In this paper, we study whether or not transportation infrastructure disrupts local monopsony power in labor markets using an expansion of the national highway system in India. Using panel data on manufacturing firms, we find that monopsony power in labor markets is reduced among firms near newly constructed highways relative to firms that remain far from highways. We estimate that the highways reduce

Using a panel of establishments from the annual survey of industries, I study the impact of the 1991 trade liberalization episode in India on the employment share of women. Contrary to the predictions of a taste-based discrimination model, I find that establishments exposed to larger output tariff reductions and import competition reduced the share of female workers. I also find that input tariff reductions

Motivated by increasing trade and fragmentation of production across countries, accompanied by income convergence by many emerging economies, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster-growing country, consistent

A correction to this paper has been published: https://doi.org/10.1057/s41308-021-00139-3

Using a sample covering 50 advanced and emerging economies over 1990–2017, it is found that large current account deficits are followed by systematic negative surprises in economic growth. This regularity is verified both in the case of advanced economies and emerging economies. In addition, large current account deficits are reversed significantly faster than what forecasters anticipate and are followed

In this paper, we offer a new framework to measure cross-border supply chain fragmentation and its impact on the global trade elasticity. Firstly, we introduce the supply chain fragmentation ratio that sums the volume of imports by all countries that participate in a particular supply chain. We find that supply chain fragmentation slowed down after 2010 for most goods, but not for services. We demonstrate

We investigate the international propagation of tax rate shocks originating in the USA using a global vector error correction model. We identify shocks to corporate and personal income tax rates by using narrative series as external instruments, following the proxy-SVAR methodology. The main results are the following: (1) In terms of fiscal multiplier, domestic effects of corporate tax shocks are stronger

We calibrate an overlapping-generations model with a rich demographic structure to observed and projected changes in U.S. population, family composition, life expectancy, and labor market activity. The model indicates that demographic factors associated with the post-war baby boom pushed up real interest rates and real gross domestic product (GDP) growth from 1960 to the 1980s. Since the 1980s, the

We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to investment, governments care mostly about the (depressed) interest rate they face. In other words, the crowding-out

Since the early 1990s, the share of loans in total debt of US firms appears to have declined. This paper explores the implications of this trend toward “disintermediation” for the transmission of monetary policy shocks. Empirically, investment among firms with high loan shares is significantly more responsive to monetary policy shocks. Moreover, this pass-through has declined since the early 1990s

Sovereign debt crises are difficult to solve. This paper studies the “holdout problem,” meaning the risk that creditors refuse to participate in a debt restructuring. We document a large variation in holdout rates, based on a comprehensive new dataset of 23 bond restructurings with external creditors since 1994. We then study the determinants of holdouts and find that the size of creditor losses (haircuts)

In this paper, I begin by providing a brief survey of recent research that highlights some of the key empirical facts about credit cycles. Next, I interpret these facts through a conceptual lens, asking what theoretical mechanisms appear to be most consistent with the data. And finally, I pose the question of what policymakers can do—with either regulatory tools or monetary policy—to help moderate

Contrary to the traditional assumption of interest rates on government debt exceeding economic growth, negative interest-growth differentials became prevalent after the global financial crisis and before the COVID-19 pandemic. Should negative differentials be grounds for sleeping more soundly, despite high government debts? We analyze interest-growth differentials using data on average effective borrowing

We quantify the effect of exchange rate fluctuations on firm leverage. When home currency appreciates, firms who hold foreign currency debt and local currency assets observe higher net worth as appreciation lowers the value of their foreign currency debt. These firms can borrow more as a result and increase their leverage. When home currency depreciates, the reverse happens as firms have to de-lever

This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilization policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplification between default beliefs, exchange rate and

We analyse the economic conditions (the “shocks”) behind currency movements and show how that analysis can help address a range of questions, focussing on exchange rate pass-through to prices. We build on a methodology previously developed for the UK and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of

This paper studies the relation between the evolution of capital controls and electoral cycles. We exploit a dataset containing detailed information on the level of restrictions on capital flows for 98 countries on an annual basis from 1995 to 2015, constructed by Fernandez et al. (IMF Econ Rev 64:548–574, 2016). First, we find that restrictions are more likely to increase during an election year.

