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Working Paper
Labor Market Institutions and the Effects of Financial Openness
Wei, Shang-Jin; Nie, Jun; Du, Qingyuan (2020-02-03)
We propose a new channel to explain why developing countries may fail to beneﬁt from ﬁnancial globalization, based on labor market institutions. In our model, ﬁnancial openness in a developing country with a rigid labor market leads to capital outﬂow, and both employment and output fall. In contrast, ﬁnancial openness in a developing country with a ﬂexible labor market beneﬁts the country. Our model suggests that enhancing labor market ﬂexibility is a complementary reform for developing countries opening capital accounts.
Research Working Paper , Paper RWP 19-11

Journal Article
An international perspective on the recent behavior of inflation
De Pace, Pierangelo; Li, Li; Contessi, Silvio (2014)
Several commentators have been concerned about the possibility that the euro area may be experiencing disinflation with the risk of deflation. However, the euro area is not the only economy navigating the risky waters of low inflation. Several other advanced economies have recently experienced below-target inflation as well as some actual deflation. In this article, the authors collect data for nine advanced economies and document several facts about the behavior of inflation during the 2002-14 period. First, they show that the relationship between inflation rates and short-term rates ...
Review , Volume 96 , Issue 3 , Pages 267-294

Working Paper
Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States
Goetz, Martin R.; Gozzi, Juan Carlos (2020-11-20)
We analyze the effect of the geographic expansion of banks across U.S. states on the comovement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for more financially dependent industries. Finally, we show that integration (1) increases the similarity of bank lending ...
International Finance Discussion Papers , Paper 1305

Working Paper
The Long-Run Effects of Monetary Policy
Singh, Sanjay R.; Taylor, Alan M.; Jordà, Òscar (2020-01-16)
Is the effect of monetary policy on the productive capacity of the economy long lived? Yes, in fact we find such impacts are significant and last for over a decade based on: (1) merged data from two new international historical databases; (2) identification of exogenous monetary policy using the macroeconomic trilemma; and (3) improved econometric methods. Notably, the capital stock and total factor productivity (TFP) exhibit hysteresis, but labor does not. Money is non-neutral for a much longer period of time than is customarily assumed. A New Keynesian model with endogenous TFP growth can ...
Working Paper Series , Paper 2020-01

Working Paper
Cheap Talk and the Efficacy of the ECB’s Securities Market Programme: Did Bond Purchases Matter?
De Pooter, Michiel; Pruitt, Seth; Rebecca, DeSimone; Martin, Robert F. (2015-07-06)
In 2010, in response to an ever-worsening fiscal crisis, the ECB began purchasing sovereign debt from troubled euro-area countries through its Securities Market Programme (SMP). This program was designed to improve market functioning and restore the monetary transmission mechanism within the euro area. This paper does not test those ideals. Rather, we test whether SMP purchases systematically lowered peripheral yields and spreads. We find limited evidence of purchase effects but large announcement effects. In addition, on days in which the ECB was believed to have made large purchases, yields ...
International Finance Discussion Papers , Paper 1139

Working Paper
Output Spillovers from U.S. Monetary Policy: The Role of International Trade and Financial Linkages
Bräuning, Falk; Sheremirov, Viacheslav (2019-10-01)
We estimate that U.S. monetary policy has sizable spillover effects on global economic activity. In response to a surprise increase in the federal funds rate of 25 basis points, real output in our sample of 44 countries declines on average by 0.9% after three years. We find that international trade is a more important factor than international finance in explaining these spillovers. In particular, countries with a high share of exports and imports in output have 79% larger responses than countries with a low share, whereas we do not find significant heterogeneity depending on a country’s ...
Working Papers , Paper 19-15

Working Paper
The limits of forward guidance
Campbell, Jeffrey R.; Ferroni, Filippo; Fisher, Jonas D. M.; Melosi, Leonardo (2019-03-20)
The viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon. We develop and estimate a model of imperfect central bank communications and use it to measure how effectively the Fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes. Standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so-called ?forward guidance ...
Working Paper Series , Paper WP-2019-3

Working Paper
Climate Defaults and Financial Adaptation
Phan, Toan; Schwartzman, Felipe (2023-03)
We analyze the relationship between climate-related disasters and sovereign debt crises using a model with capital accumulation, sovereign default, and disaster risk. We find that disaster risk and default risk together lead to slow post-disaster recovery and heightened borrowing costs. Calibrating the model to Mexico, we find that the increase in cyclone risk due to climate change leads to a welfare loss equivalent to a permanent 1% consumption drop. However, financial adaptation via catastrophe bonds and disaster insurance can reduce these losses by about 25%. Our study highlights the ...
Working Paper , Paper 23-06

Working Paper
Value Added and Productivity Linkages Across Countries
Gaillard, Alexandre; de Soyres, Francois (2019-11-22)
What is the relationship between international trade and business cycle synchronization? Using data from 40 countries, we find that GDP comovement is significantly associated with trade in intermediate inputs but not with trade in final goods. Motivated by this new fact, we build a model of international trade that is able to replicate the empirical trade-comovement slope, offering the first quantitative solution for the Trade Comovement Puzzle. The model relies on (i) global value chains, (ii) price distortions due to monopolistic competition and (iii) fluctuations in the mass of firms ...
International Finance Discussion Papers , Paper 1266

Working Paper
Fiscal Stimulus Under Sovereign Risk
Presno, Ignacio; Ottonello, Pablo; Bianchi, Javier (2019-09-20)
The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to ...
International Finance Discussion Papers , Paper 1257

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