nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2023‒07‒24
twenty-one papers chosen by
Martin Berka
Massey University

  1. The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns By Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
  2. The Dominant Currency Financing Channel of External Adjustment By Camila Casas; Sergii Meleshchuk; Yannick Timmer
  3. Risk-Off Shocks and Spillovers in Safe Havens By Beirne, John; Sugandi, Eric
  4. Superior Predictability of American Factors of the Dollar/Won Real Exchange Rate By Sarthak Behera; Hyeongwoo Kim; Soohyon Kim
  5. Globalization, Structural Change and International Comovement By Barthélémy Bonadio; Zhen Huo; Andrei A. Levchenko; Nitya Pandalai-Nayar
  6. Quantifying the Germany Shock: Structural Reforms and Spillovers in a Currency Union By Harald Fadinger; Philipp Herkenhoff; Jan Schymik
  7. Financial de-dollarization in Argentina. When the wind always blows from the East By Eduardo A. Corso; Máximo Sangiácomo
  8. An Explained Extreme Gradient Boosting Approach for Identifying the Time-Varying Determinants of Sovereign Risk By Iader Giraldo; Carlos Giraldo; Jose E. Gomez-Gonzalez; Jorge M. Uribe
  9. Which Sectors Go On When There Is a Sudden Stop? An Empirical Analysis By István Kónya; Miklós Váry
  10. Inflation and Trade Deficits in Agriculture and the General Economy: The Role (or Lack Thereof) of Exchange Rate Fluctuations By Zeng, Wendy S.; Johnson, William A.
  11. Comparing different features of a fiscal stimulus in the euro area By Caroline Bozou; Jérôme Creel
  12. The kindness of strangers: Brexit and bilateral financial linkages By Andreas M. Fischer; Pinar Yesin
  13. Exchange Rates and Government Debt By Federico Favaretto
  14. International Reserve Accumulation: Balancing Private Inflows with Public Outflows By Bada Han; Dongwook Kim; Youngjin Yun
  15. Original Sin: Fiscal Rules and Government Debt in Foreign Currency in Developing Countries By Ablam Estel Apeti; Bao-We-Wal Bambe; Jean-Louis Combes; Eyah Denise Edoh
  16. When Fiscal Discipline meets Macroeconomic Stability: the Euro-stability Bond By Luciano Greco; Francesco J. Pintus; Davide Raggi
  17. Global Liquidity: Drivers, Volatility and Toolkits By Linda S. Goldberg
  18. Stimulus through Insurance: The Marginal Propensity to Repay Debt By Gizem Koşar; Davide Melcangi; Laura Pilossoph; David Wiczer; Gizem Kosar
  19. An Overview of Climate Change, the Environment, and Innovative Finance in Emerging and Developing Economies By Shirai, Sayuri
  20. Revisiting the monetary transmission mechanism through an industry‑level differential approach By Choi, Sangyup; Willens, Tim; Yoo, Seung Yong
  21. Overborrowing, Underborrowing, and Macroprudential Policy By Fernando Arce; Julien Bengui; Javier Bianchi

  1. By: Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
    Abstract: We examine the causal relationship between US monetary policy shocks, exchange rates and currency excess returns for a sample of eight advanced countries over the period 1980M1 to 2022M11. We find that the dynamics of the US dollar exchange rate is the main driver of currency excess returns. The exchange rate is significantly affected by US monetary policy shocks, where the persistence of this shock is important, as well as by an external shock. This external shock is strongly related to global risk aversion and the convenience yield that investors are willing to pay for holding US Dollar assets. A significant part of the response of excess currency returns is also expected, suggesting a violation of the UIP. Focusing only on the post-crisis period, the impact of both the external shock and the inflation targeting shock on exchange rates and currency excess returns disappears in the cross-section.
