We study macroprudential policy aimed at domestic debt denominated in different currencies. We model a small open economy with entrepreneurs and workers who save and borrow in domestic and foreign currency. Financial frictions make dollar debt on entrepreneurs' balance sheets especially disruptive when the exchange rate depreciates. Falling output causes additional depreciation; this amplification provides a rationale for de-dollarization. On the other hand, de-dollarization is costly because the dollar savings of domestic workers provide them with insurance. We characterize the social marginal benefits and costs of de-dollarization in this context. The social marginal costs are associated with a deterioration in risk-sharing and can be expressed in terms of the interest rate premium on domestic currency assets. We find that these costs are of second order around the unregulated equilibrium but play a role for optimal policy.

Commodity price booms lead to substantial wage differentials and increased employment in the commodity sector. This paper investigates the role of uncertainty regarding the duration of such booms in explaining wage differentials, the speed of labor reallocation, and the characteristics of workers who switch sectors. In a standard dynamic discrete choice model with sector-specific human capital the impact of duration risk on labor supply is theoretically ambiguous because workers' retain the option of exiting the booming sector. I apply the model to study the effects of the 2011-2018 mineral price boom on Australia, an exporter of mineral products. After estimating the model using novel matched employer-employee data I study a counterfactual scenario where the end date of the mining boom was known with certainty. I find that the mining’s share of employment in Australia would have increased from 3.7% to 4.4%, wage inequality would have decreased, and the mining sector would have attracted substantially fewer middle-aged workers. The option value mechanism outlined in the theory explains heterogeneous attitudes towards risk for workers of different age groups.

Using a rich loan-level dataset from Chile, we document substantial geographic disparities in interest rates and provide evidence of two underlying drivers: banks' local market power and cost differences across banks. We embed oligopolistic banks into a quantitative spatial model to study policies aimed at reducing regional interest rate disparities. We find that an increase in wholesale funding available to banks financed through social security taxes can increase welfare. The policy works by equalizing the cost of capital across banks and reducing the misallocation of investment across cities. 

We study the currency invoicing decision of Peruvian exporters during a period of de-dollarization of the national financial system. Between 1993 and 2007 the macroeconomy stabilized and the uncovered interest parity, the premium on local currency debt, fell. We study how exporters responded to the change in the relative price of debt in different currencies by shifting the currency in which they invoiced their exports. This sheds light on the link between the roles that the dollar plays globally in finance and trade. Differential debt requirements by sector allow us to isolate the effect of this mechanism.