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More household savings offset increased government borrowing since 2008
Large government budget deficits over the past 15 years have led to a large increase in the stock of government debt. But these government deficits have been matched by an increase in U.S. household savings.
Journal Article
Reserve Adequacy Explains Emerging-Market Sensitivity to U.S. Monetary Policy
Emerging economies that borrow in U.S. dollars are sensitive to U.S. monetary policy due to changing exchange rates. However, the marginal effect of this sensitivity is determined by the relative amount of U.S. dollars held in reserve.
Transfer payments, household savings play key roles in growing U.S. deficit
While recent levels of government borrowing have been high, private savings by U.S. residents have been elevated as well. As a result, overall borrowing for the entire U.S economy has been remarkably stable.
Working Paper
Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts
Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase ...
Capital flowed from emerging markets as pandemic, economic cycle took hold
Fluctuations in the global financial cycle, reflecting impacts from the COVID crisis, account for roughly one-third of the movement in emerging-market inflows during 2020–23.
Journal Article
Current account surplus may damp the effects of China’s credit boom
In contrast to similar credit expansions in the euro periphery in the 2000s and East Asia in the 1990s, China?s credit boom is far less likely to end in a dramatic bust because it?s financed by domestic savings.
Working Paper
Globalization and the Increasing Correlation between Capital Inflows and Outflows
The correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows ...
Working Paper
A Theory of Net Capital Flows over the Global Financial Cycle
We develop a theory to account for changes in net capital flows of safe and risky assets over the global financial cycle. We show empirically that countries that have a net debt of safe assets experience a rise in net outflows of safe assets (reduced accumulation of safe debt) during a downturn in the global financial cycle. This is accomplished through a rise in total net outflows and a drop in net outflows of risky assets. We develop a multi-country portfolio choice model that can account for these facts. The theory relies on cross-country heterogeneity in the share of an investor's ...
Working Paper
Capital Controls and Monetary Policy Autonomy in a Small Open Economy
Is there a link between capital controls and monetary policy autonomy in a country with a floating currency? Shocks to capital flows into a small open economy lead to volatility in asset prices and credit supply. To lessen the impact of capital flows on financial instability, a central bank finds it optimal to use the domestic interest rate to "manage" the capital account. Capital account restrictions affect the behavior of optimal monetary policy following shocks to the foreign interest rate. Capital controls allow optimal monetary policy to focus less on the foreign interest rate and more ...
Don’t Look to the 2013 Tantrum for the Effect of Tapering on Emerging Markets
Many emerging markets have improved their external balance sheets since the volatility evidenced during the "taper tantrum" of 2013 and would be much less vulnerable to Federal Reserve tapering today.