"Disaster Risk through Investors’ Eyes: a Yield Curve Analysis" [pdf]
This paper develops a model to estimate investors’ perceived probability of disaster from yield curve data. Disasters are extreme events like defaults or interstate wars with significant economic impact. By integrating an asset pricing model with government bond yields from Datastream, I provide daily estimates of the one-year-ahead disaster probability as perceived by investors for approximately 60 countries from 2000 to 2023. The use of yield curve data offers a high-frequency measure of disaster risk that can rapidly incorporate new information. Several facts indicate that the estimated probabilities have predictive value. Probabilities spike before disaster events, such as the debt restructurings of Greece, Sri Lanka, and Ghana, and the onset of the Russia-Ukraine war. They are also strongly associated with higher-risk credit ratings. In a forecasting exercise using machine learning, the estimated disaster probabilities enhance the predictive power of credit ratings. This demonstrates the informational value of bond market data in predicting events.
"Caught in a Trap: Simulating the Economic Consequences of
Internal Armed Conflict" with Hannes Mueller
[pdf]
This study proposes a statistical model to capture the economic impact of the "conflict trap" phenomenon - a period of recurring outbreaks of internal armed conflict. The framework captures conflict dynamics through a discrete-time Markov process. We estimate the transition matrix and link the states to GDP per capita growth distributions through country fixed effects regressions. This allows for simulating the distribution of developmental effects of the conflict trap. We find that the trap has a large detrimental effect on long-term economic development, reaching a relative decline of GDP per capita of over 50% in the most affected countries.
"Coordination Effects among Global Games: An Application on Tax Havens"
[pdf].
This paper develops a coordination game to study tax evasion across multiple tax havens. I extend the global games framework—a class of coordination games with incomplete information—by introducing multiple tax havens in which investors coordinate. This allows for strategic interaction across jurisdictions, capturing cross-haven coordination effects. I analyze how policies that raise the cost of being a tax haven affect overall evasion. Targeting a single haven can backfire by concentrating evaders elsewhere, increasing overall evasion. In contrast, uniform interventions across jurisdictions are more effective. This mechanism helps explain the limited success of past international efforts and highlights the value of a harmonized approach, as intended under the Global Minimum Tax.
"On the Measurement of Fragility"