Leonardo Elias

International Finance, Macroeconomics, Financial Economics.

I am a PhD Candidate in Financial Economics at MIT Sloan. I will be on the Job Market in 2020-2021


  • PhD Financial Economics, MIT 2021

  • MSc Economics, LSE 2013

  • BSc Economics, MIT 2012

Contact me at lelias@mit.edu


What are the real costs of reversals in international capital flows? In this paper, I exploit plausibly exogenous variation in firms' exposure to rollover risk to identify a causal liquidity channel at play during sudden stop episodes. Using a panel of firms across 39 countries, I show that firms with higher exposure (as measured by the share of long-term debt maturing over the next year) reduce investment ten percentage points more than non-exposed firms following sudden stops in capital flows. The impact is persistent: exposed firms experience lower investment, lower employment and lower assets than non-exposed firms even three years after the initial shock. In robustness tests, I show that the results are specific to sudden stop episodes in that they do not hold in periods without sudden stops, and they hold across sudden stop episodes regardless of whether the sudden stop takes place during large economic contractions.

with Fernando Duarte and Marta Szymanowska

We derive a long-run risk model with time-varying inflation non-neutrality and show that it matches a challenging set of moments describing the joint dynamics of stock returns, term structure of nominal bond yields and returns, as well as macroeconomic fundamentals. Furthermore, we match not only more moments than other long-run risk models, but also moments that remained unaddressed in the literature so far, i.e., the volatility of the risk-free rate and of the dividend-price ratio, and the dividend-price ratio ability to predict stock market returns, consumption and dividend growth rates. More importantly, we match this challenging set of moments, while simultaneously holding the risk aversion and elasticity of intertemporal substitution parameters low.

The Corporate Debt-Overhang Channel of Global Credit Cycles

I show that plausibly exogenous capital inflows drive boom-bust credit cycles and, more importantly, also drive cyclical changes in issuer credit quality; as credit booms disproportionately affect credit conditions faced by low-quality firms. I also show that deterioration in corporate issuer credit quality is a better predictor of a country's subsequent GDP growth than measures of aggregate corporate credit growth. I uncover a corporate balance sheet channel that helps explain why credit booms predict lower GDP growth. Underperformance of low quality firms that lever up, especially during credit booms, explains a significant part of the growth decline. Low quality firms reduce capital expenditures and employment disproportionately more than good quality firms during a credit bust. The results are consistent with a global credit cycle that pushes capital into countries/firms irrespective of their own investment opportunities and repayment capacity.

Global Factors and the Pricing of Sovereign Risk (draft coming soon)

I study the effects of US Macroeconomic surprises on the pricing of sovereign risk of sixty-six countries in the period 2002-2017 using daily CDS data. I find that positive macroeconomic surprises in the US systematically reduce sovereign spreads consistent with the view that global investors price sovereign risk. However, I find that both the size and the sign of the effect depend on the business cycle in the US. During contractionary periods the positive effect of news is greatly reduced, often erased, and sometimes reversed. I also find evidence of asymmetric and non-linear effects. Moreover, I find that country characteristics such as its credit rating, its debt-to-GDP ratio, and measures of economic integration play a crucial role in determining the country's response to US shocks. I discuss potential transmission mechanisms of sovereign distress to the real economy by studying the cross-sectional response of security prices (corporate CDS spreads and stock returns) to global shocks.