Research

How do supranational bonds impact national sovereign bonds? The extent of this impact depends on whether private investors perceive supranational and national sovereign bonds to be substitutes or complements. In 2020, the EU Commission issued, for the first time and in large amounts, supranational bonds under the Next Gen EU program to support countries’ economic recovery from the Covid-19 pandemic. We use security-level portfolio holdings data from mutual funds and construct a shift-share instrument based on the heterogeneity of sovereign bond holdings across funds. We leverage this variation to study how investors adjust their portfolios and how the yields of national bonds are influenced by EU bond issuance.

The 2021–2023 inflation surge was characterized by inflation rising in many countries simultaneously due to a mix of, domestic and foreign, supply and demand factors. I investigate the impact of an increase in import prices on domestic inflation. I use monthly bilateral trade data by country-industry for which both the quantity and prices of imported goods are reported at the 4- digits commodity level. I propose a shift-share Bartik-style instrument to estimate the elasticity of domestic inflation to import prices. The quasi-exogenous variation is based on exposure to global import prices of products across countries. Preliminary results show that a 1% increase in import prices increases domestic inflation by 6-10 basis points.