We estimate the revenue implications of a destination-based cash-flow tax (DBCFT) for 80 countries. On a global average, DBCFT revenues under unchanged tax rates would remain similar to the existing corporate income tax (CIT) revenue, but with sizable redistribution of revenue across countries. Countries are more likely to gain revenue if they have trade deficits, are not reliant on the resource sector

We provide a new explanation for why central banks have become transparent over the last three decades. We apply recently developed social interaction panel regression models for the observational data, which allow the identification of peer effects. The identification is based on variations in the past monetary policy regime exogenously determined with respect to transparency. Previous literature

Abstract What distinguishes foreign exchange interventions that are stabilizing from those that are manipulative? In the current no-official-agreed-upon rules environment any country that intervenes and builds up bilateral trade surpluses opens itself to charges of currency manipulation. Emerging market countries are especially susceptible because many of them rely on exchange rate stabilization policies

Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based

Protectionist sentiments have been rising globally in recent years. The consequences of a surge in protectionist measures present policy challenges for emerging markets (EMs), which have become increasingly exposed to global trade. This paper serves two main purposes. First, we collect several stylized facts that characterize EMs’ role in the new geography of trade. We focus on differences between

Following the low interest rate policies adopted by industrialized countries after the 2008 financial crisis, there has been a reduction in capital outflows from emerging countries to industrialized countries. Together with the lower outflows of capital, emerging countries experienced a decline in output growth bigger than industrialized countries. This paper develops a model capable of replicating

This paper studies the welfare impact of reducing delays in the implementation of public investment projects, using Turkish data pertaining to a revealed policy action in the early 2000s. I find that the reduction in the completion duration of the public capital from 11 to 4 years corresponds to a welfare gain of 1.9% in terms of compensating variations in consumption and an output gain of 2.7%. When

We study how banks’ exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so, we use data on the universe of banks and firms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to

This paper develops new estimates of export quality, based on bilateral data, which are far more extensive than previous efforts. The data cover 166 countries and more than 800 products over the period 1962–2014. The analysis finds that, within any given product line, export quality on average converges rapidly across countries. However, there is also significant cross-country heterogeneity in the

We examine the role of US monetary policy in banking crises across the world by using a cross-country database spanning 69 countries over the 1870–2010 period. US monetary policy tightening increases the probability of a banking crisis for those countries with direct linkages to the USA, either in the form of trade links or significant share of USD-denominated liabilities. Conversely, if a country

We study the impact of sustained monetary policy easing on risk-taking behavior using firm-level data for nearly 1000 financial institutions in 21 countries over 15 years. We find that both banks and nonbanks increase leverage following domestic monetary policy easing. Surprisingly, following easing in the USA (but not in the euro area), leverage in non-US firms increases as well, by more than it does

Policies motivated by national objectives can have far-reaching international consequences in a highly interconnected world. These international externalities provide the basis for policy coordination and multilateral institutions. Backlash against globalization, however, has increased pressure on policymakers to step away from commitments to international cooperation and has undermined support for

This paper updates and expands the database on systemic banking crises presented in Laeven and Valencia (IMF Econ Rev 61(2):225–270, 2013a). The database draws on 151 systemic banking crisis episodes around the globe during 1970–2017 to include information on crisis dates, policy responses to resolve banking crises, and their fiscal and output costs. We provide new evidence that crises in high-income

While economic and financial integration can increase welfare, it can also complicate the policy problem, bringing about new trade-offs or magnifying the existing ones. These policy challenges can be particularly severe in the presence of large (gross) capital flows, e.g., for emerging market economies. Having a quantitative assessment of these trade-offs is key for the design of effective policy interventions

Unilateral adoption of transfer pricing regulations (TPRs) may have a negative impact on real investment by multinational corporations (MNCs). This paper uses a quasi-experimental research design, exploiting unique panel data on domestic and multinational companies in 27 countries during 2006–2014, to find that MNC affiliates reduce their investment by over 11% following the introduction of TPRs. There

