Dr Kirill Shakhnov

This paper focuses on emerging markets government bonds issued in local currency with different maturities. Foreign investors face interest rate, currency, and credit risks. We consider the entire term structure of carry trade returns and find that, while the default premium does not contribute to carry trade strategies, the contribution of interest rate risk, captured by the term premium, is large and increases with maturity. We introduce default risk in an otherwise standard affine model; we show that the volatility of the permanent component of the SDFs must be different across emerging markets in order to match these stylized facts

Sovereigns issue debt on both domestic and foreign markets and the the two debts are uncorrelated in the data. Sovereigns default mostly selectively. We propose a theory to rationalize these observations. A government chooses the optimal combination of two debts to smooth consumption, which is subject to output shock and volatile tax distortions. In equilibrium, it mostly relies on domestic debt to smooth the tax wedge and on foreign debt to smooth the output shock. Issuing either debt is less costly than raising taxes, but it is subject to default risk due to government's limited commitment. A quantitative, calibrated model with two shocks and two debts replicates well debt-to-GDP ratios, default frequencies, cyclical properties of emerging economies and behavior of aggregates around default episodes

This paper studies the efficiency of the cryptocurrency market by looking at the distribution of bitcoin prices over time and across exchanges-currency pairs. We document persistent differences in relative bitcoin prices (or discounts), with a half-life of 1 day, and a distribution which is leptokurtic, skewed to the right, with a standard deviation of 4.5%.The variability of the discounts is larger in countries with tighter capital controls due to the combined effect of market segmentation and local supply and demand shocks, which we relate to location-specific mining activities and investor attention

In an important model of growth and pollution proposed by Stokey [Int. Econ. Rev. 39 (1998) 1] neither the rate of economic growth nor the rate of growth of emissions depends on the time preference of the representative agent, which seems somewhat paradoxical. To resolve this paradox, we introduce into Stokey's model the assumption of dual-rate discounting, prove the existence of a sustainable balanced growth optimal path, and show that the growth rates of output and emissions are increasing in the proportion between the consumption and the environmental discount factors of the representative agent. (C) 2011 Elsevier B.V. All rights reserved.

We start by documenting large differences in bitcoin prices across exchanges located in different countries, or for different fiat currency pairs. For the most reputable exchanges, and after carefully accounting for all the transaction costs and limitations to trade, we find that costly arbitrage, and specifically idiosyncratic risks, prevents investors from fully absorbing these price differences. We relate idiosyncratic risks to exchange-specific liquidity and execution risks

The rapid growth of US financial services coupled with rapid increases in wealth inequality have been focusing policy debate on the function of the financial sector and on its social desirability as a whole. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented agents efficiently match investors with entrepreneurs but extract excessive informational rents due to contract incompleteness. Thus, the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The model explains the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors

Governments in emerging countries are increasingly issuing bonds in local currencies and foreign holdings of these bonds have been growing significantly. Motivated by these novel facts, we build a model where local (foreign) investors specialize in local (foreign) currency bonds. After paying a fee, foreign investors can also buy local currency bonds. Based on recent low U.S. interest rates, the model predicts the documented increase in foreign holdings and correlation between local and foreign currency bond returns, and spillovers of foreign shocks to local markets. Higher expected future U.S. interest rates imply sharp reductions in foreign holdings

Several countries have already introduced restrictions on trading of cryptocurrencies, and many more are evaluating whether to follow suit. We document an unprecedented drop in trading volume on the Chinese cryptocurrency market after a recent regulatory change by the Chinese authorities that severely restricted bitcoin trading. This paper shows how changes in domestic regulation not only have large effects on the domestic cryptocurrency market but also produce large international spillovers. Specifically, we observe a large increase in trading volume and relative bitcoin prices in exchange for Korean won, Japanese yen, and U.S. dollars, and on Chinese peer-to-peer exchanges

We examine digital product markets in which consumers are heterogeneous in their propensity to actively interact with other users and valuations increase with the share of active users (e.g., social network platforms). We propose a model in which entrepreneurs can issue digital claims (tokens) to promise exclusive access to benefits that specifically enhance the utility of active users. This allows entrepreneurs to extract consumer surplus through price discrimination. Because there is an incentive to renege on the “exclusivity” promise ex post and expand the network of active users, the credibility of this commitment resides in a costly technology (blockchain) that embeds automatic contracts in the tokens sold and limits entrepreneurial discretion. We show that the profitability of token-based sales increases with entrepreneurial ability and the intensity of network effects. This paper was accepted by Will Cong, Special Issue of Management Science: Blockchains and crypto economics. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2023.4917 .

