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on International Finance |
| By: | Jacek Rothert (United States Naval Academy; Group for Research in Applied Economics (GRAPE)); Ayse Kabukcuoglu Dur (North Carolina State University) |
| Abstract: | We analyze the welfare effects of various policies aimed at global rebalancing --- the elimination of persistent current account surpluses and deficits, and/or elimination of large positive and negative net foreign asset positions. Specifically, we study how these policies will affect the welfare of different groups of households, as well as overall wealth inequality within both debtor and creditor countries. We use a two-country version of a workhorse heterogeneous agents framework of Aiyagari (1994), calibrated to the U.S. (largest debtor) and a composite of its trading partners, the Rest of the World (ROW). Our results show that, relative to full financial integration, policies that reduce global imbalances via an increase in U.S. savings rates will lower global interest rates, increase capital-output ratio and total output in both countries. They will improve welfare of the poorest households and reduce wealth inequality in both countries. Conversely, policies that operate via a decrease in ROW's savings will raise global interest rates, reduce the capital-output ratio and total output in both countries. The rise in interest rates will reduce the welfare of the poor households, even though the overall wealth inequality will decline. |
| Keywords: | Global imbalances, wealth inequality, rebalancing, heterogeneous agents, international capital flows |
| JEL: | E21 F3 F32 F41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:80&r=ifn |
| By: | Andre Sanchez Pacheco (Department of Economics, Trinity College Dublin) |
| Abstract: | This paper presents novel estimates of foreign holdings from a consolidated-by-nationality perspective for a sample of fourteen developed countries over multiple years. It describes the stylized facts that emerge from this new data-set on the international exposure of countries. It shows that aggregate international financial integration is larger from a nationality-based approach relative to the conventional residence-based data. These novel data are used to analyze (1) profit shifting activities and (2) spillovers from U.S. monetary policy shocks. I find evidence suggesting that nationals of relatively high-tax countries may shift assets to low-tax countries in ways not fully captured in residence-based statistics. I also find that a tightening in U.S. monetary policy is associated with a decline in consolidated-by-nationality foreign asset holdings by non-financial multinational enterprises. Such findings highlight the usefulness of this new data-set in international macroeconomics. |
| Keywords: | Internationalfinancialintegration, financialglobalisation, consolidated-by-nationalitystatistics |
| JEL: | F36 F21 F23 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0623&r=ifn |
| By: | Jacek Rothert (United States Naval Academy; Group for Research in Applied Economics (GRAPE)); Alexander McQuoid (United States Naval Academy); Katherine Smith (United States Naval Academy) |
| Abstract: | We document a robust negative relationship between bilateral RER volatility and bilateral FDI flows in the European Union. We then extend the standard international business cycle model to allow for domestic and foreign ownership of physical capital stock to be less than perfect substitutes. This allows the model to have meaningful predictions about the behavior of gross FDI flows. We characterize the conditions under which lower RER volatility coincides with larger bilateral FDI flows. We also show, both theoretically, and using numerical simulations, that the magnitude of the relationship between the RER volatility and FDI flows depends crucially on one parameter: the elasticity of substitution between domestic and foreign ownership of capital stock used in production. Our results suggest the existence of a new channel through which a reduction in RER volatility can be welfare improving: more efficient allocation of capital across countries (capital diversity). |
| Keywords: | FDI, real exchange rates, international financial integration, exchange rate risk |
| JEL: | E F |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:79&r=ifn |
| By: | INADA Mitsuo; JINJI Naoto |
| Abstract: | This study quantifies the role of regional trade agreements (RTAs) in reducing policy uncertainty (PU) on foreign direct investment (FDI) in services. PU regarding local rules and regulations discourages foreign investors from entering the service sector. Service chapters in RTAs become a fresh ingredient in quantifying such PU in host countries by creating legally bound commitments. Focusing on these commitments, this study evaluates how the activities of foreign affiliates of Japanese multinational enterprises are affected by the service chapters in RTAs with sector-specific commitments, such as market access (MA), national treatment (NT), and most favored nation (MFN) signed by Japan between 1995 and 2018. We find that a reduction in PU regarding MFN encourages the establishment of new foreign affiliates. We also find that a reduction in PU regarding NT increases the ownership ratio of foreign affiliates. These findings highlight a new and vital role for RTAs in the extensive and intensive margins of FDI in services. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:23021&r=ifn |