    Keywords: Exchange rates, excess currency returns, uncovered interest parity, convenience yield, global financial cycle, global risk, monetary policy
    JEL: E52 C32 E43 F31 F41 G15
    Date: 2023
  2. By: Camila Casas; Sergii Meleshchuk; Yannick Timmer
    Abstract: We propose a new channel through which exchange rates affect trade. Exploiting the heterogeneity in firms’ foreign currency debt maturity structure around a large depreciation in Colombia, we show that debt revaluation compresses imports due to higher delinquencies and interest rates, while exports are unaffected. Natural and financial hedging successfully mute the import contraction. A costly state verification model with dominant currency financing (DCF) and exporting rationalizes these findings. Quantitatively, DCF explains a significant part of external adjustment in addition to the expenditure switching channel. Pricing exports in the dominant vs. producer currency mutes the effect of DCF on trade.
    Keywords: imports, exports, foreign currency exposure, capital structure, exchange rates, debt revaluation, hedging
    JEL: F31 F32 F41 G15 G21 G32
    Date: 2023
  3. By: Beirne, John (Asian Development Bank Institute); Sugandi, Eric (Asian Development Bank Institute)
    Abstract: We examine real and financial spillovers to safe haven financial flow destinations due to risk-off shocks in global financial markets. Using country-specific structural vector autoregression models over the period 1990 to 2021, we show that dynamics for Japan appear to be different to those of Switzerland and the United States in four main ways. First, in response to risk-off episodes over the estimation period, the yen real effective exchange rate appreciates sharply and significantly, with the effect persisting over time. Second, no significant effects on portfolio flows to Japan are found, in spite of the exchange rate effects, suggesting a rapid adjustment of financial markets to shifts in equilibrium exchange rates. Third, negative real spillovers from risk-off shocks appear to only apply to Japan with exchange rate appreciation exacerbating declines in GDP growth. Fourth, risk-off shocks do not have a statistically significant effect on domestic economic policy uncertainty in Japan, which may be related to the strong expectations priced in of overseas portfolio holdings repatriated back to Japan. Our findings have important implications for policy makers in safe haven destinations in managing domestic financial vulnerabilities associated with risk-off episodes.
    Keywords: risk-off episodes; safe haven assets; economic policy uncertainty
    JEL: F32 F41 F62
    Date: 2022–11
  4. By: Sarthak Behera; Hyeongwoo Kim; Soohyon Kim
    Abstract: This paper examines the asymmetric out-of-sample predictability of macroeconomic variables for the real exchange rate between the United States and Korea. While conventional models suggest that the bilateral real exchange rate is driven by the relative economic performance of the two countries, our research demonstrates the superior predictive power of our factor-augmented forecasting models only when factors are obtained from U.S. economic variables, whereas the inclusion of Korean factors fails to enhance predictability and behaves more like noise variables. Our models exhibit particularly strong performance at longer horizons when incorporating American real activity factors, while American nominal/financial market factors contribute to improved short-term prediction accuracy. We attribute the remarkable predictability of American factors to the significant cross-correlations observed among bilateral real exchange rates vis-Ã -vis the U.S. dollar, which suggests a limited influence of idiosyncratic factors specific to small countries. Moreover, we assess our factor-augmented forecasting models by incorporating proposition-based factors instead of macro factors. While macro factors generally exhibit superior performance, it is worth noting that the uncovered interest parity (UIP)-based global factors, with the dollar as the numéraire, consistently demonstrate strong overall performance. On the other hand, the purchasing power parity (PPP) and real uncovered interest parity (RIRP) factors have a limited role in forecasting the dollar/won real exchange rate.
    Keywords: Dollar/Won Real Exchange Rate; Asymmetric Predictability; Principal Component Analysis; Partial Least Squares; LASSO; Out-of-Sample Forecast
    JEL: C38 C53 C55 F31 G17
    Date: 2023–06
  5. By: Barthélémy Bonadio; Zhen Huo; Andrei A. Levchenko; Nitya Pandalai-Nayar
    Abstract: We study the roles of globalization and structural change in the evolution of international GDP comovement among industrialized countries over the period 1978-2007. In recent decades, trade integration between advanced economies increased rapidly while average GDP correlations remained stable. We show that structural change – trend reallocation of economic activity towards services – plays an important part in resolving this apparent puzzle. Business cycle shocks in the service sector are less internationally correlated than in manufacturing, and thus structural change lowers GDP comovement by increasing the share of less correlated sectors in GDP. Globalization – trend reductions in trade costs – exerts two opposing effects on cross-border GDP comovement. On the one hand, greater trade linkages increase international transmission of shocks and therefore comovement. On the other, globalization induces structural change towards services because it reduces the relative price of traded goods, and services and goods are complements. We use a multi-country, multi-sector model of international production and trade to quantify these effects. The two opposing effects of globalization on comovement largely cancel each other out, limiting the net contribution of globalization to increasing international comovement over this period.