This paper focuses on emerging market government bonds issued in local currency with different maturities. Foreign investors face interest rate, currency, and credit risks. We consider the entire term structure of carry trade returns and find that, while the default premium does not contribute to carry trade strategies, the contribution of interest rate risk, captured by the term premium, is large and increases with maturity. We introduce default risk in an otherwise standard affine model; we show that the volatility of the permanent component of the SDFs must be different across emerging markets in order to match these stylized facts. (JEL F31, F34, G15)

The rapid growth of US financial services coupled with rapid increases in wealth inequality have been focusing policy debate as to the function of the financial sector and on its social desirability as a whole. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented agents efficiently match investors with entrepreneurs, but extract excessive informational rents due to contract incompleteness. Thus the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The estimated model with time variation in the banker capacity accounts for the simultaneous growth of wealth inequality and the financial sector in the US. The endogenous feedback between inequality and the size of the financial sector is quantitatively important.

This paper studies the efficiency of the cryptocurrency market by looking at the distribution of bitcoin prices over time and across exchange-currency pairs. We document persistent differences in relative bitcoin prices (or discounts), with a half-life of 1 day, and a distribution which is leptokurtic, skewed to the right, with a standard deviation of 3.9%. The variability of discounts is larger in countries with tighter capital controls due to the combined effect of market segmentation and local supply and demand shocks, which we relate to location-specific mining activities and investor attention. •Large, persistent bitcoin price differences: Bitcoin prices diverge significantly across exchanges and currency pairs, posing questions about market efficiency and cross-border payment systems.•Comprehensive analysis of bitcoin price dispersion: The paper considers 135 global exchanges and documents the distribution of daily bitcoin prices, revealing significant and varying discounts for both fiat and crypto pairs.•Importance of location: location component accounts for at least 50 percent of this total variability for fiat pairs.•Market segmentation: stricter capital controls increase discount variability, amplifying local supply-demand shocks, proxied by mining activities and investor attention.

We propose a model of startup staged financing where entrepreneurs choose between ICO and traditional entrepreneurial finance sources such as Venture Capital (VC). While in early stages token sales allow startups to leverage network externalities by building a large customer base, VC's value-adding services enhance productivity in later stages. Due to complementarities between externality effects and value-adding services, the efficient solution to the entrepreneur's problem is to use both funding methods sequentially. However, the lack of transparency in cryptocurrency markets prevents most startups from choosing the optimal funding path. A selection equilibrium arises where entrepreneurs with low-externality projects choose to raise VC capital only in order to avoid adverse selection in later stages. Using data on funding rounds of blockchain startups, we provide empirical evidence for both the complementarity assumption and the selection result

Several countries have already introduced restrictions on trading of cryptocurrencies, and many more are evaluating whether to follow suit. We document an unprecedented drop in trading volume on the Chinese cryptocurrency market after a recent regulatory change by the Chinese authorities that severely restricted bitcoin trading. This paper shows how changes in domestic regulation not only have large effects on the domestic cryptocurrency market but also produce large international spillovers. Specifically, we observe a large increase in trading volume and relative bitcoin prices in exchange for Korean won, Japanese yen, and U.S. dollars, and on Chinese peer-to-peer exchanges.

The COVID-19 pandemic causes sharp reductions in economic output and sharp increases in government expenditures. These increase the riskiness of sovereign debts, especially in emerging economies. This paper proposes a framework to study debt sustainability. The economy is subject to productivity and expenditure shock. The government sets distortionary labour taxes and decides whether to repay its past domestic and foreign obligations. Foreign default is more likely after a negative productivity shock, while domestic default is more likely after a negative expenditure shock. This mechanism finds support in the data. Recent proposals that would ease the burden of foreign debt after COVID-19 would not prevent a wave of domestic defaults.

At a given point in time, bitcoin prices are different on exchanges located in different countries, or against different currencies. While existing literature attributes the largest price differences to frictions, like market segmentation, trading platforms advertize how to execute trades based on this information. We provide a novel risk-based explanation of these price differences for a sample containing the most reputable exchanges and after accounting for all transaction costs and limitations to trade. Bitcoin prices for more " expensive " pairs are riskier because they depreciate more in bad times for cryptocurrency investors, when aggregate liquidity and investor sentiment are lower.