Research projects

In several recent research articles I have studied risk sharing mechanisms in the Euro zone. These are the main results:
1) It is urgent to create a lender of last resort in the Euro zone and mechanisms to share risks. It is more efficient to address financial crises with multi-country mechanisms than one country alone. It would take advantage of the fact that not all countries have crises at the same time or of the same intensity. In addition, contagion effects are prevented.

2) A lender of last resort and mechanisms for bank bailouts create incentives to take more risks ("moral hazard"). This is a common argument among those who oppose creating such mechanisms in the Euro zone. Even so, the argument of point 1) is quantitatively stronger.

 3) Relatively smaller and more volatile countries (greater frequency and amplitude of the economic shocks they suffer) are the main beneficiaries of risk mutualization mechanisms. This explains why risk mutualization mechanisms find so many problems to be approved in Europe.

4) A solution to the political impasse: impose asymmetric financial regulation. That is, relatively smaller and more volatile countries should have more stringent capital regulations. At a micro-prudential level, it is already assumed that capital regulations must be linked to risk. My research supports doing the same at the macroeconomic level.
 
5) My work shows that in case of having to contribute public funds, giving them credit priority (making them "senior debt") is not always the best way to minimize losses for those public funds. That is, what appears to be riskier in practice may not be. This argument does not apply to very serious crises where it is better to give credit priority to public funds to minimize losses to public funds.