This paper studies the losses to the citizenry when the private agents discount the future at different rates from their government. In the presence of such a disagreement, the private sector may prefer an environment in which the government is in financial autarky. Using a sequence of sovereign debt models, the paper quantifies the potential welfare losses that citizens suffer from the government’s

We estimate local fiscal multipliers and spillovers for the USA using a rich dataset based on the US Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical

We provide a quantitative assessment of both the aggregate and the distributional effects of revoking NAFTA using a multi-country, multi-sector, multi-factor model of world production and trade with global input–output linkages. Revoking NAFTA would reduce US welfare by about 0.2%, and Canadian and Mexican welfare by about 2%. The distributional impacts of revoking NAFTA across workers in different

We propose a method to break down capital flows into portfolio growth and portfolio reallocation components and apply it to data on US equity and bond outflows. The decomposition is part of an integrated approach that decomposes purchases of any asset into portfolio growth and reallocation components. US equity and bond outflows depend not just on portfolio growth and the reallocation between US and

Exchange rate appreciation in capital-receiving countries, induced by easy monetary policy in funding countries, increases the expected net worth of firms in receiving countries and their ability to buy assets. Anticipating this higher liquidity for their assets, corporations in capital-receiving countries lever up, and neglect alternative sources of debt capacity such as maintaining the pledgeability

This paper examines the time path of saving rates between 1970 and 2010 in Chile, Colombia, and Mexico through the lens of the neoclassical growth model. The findings indicate that two factors, the growth rate of TFP and fiscal policy, are able to account for some of the major fluctuations in saving rates observed during this period. In particular, we find that the model accounts for the low saving

We study the impact of foreign market entry and exit by firms on the trajectory of U.S. exports during and after the Great Recession. Using confidential microdata from the U.S. Census Bureau, we find that incumbent exporters were primarily responsible for the changes in aggregate foreign sales during these years. While there was a substantial decline in the number of firms that sold abroad in the midst

In a sample of 110 countries over the period 1960–2009, we document a positive relation between the volatility and skewness of growth in the cross section. This novel stylized fact is related to two distinct mechanisms: sudden growth spurts in emerging markets and sharp financial crises-driven recessions in developed economies. The former phenomenon is driven by industrialization, macroeconomic stabilization

After significant progress as an immediate result of the euro crisis, the drive to complete Europe’s Economic and Monetary Union (EMU) has decelerated. While there is a broad consensus in Europe that EMU needs further development, the exact nature and timing of the reform agenda remains controversial. This paper makes an analytical contribution to the ongoing discussion about the euro area’s institutional

Triffin gained enormous influence by reviving the interwar story that gold scarcity threatened deflation. In particular, he held that central banks needed to accumulate claims on the United States to back money growth. But the claims would eventually surpass the US gold stock and then central banks would inevitably stage a run on it. He feared that the resulting high US interest rates would cause global

Abstract We empirically show that the austerity packages implemented in some euro area countries during 2010–2014 were only partially successful in generating internal devaluations. Countries that cut spending indeed experienced a decline in nominal wages, a real exchange rate depreciation, a fall in the relative price of non-tradables and a shift of consumption toward non-tradables, whereas we find

My aim is to examine the implications of monetary union for macrofinancial stabilisation policies at national and area-wide levels. The boom-bust-crisis-recovery cycle that the euro area has experienced over its first two decades has revealed the costs of national and international institutional frameworks that proved inadequate to manage the policy challenges of this period. After the crisis, much

We study channels of risk sharing in the EMU before and after 2008, when the Great Recession started. Empirically, higher cross-border equity holdings and more direct bank-to-nonbank lending are associated with more risk sharing while interbank integration is not. Equity market integration in the EMU remains limited while banking integration is dominated by interbank integration. Further, interbank

This paper studies the negative loop caused by the interaction between pessimistic estimates of potential output and the effects of fiscal policy in Europe during 2008–2014. We argue that policymakers’ reliance on overly pessimistic views of potential output led to a large adjustment in fiscal policy. Contractionary fiscal policy, via hysteresis effects, caused a reduction in potential output that

