My research develops a class of FX-constrained macro models for small open developing economies, where fiscal dominance, foreign exchange scarcity, high import dependence, and financial dollarisation play a central role in shaping macroeconomic dynamics. In economies with flexible exchange rates, these conditions can generate persistent depreciation pressures, especially when financial dollarisation is present.
Much of contemporary macroeconomics assumes that domestic marginal cost anchors inflation, since the import share of GDP is often below 30 percent; that fiscal dominance is absent, so monetary dominance gives policy strong traction through expectations and interest rates; and that nominal exchange rates are near-random-walks, so they mainly absorb shocks.
In many small open developing economies, however, the nominal exchange rate is trend depreciating and behaves more like a shock transmitter than a shock absorber. High import shares, often above 30 percent of GDP, limit expenditure switching, while dominant currency pricing weakens the expansionary effects of depreciation. Under these conditions, monetary policy has weaker real effects, and economic overheating, fiscal sustainability, and financial stability cannot be understood adequately through standard macroeconomic tools alone.
A measure of macroeconomic stress that captures pressure in the foreign exchange market before it appears fully in conventional inflation indicators.
A macroeconomic condition in which the government’s financing needs constrain monetary policy and shape inflation, exchange-rate pressure, and financial stability.
A measure of economic slack that combines the domestic output gap with an external output gap, allowing excess demand to be identified even when CPI inflation remains subdued. It captures what I call overheating on ice.
A framework for evaluating public investment in foreign-exchange-adjusted terms, showing that external sustainability depends not only on the scale of investment but also on the composition of the investment portfolio.
This strand develops the theoretical, empirical, and policy implications of the Open-Economy Golden Rule of Public Finance. It asks how fiscal rules, project appraisal, and public investment should be redesigned for economies where foreign exchange is a binding macroeconomic constraint. More broadly, it examines how external feasibility alters the meaning of fiscal space, investment efficiency, and public-sector sustainability.
This line of research develops the ideas in Overheating on Ice and studies how economic overheating is mis-measured when CPI inflation is a lagging indicator. It is motivated by fundamental questions: (i) What drives business cycles? (ii) How does the foreign exchange market interact with the business cycle? (iii) Are fiscal multipliers conditioned on the business cycle or the FX cycle? (iv) How does the composite output gap improve macroeconomic analysis and policy design? (v) Are SODEs New Keynesian when dominant currency pricing prevails and imported inputs and foreign exchange are the binding supply constraints?
This strand develops a monetary reinterpretation of Dutch disease. It studies how monetary financing, rather than resource-financed outlays alone, can generate Dutch disease effects. A central claim is that standard accounts neglect the supply-side implications of resource spending - what I call the Missing-Imports Problem. When monetary financing exceeds resource financing, Dutch disease is better understood as a money shock linked to fiscal dominance. This line of study also identifies the monetary diagnostics of resource booms and examines their implications for central bank independence, fiscal transparency, and public accountability.
This research theme studies how fiscal dominance reshapes bank behaviour, shortens the maturity structure of sovereign debt, affects interest rate spreads, and weakens financial stability in SODEs. It also examines how dollarised balance sheets amplify foreign exchange pressure, constrain monetary and prudential policy, and reshape the transmission of fiscal and monetary shocks. More broadly, this strand of research considers the implications for central bank profitability and develops early-warning indicators of banking stress.
Overall, these research clusters contribute to a broader macroeconomics of small open developing economies. Their common premise is that inflation, business cycles, public finance, and financial stability must be analysed differently in economies where the foreign exchange constraint, import dependence, and fiscal dominance shape macroeconomic adjustment. The main goal is to develop concepts, diagnostics, and policy frameworks better suited to those realities.