest in a startup, and whether to syndicate with another fund. I find that a better connected venture capitalist is able to take more risk, because she is able to improve the company performance with her contacts. Moreover, poorly connected venture capital firms are more likely to enter a syndication, especially when the co-investors are well connected. Finally, I use the Crunchbase database to empirically verify these implications.

Presented at the Swiss Finance Institute Research Days (June 2020), brown bag at HEC Lausanne (June 2019)


FX Hedging, Currency Choice, and Dollar Dominance, with T. Terracciano

We study how foreign-exchange (FX) hedging affects firms’ currency choice and exchange-rate pass-through dynamics. We develop a theoretical model that features dynamic currency choice with incomplete pass-through and limited access to FX derivatives markets. Our model predicts that having access to FX hedging favours foreign currency pricing when firms are risk-averse. We test and quantify these theoretical results by using novel French product-level data on exports to extra-EU countries and their FX derivatives positions. We find that, given the level of local currency volatility exporters face, having access to FX hedging largely favours US dollar pricing, while it does not influence local currency pricing. This means that easier access to FX hedging markets contributes to explaining dollar dominance in global trade.Furthermore, we document that FX hedging is associated with persistent lower levels of exchange-rate pass-through into export prices.

Presented at the ASSA 2022 Virtual Annual Meeting (AEA Poster Session, January 2022), RIEF 20th Doctoral Meetings in International Trade and International Finance at Paris School of Economics (September 2021), Finance PhD Final Countdown at Nova Business School (August 2021), Econ BB seminar at the University of Geneva (March 2021)