    JEL: F41 F44 F62 L16
    Date: 2023–06
  6. By: Harald Fadinger; Philipp Herkenhoff; Jan Schymik
    Abstract: We examine the effects of unilateral structural reforms within a currency union. Focusing on the surge of German competitiveness following the introduction of the Euro, we first provide reduced-form causal evidence supporting the notion that German structural labor market reforms in the early 2000s led to a crowding-out of manufacturing employment in other Eurozone economies. To assess the impact of this German competitiveness shock, we build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supply, unemployment-insurance benefits and international savings. The fixed nominal exchange rate can create binding nominal rigidities in response to a foreign real supply shock – like the one prompted by the German reforms – resulting in significant contraction of manufacturing sectors and increased involuntary unemployment across other Eurozone countries. We consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of coordinated reforms within the Eurozone and a higher average inflation rate. of view.
    Keywords: Euro, monetary union, nominal rigidities, labor markets, structural reforms, import competition, spillovers, quantitative trade model
    JEL: F16 F41 F45
    Date: 2023–06
  7. By: Eduardo A. Corso (Banco Central de la República Argentina); Máximo Sangiácomo (Banco Central de la República Argentina)
    Abstract: Dollarization hinders financial intermediation in domestic currency which is detrimental for economic growth and development. A broad branch of the financial dollarization literature is based on portfolio theory. Dollarization of savings portfolios is the result of optimal mean-variance portfolio selection. In this document, we use an optimal portfolio selection approach to analyse financial dollarization’s hysteresis in Argentina. Based on the historical experience of our country, we model agents’ expectations using second-order probability distributions, that allow us to incorporate positive bias in subjective distribution of dollar returns.This bias arises from the subjective perceptions of unsustainability of the current regime. Under the proposed analytical scheme, in contexts in which households and firms face difficulties in identifying informative signals about the sustainability of the current exchange-rate regime, policy measures aimed at promoting financial de-dollarization may produce unwanted behavior. For example, the usually stated mean-variance approach argument of rising real exchange rate volatility relative to domestic currency volatility (inflation) could be perceived as an increase in the subjective probability of regime change, leading to portfolio rebalancing towards the foreign currency, with opposite results to those expected.
    Keywords: Dollarization; Asset substitution; Financial intermediation
    JEL: E52 F36 F41 G11
    Date: 2023–07
  8. By: Iader Giraldo; Carlos Giraldo; Jose E. Gomez-Gonzalez; Jorge M. Uribe
    Abstract: We use a combination of Extreme Gradient Boosting and SHAP Additive Explanations to uncover the determinants of sovereign risk across a wide range of countries from 2002 to 2021. By considering numerous variables established in existing literature within a single framework, we identify year-by-year determinants of sovereign credit risk. To gauge the liquidity and solvency aspects of sovereign risk, we utilize 5- and 10-year yield spreads as proxies. Our findings show that the key variables driving sovereign risk have remained relatively stable over time and exhibit similarities in both liquidity and solvency components. Among the prominent variables, various macroeconomic fundamentals play a crucial role, including the current account, GDP growth, per capita GDP growth, and the real exchange rate. Prior to the Global Financial Crisis, macroeconomic variables, particularly the current account, held the highest importance in explaining sovereign risk. However, following the GFC, the relative importance of these variables diminished, giving way to institutional variables, especially the rule of law.
    Keywords: Sovereign risk; Explainable AI; Extreme Gradient Boosting model; Macroeconomic and institutional factors.