We analyze the role of labor mobility in cushioning labor demand shocks in the Euro Area. We find that foreign born workers’ mobility is strongly cyclical, while this is not the case for natives. Foreigners’ higher population to employment elasticity reduces the variation of overall employment rates over the business cycle: thanks to them, the impact of a one standard deviation change in employment

AbstractLoan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation in bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is

Using a panel data set for international corporate bonds and capital account restrictions in advanced and emerging economies, we show that restrictions on capital inflows produce a substantial and economically meaningful increase in corporate bond spreads, with a one-standard-deviation increase in our capital controls index increasing spreads by up to 35 basis points. The effect of capital controls

We estimate a highly significant price of risk that forecasts global stock and bond returns as a nonlinear function of the VIX. We show that countries’ exposure to the global price of risk is related to macroeconomic risks as measured by output, credit, and inflation volatility, the magnitude of financial crises, and stock and bond market downside risk. Higher exposure to the global price of risk corresponds

We examine the extent to which financial market development impacts the diffusion of 16 major technologies, looking across 17 countries, from 1870 to 2000. We find that greater depth in financial markets leads to faster technology diffusion for more capital-intensive technologies, but only in periods closer to the invention of the technology. In fact, we find no differential effect of financial depth

AbstractThis paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. While comovement of credit and house prices increased in line with growing real sector integration, comovement of equity prices has increased above and beyond growing

We quantify the importance of a Global Financial Cycle (GFCy) for capital flows. We use capital flow data disaggregated by direction and type between 1990Q1 and 2015Q4 for 85 countries, and conventional techniques, models and metrics. Since the GFCy is unobservable, we use two methods to represent it: directly observable variables in center economies often linked to it, such as the VIX, and indirect

Exchange rate fluctuations could influence economic activity not only via the standard trade channel, but also through a financial channel, which operates through the impact of exchange rate fluctuations on borrowers’ balance sheets and lenders’ risk-taking capacity. This paper explores the “triangular” relationship between (1) the strength of the US dollar, (2) cross-border bank flows and (3) real

This paper evaluates the domestic and international macroeconomic effects of the Eurosystem’s Asset Purchase Programme (APP) by means of a calibrated three-country dynamic general equilibrium model of the world economy. We find that the APP boosts domestic inflation and economic activity as liquidity increases and long-term interest rates fall. International spillovers are expansionary, and their size

Abstract“Liability dollarization,” namely intermediation of capital inflows in units of tradables into domestic loans in units of aggregate consumption, adds three important effects driven by real exchange rate fluctuations that alter standard models of Sudden Stops significantly: changes on the debt repayment burden, on the price of new debt, and on a risk-taking incentive (i.e., a negative premium

What is the role for supply and demand forces in determining movements in international banking flows? And what role might a common factor—the global financial cycle highlighted by Rey (Dilemma not trilemma: the global financial cycle and monetary policy independence, 2018) and others—play in movements in these flows? Answering these questions is crucial for understanding the international transmission

We analyze the mechanisms through which bank and sovereign distress feed into each other, using a large sample of emerging market economies over three decades. After defining “twin crises” as events where bank crises and sovereign defaults combine, and further distinguishing between those bank crises that end up in sovereign defaults and vice versa, we study what differentiates “single” and “twin”

This paper analyzes market reactions to the 2013–2014 Fed announcements related to the tapering of asset purchases and examines how these reactions are influenced by financial depth. The study focuses on long-term government bond yields and uses daily data for all emerging markets. Controlling for all time-invariant country characteristics as well as time-varying macroeconomic fundamentals (changes

We use data on structural primary balances for Latin America to estimate effects of fiscal consolidations. Identification relies on a doubly robust estimator that controls for the endogeneity of fiscal policy using inverse probability weighting. Results suggest a negative multiplier on impact, with the economy starting to recover from the second year on and expanding after 5 years. Revenue-based adjustments