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on International Finance |
| By: | Davis, Scott (Federal Reserve Bank of Dallas); Zlate, Andrei (Federal Reserve Bank of Boston) |
| Abstract: | This paper measures the effect of monetary tightening in key advanced economies on net capital flows around the world. Measuring this effect is complicated by the fact that the domestic monetary policies of affected economies respond endogenously to the foreign tightening shock. Using a structural VAR framework with quarterly panel data we estimate the impulse responses of domestic policy variables and net capital flows to a foreign monetary tightening shock. We find that the endogenous response of domestic monetary policy depends on each economy's capital account openness and exchange rate regime. We use a method to compute counterfactual impulse responses for net capital outflows under the assumption that the domestic policy rate does not respond to foreign monetary tightening. Our results suggests that failing to account for the endogenous response of domestic monetary policy biases down the estimated elasticity of net capital flows to foreign interest rates by as much as one-third for countries with open capital accounts. |
| Keywords: | trilemma; structural VAR; counterfactual VAR; net capital inflows; exchange rates |
| JEL: | E5 F3 F4 |
| Date: | 2018–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:rpa18-5&r=all |
| By: | Andrew K. Rose |
| Abstract: | A country’s exports rise when its leadership is approved by other countries. I show this using a standard gravity model of bilateral exports, a panel of data from 2006 through 2017, and an annual Gallup survey which asks people in up to 157 countries whether they approve of the job performance of the leadership of China, Germany, Russia, the United Kingdom and the United States. Holding other things constant, a country’s exports are higher if its leadership is approved by the importer; ‘soft power’ promotes exports. The soft power effect is statistically and economically significant; a one percent increase in leadership approval raises exports by around two-thirds of a percent. This effect is reasonably robust, and different measures of soft power deliver similar results. I conservatively estimate that the >20 percentage point decline in foreign approval of American leadership between 2016 (the final year of Obama’s presidency) and 2017 (Trump’s first year) lowered American exports by at least $3 billion. |
| JEL: | F14 F59 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25439&r=all |