    JEL: C33 F34 G15
    Date: 2023–05–24
  9. By: István Kónya (Corvinus University of Budapest – Institute of Economics, Centre for Economic and Regional Studies – Institute of Economics, University of Pécs – Faculty of Business and Economics – Centre of Excellence of Economic Studies); Miklós Váry (Corvinus University of Budapest – Institute of Economics, Centre for Economic and Regional Studies – Institute of Economics, University of Pécs – Faculty of Business and Economics – Centre of Excellence of Economic Studies)
    Abstract: This paper analyzes the dynamics of sectoral Real Gross Value Added (RGVA) around sudden stops in foreign capital inflows. We identify sudden stop episodes statistically from changes in gross capital inflows from the financial account, and use an event study methodology to compare RGVA before and after the start of sudden stops. In the baseline specification, we estimate changes in the growth rate of sectoral RGVA during sudden stops and in the few quarters following them. In an additional exercise, we analyze deviations from the sectors' long-run growth path. Our findings indicate that: (i) tradable sectors, especially manufacturing, face larger damages during sudden stops than nontradable sectors, (ii) but they also lead the recovery after recessions that accompany sudden stops on impact, partly due to the fact that they benefit from the depreciation of the domestic currency that occurs during sudden stops, (iii) construction and professional services are the most seriously hurt nontradable sectors during sudden stops, while information and communication, and financial services grow slower even in the aftermath of the events than before their onset. However, this slowdown only constitutes a return to their long-run sectoral growth paths. Overall, our results suggest a prolonged reallocation of economic activity away from service sectors, towards the production of goods. This is consistent with a traditional view of the role of tradable and nontradable sectors in a sudden stop episode.
    Keywords: sudden stop, sectoral adjustment, capital flows, exchange rate
    JEL: F31 F32 O24 O25
    Date: 2023–06
  10. By: Zeng, Wendy S.; Johnson, William A.
    Keywords: International Relations/Trade, International Development, Food Consumption/Nutrition/Food Safety
    Date: 2023
  11. By: Caroline Bozou (UP1 - Université Paris 1 Panthéon-Sorbonne); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: We build a two-country DSGE model where we distinguish the core from the periphery of a monetary union. First, we highlight the spillovers of fiscal shocks across countries. Then, we evaluate and compare the macroeconomic effects of the European recovery plan NGEU with national plans. In all settings, we distinguish public consumption shocks from public investment ones, and funding via loans or grants. We also generate a post-Covid situation where we add a zero-lower bound and demand shocks and compare the outcomes to the former scenarios. We find that the stimulus is more effective when it is financed by grants, interestingly enough especially for public consumption, that public investment spending has a higher multiplier effect in the long run and that a European fiscal stimulus has always more impact per country than a national stimulus plan. A side-result permits to assess the opportunity cost of accepting loans.
    Keywords: fiscal policy, open economy, euro area, spillovers, DSGE, NGEU, RRF
    Date: 2023–02–08
  12. By: Andreas M. Fischer; Pinar Yesin
    Abstract: Bank of England governor Mark Carney warned after the 2016 Brexit vote that the UK is reliant on the "kindness of strangers" to fund its increasing current account deficit. In this paper, we examine whether firms in Switzerland attenuated their investments in the UK following the Brexit vote or whether British-controlled firms in Switzerland repatriated their foreign assets to the UK. Three empirical findings in the bilateral context suggest that Carney's warning was overly cautious. First, Carney focused strictly on the foreign willingness to invest in the UK; however, the alternative channel of repatriating British assets abroad is equally important. Second, capital inflows and outflows are positively correlated not only in the aggregate, but also across a range of subgroupings at the firm level. Third, the nonuniform firm response to the Brexit vote suggests that understanding aggregate capital waves is more complicated at the firm level.
    Keywords: Brexit, currency invoicing, cross-border flows, international firms
    JEL: F32 F41 G20 G28
    Date: 2023
  13. By: Federico Favaretto
    Abstract: This paper studies how government debt variables impact estimates of the classic and new UIP puzzles for quarterly data between 2000 and 2020 of 6 developed countries in relation to the United States. I estimate country-pair VECMs to model cointegration relations between debt variables, price differences, interest rates differences and nominal exchange rate. I compare this framework with one without debt variables following Engel (2016) using quarterly data between 1979 and 2020. In the framework without debt, I don't find the new UIP puzzle while in the framework with debt, I do find it. Government debt variables are significant and alter the sign of comovements between difference in interest rates and far-ahead ex-post and ex-ante excess currency returns. The magnitude of the effect is economically relevant. Government debts coffcients cannot be uniquely associated with convenience yield story.
