nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2023‒04‒17
seven papers chosen by
Martin Berka
Massey University

  1. International Sanctions and Dollar Dominance By Javier Bianchi; César Sosa-Padilla
  2. The Dynamics of International Exploitation By Jonathan F. Cogliano; Roberto Veneziani; Naoki Yoshihara
  3. Forward guidance and the exchange rate: A theoretical sign restricted VAR analysis. By Fabrice Dabiré
  4. Tracing the International Transmission of a Crisis Through Multinational Firms By Marcus Biermann; Kilian Huber
  5. Unstable Prosperity:How Globalization Made the World Economy More Volatile By Enrique G. Mendoza; Vincenzo Quadrini
  6. Uncovering CIP Deviations in Emerging Markets: Distinctions, Determinants and Disconnect By Mr. Eugenio M Cerutti; Haonan Zhou
  7. Nonbank lenders as global shock absorbers: evidence from US monetary policy spillovers By Elliott, David; Meisenzah, Ralf R; Peydró, José-Luis

  1. By: Javier Bianchi (Federal Reserve Bank of Minneapolis); César Sosa-Padilla (University of Notre Dame and NBER)
    Abstract: This paper investigates the implications of international financial sanctions for the reserve currency status of the US dollar. We propose a simple model of a reserve currency, demonstrate how the anticipation of financial sanctions can weaken the dollar’s status, and evaluate the welfare implications.
    Keywords: International Sanctions, Reserve currency status
    JEL: E42 F31 F32 F34 F41 P48
    Date: 2023–03
  2. By: Jonathan F. Cogliano (University of Massachusetts Boston.); Roberto Veneziani (Queen Mary University of London); Naoki Yoshihara (University of Massachusetts Amherst)
    Abstract: Abstract: This paper develops a framework to analyse imperialistic international relations and the dynamics of international exploitation. A new measure of unequal exchange across borders is proposed which captures the territorial structure of imperialistic international relations: wealthy nations are net lenders and exploiters, whereas endowment-poor countries are net borrowers and exploited. Capital flows transfer surplus from countries in the periphery of the global economy to those in the core. However, while international credit markets and wealth inequalities are central in generating international exploitation, other factors, including labour-saving technical change, are shown to be essential in explaining its persistence.
    Keywords: International exploitation; Imperialism; Unequal exchange; Uneven development; Capital movements.
    JEL: F54 B51 D63
    Date: 2022–09–15
  3. By: Fabrice Dabiré (Université de Sherbrooke)
    Abstract: This paper uses zero and signs restrictions to study the effect of the U.S. forward guidance and unanticipated monetary policy on four U.S. bilateral nominal exchange rates and net exports. I find that although the U.S. forward guidance easing depreciates the exchange rate, the policy does not transmit to the real activity via an “expenditure-switching effect” on the net exports. The use of narrative sign restrictions improves the identification method. The complementary results are as follows: a VAR model augmented with interest rate forecasts contains at least enough information to identify the forward guidance and unanticipated monetary shocks; the nominal bilateral exchange rates depreciate by two to four percent after a 25 basis point forward guidance easing in a hump-shaped pattern without any deviation from the Uncovered Interest rate Parity condition; both shocks explain between 7.3 percent to 27.9 percent of the exchange rates variance, and the forward guidance shock contributes to at least half of this variance decomposition; finally, forecasters perceive the forward guidance shock as future deviation from the Taylor rule.
    Keywords: Monetary policy, Forward guidance, Exchange rate, Sign restrictions.
    JEL: E52 E58 F31 F41
    Date: 2022–12
  4. By: Marcus Biermann; Kilian Huber
    Abstract: We show that multinational firms transmit shocks across countries through their internal capital markets. We study a credit supply shock to parent firms in Germany. International affiliates outside Germany supported their parents through internal lending, became financially constrained themselves, and experienced lower real growth. We find that managers were "Darwinist" with respect to international affiliates but "Socialist" in the home country, that internal capital markets transmitted the credit shock more strongly than a non-financial shock, and that access to developed credit markets attenuated the real effects. The total real impact of shock transmission through multinationals on foreign economies was large.
    JEL: E4 F2 F3 G01 G2 G3
    Date: 2023–03
  5. By: Enrique G. Mendoza (University of Pennsylvania and NBER); Vincenzo Quadrini (University of Southern California and CEPR)
    Abstract: The sharp, secular decline in the world real interest rate of the past thirty years suggests that the surge in global demand for financial assets outpaced the growth in their supply. We argue that this phenomenon was driven by: (i) faster growth in emerging markets, (ii) changes in the financial structure of both emerging and advanced economies, and (iii) changes in demand and supply of public debt issued by advanced economies. We then showthat the low-interest-rate environment made the world economy more vulnerable to financial crises. These findings are the quantitative predictions of a two-region model in which privately-issued financial assets (i.e., inside money) provide productive services but can be defaulted on.
    Date: 2023–03–18
  6. By: Mr. Eugenio M Cerutti; Haonan Zhou
    Abstract: We provide a systematic empirical treatment of short-term Covered Interest Parity (CIP) deviations for a large set of emerging market (EM) currencies. EM CIP deviations have much larger volatilities than most G10 currencies and move in an opposite direction during global risk-off episodes. While off-shore EM CIP deviations are sensitive to changes in FX dealers’ risk-bearing capacities and global risk aversion, on-shore EM CIP deviations are largely unresponsive in segmented FX markets. Moreover, the sensitivity of offshore EM CIP deviations to global risk factors for currencies with segmented FX markets is stronger compared to their counterparts with integrated FX markets. We find weak evidence of country default risk affecting EM CIP deviations after accounting for global factors.
    Keywords: Covered interest parity; Interest rate differentials; Forward foreign exchange market; Financial market arbitrage; Emerging markets; CIP deviation; FX Market development; short-term Covered Interest Parity; country default risk; segmented FX markets; Interest rate parity; Currencies; Currency markets; Emerging and frontier financial markets; Forward exchange rates; Global
    Date: 2023–02–10
  7. By: Elliott, David (Bank of England); Meisenzah, Ralf R (Federal Reserve Bank of Chicago); Peydró, José-Luis (Imperial College London, ICREA-Universitat Pompeu Fabra-CREI-Barcelona GSE, and CEPR)
    Abstract: We show that nonbank lenders act as global shock absorbers from US monetary policy spillovers. For identification, we exploit loan‑level data from the global syndicated lending market and US monetary policy surprises. We find that when US monetary policy tightens, nonbanks increase dollar credit supply to non‑US corporate borrowers, relative to banks. This partially mitigates the total reduction in dollar lending. The substitution is stronger for emerging market borrowers, riskier borrowers, and borrowers in countries subject to stronger capital inflow restrictions. Results suggest that our findings are not driven by borrower‑lender matching, zombie lending, or destabilising lending. Moreover, the credit substitution has real effects, as firms with existing relationships with nonbank lenders increase total debt, investment, and employment relative to firms without such relationships. Our findings suggest that having more diversified funding providers (nonbanks in addition to banks) reduces the volatility in capital flows and economic activity associated with the global financial cycle.
    Keywords: Nonbank lending; international monetary policy spillovers; global financial cycle; banks; US dollar funding for non-US firms
    JEL: E50 F34 F42 G21 G23
    Date: 2023–01–13

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