    Keywords: Exchange Rates; Government Debt; UIP puzzle; Excess Currency Returns.
    JEL: E42 E60 F31
    Date: 2023
  14. By: Bada Han (Bank of Korea); Dongwook Kim (Bank of Korea); Youngjin Yun (Inha University)
    Abstract: This paper investigates the reasons behind international reserve accumulation in Emerging Market Economies (EMEs). We rationalize the view held among policymakers in EMEs that reserve accumulation is necessary to counteract the negative effects of unwanted capital inflows. First, we empirically show that EMEs do accumulate reserves in response to global push factor-driven capital inflows, particularly in the form of direct investment. In addition, EMEs with restrictions on residents' investment abroad or with less developed financial institutions accumulate higher levels of reserves. Next, we introduce a theoretical model with direct investment inflows to explain the empirical findings. In the face of a capital flow bonanza, it is optimal for EMEs to invest abroad to smooth consumption. However, various frictions hinder residents' overseas investments or make the investments socially inefficient. In such cases, the public sector accumulates international reserves to supplement the insufficient private outflows or replace the inefficient private outflows. Reserve accumulation becomes an essential tool for managing capital inflows in the presence of restrictions on private outflows.
    Keywords: international reserves, sudden stops, financial openness
    JEL: E60 E61 F30 F38 G01
  15. By: Ablam Estel Apeti (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne); Bao-We-Wal Bambe (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne); Jean-Louis Combes (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne); Eyah Denise Edoh (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne)
    Abstract: Most developing economies borrow abroad in foreign currency, which exposes them to the problem of "original sin." Although the literature on the issue is relatively extensive, little is said about the role of fiscal frameworks such as fiscal rules in controlling original sin. Hence, using a panel of 59 developing countries over the period 1990-2020 and applying the entropy balancing method, we find that fiscal rules reduce government debt in foreign currency, and that the effects are statistically and economically significant and robust. In addition, the strengthening of the rule, better fiscal discipline prior to the adoption of the reform, financial development, financial openness, flexibility of the exchange rate regime, and sound institutions amplify the negative effect of fiscal rules on original sin.
    Keywords: Original sin, Developing countries, Entropy balancing
    Date: 2023–06–15
  16. By: Luciano Greco (CRIEP; Department of Economics and Management, University of Padova); Francesco J. Pintus (CRIEP; Department of Economics and Management, University of Padova); Davide Raggi (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: We describe a new Euro-stability bond that implies sovereign debt mutualization in the Eurozone without any significant short-term redistribution across countries or perverse incentives to fiscal profligacy. In a simple structural model of the economy, we theoretically show that the proposed Euro-stability bond is able to reproduce the market fiscal discipline while increasing the social welfare of all countries with respect to real market discipline. Relying on a GVAR model including the Eurozone countries, the U.S., Japan and China, we then analyze the future evolution of public debt (and other key macroeconomic variables) over time by comparing the predicted forecast in the baseline scenario and in a counterfactual scenario with the Euro-stability bond. We find no significant differences in the future path of interest expenditures and public debt-to-GDP ratios in the two scenarios, but a consistent reduction in the uncertainty of the estimates in the counterfactual scenario (around 68 % on average after 5 years). The reduced uncertainty of forecasts of public debt and other macroeconomic variables highlights the capacity of the Euro-stability bond to immunize the Eurozone from classical macroeconomic instability shocks that derive by the very existence of high sovereign debts and the related significant rollover risk in a framework of decentralized fiscal policies. To this extent, we finally exploit the results of the GVAR model to assess the capacity of the proposed scheme to reduce the probability of adverse macroeconomic events.
    Keywords: Eurobonds, Fiscal stability, GVAR, Macroeconomic forecasts
    JEL: E02 E47 H63 H68
    Date: 2023
  17. By: Linda S. Goldberg
    Abstract: Global liquidity refers to the volumes of financial flows – largely intermediated through global banks and non-bank financial institutions – that can move at relatively high frequencies across borders. The amplitude of responses to global conditions like risk sentiment, discussed in the context of the global financial cycle, depends on the characteristics and vulnerabilities of the institutions providing funding flows. Evidence from across empirical approaches and using granular data provides policy-relevant lessons. International spillovers of monetary policy and risk sentiment through global liquidity evolve in response to regulation, the characteristics of financial institutions, and actions of official institutions around liquidity provision. Strong prudential policies in the home countries of global banks and official facilities reduce funding strains during stress events. Country-specific policy challenges, summarized by the monetary and financial trilemmas, are partially alleviated. However, risk migration across types of financial intermediaries underscores the importance of advancing regulatory agendas related to non-bank financial institutions.
    JEL: E44 F30 F36 F38 F40 G15 G18 G23
    Date: 2023–06
  18. By: Gizem Koşar; Davide Melcangi; Laura Pilossoph; David Wiczer; Gizem Kosar
    Abstract: Using detailed micro data, we document that households often use “stimulus” checks to pay down debt, especially those with low net wealth-to-income ratios. To rationalize these patterns, we introduce a borrowing price schedule into an otherwise standard incomplete markets model. Because interest rates rise with debt, borrowers have increasingly larger incentives to use an additional dollar to reduce debt service payments rather than consume. Using our calibrated model, we then study whether and how this marginal propensity to repay debt (MPRD) alters the aggregate implications of fiscal transfers. We uncover a trade-off between stimulus and insurance, as high-debt individuals gain considerably from transfers, but consume relatively little immediately. We show how this mechanism can lower short-run fiscal multipliers, but sustain aggregate consumption for longer.
    Keywords: marginal propensity to consume, consumption, debt, fiscal transfers
    JEL: E21 E62
    Date: 2023
  19. By: Shirai, Sayuri (Asian Development Bank Institute)
    Abstract: The global economy has been facing a series of adverse shocks in recent years including the COVID-19 pandemic, climate crisis, the Russian invasion of Ukraine, high inflation, and interest rate shocks driven by global monetary policy normalization. The high cost of fossil fuels since 2021, moreover, has reminded the world that investment for clean energy projects has been severely inadequate due to limited implementation of climate policies and limited capital inflows to financing decarbonization efforts. While overdependence on fossil fuels might be inevitable currently, the world needs to accelerate transition to carbon neutrality and also begin to cope with nature capital stock and biodiversity losses, which are happening at an alarming pace. In particular, more financial support should be provided to emerging and developing economies (EMDEs) to help achieve climate and environmental goals and other sustainable development goals (SDGs). We give an overview of some innovative finance schemes applicable to EMDEs, including blended finance to mobilize more private capital to climate and environmental projects and debt-for-climate swaps (or debt-for-nature swaps), to provide de facto grants to small high-debt economies in exchange for climate projects (or nature protection). We also provide some suggestions for further actions through better coordination among donor and recipient nations led by G7 and G20 nations.
    Keywords: public–private partnership; blended finance; debt-for-nature swaps; performance-based grants
    JEL: F34 F35 F64 G23
    Date: 2022–12
  20. By: Choi, Sangyup (Yonsei University); Willens, Tim (Bank of England); Yoo, Seung Yong (Yonsei University)
    Abstract: We combine industry‑level data on output and prices with monetary policy shock estimates for 105 countries to analyse how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralise, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, nor for a channel running via exports. Our database (containing estimated monetary policy shocks for 177 countries) may be of independent interest to researchers.
    Keywords: Monetary policy transmission; industry growth; financial frictions; heterogeneity in transmission; monetary policy shocks
    JEL: E32 E52 F43 G20
    Date: 2023–05–26
  21. By: Fernando Arce; Julien Bengui; Javier Bianchi
    Abstract: In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production structure and the policy instruments available to the planner. We argue that macroprudential policy is desirable regardless of whether the competitive equilibrium features more or less borrowing than the constrained-efficient equilibrium. In our quantitative analysis, macroprudential taxes on borrowing turn out to be larger when the government has access to ex-post stabilization policies.
    Keywords: Macroprudential Policy; Over-borrowing; Under-borrowing
    JEL: E58 F31 F32 F34
    Date: 2023–05

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