nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2023‒10‒09
six papers chosen by
Martin Berka, Massey University

  1. Global Supply Chains: The Looming “Great Reallocation” By Laura Alfaro; Davin Chor
  2. Global Capital Allocation By Sergio Florez-Orrego; Matteo Maggiori; Jesse Schreger; Ziwen Sun; Serdil Tinda
  3. Determinants of monetary policy frameworks in emerging and developing countries By Sullivan, Megan
  4. Selective Default Expectations By Olivier Accominotti; Thilo N. H. Albers; Kim Oosterlinck
  5. A History of Current Account Balances in Japan from the Perspectives of Savings and Investment By Mariko Hatase; Yoichi Matsubayashi
  6. Debtor (non-)participation in sovereign debt relief: A real option approach By Danny Cassimon; Dennis Essers; Andrea Presbitero

  1. By: Laura Alfaro; Davin Chor
    Abstract: Global supply chains have come under unprecedented stress as a result of US-China trade tensions, the Covid-19 pandemic, and geopolitical shocks. We document shifts in the pattern of US participation in global value chains over the last four decades, in terms of partner countries, products, and modes, with a focus on the last five years (2017-2022). The available data point to a looming “great reallocation” in supply chain activity: Direct US sourcing from China has decreased, with low-wage locations (principally: Vietnam) and nearshoring/friendshoring alternatives (notably: Mexico) gaining in import share. The production line positioning of the US’ imports has also become more upstream, which is indicative of some reshoring of production stages. We sound several cautionary notes over the policies that have set this reallocation in motion: It is unclear if these measures will reduce US dependence on supply chains linked to China, and there are moreover already signs that prices of imports from Vietnam and Mexico are on the rise.
    JEL: F0 F1
    Date: 2023–09
  2. By: Sergio Florez-Orrego; Matteo Maggiori; Jesse Schreger; Ziwen Sun; Serdil Tinda
    Abstract: We survey the literature on global capital allocation. We begin by reviewing the rise of cross-border investment, the shift towards portfolio investment, and the literature focusing on aggregate patterns in multilateral and bilateral positions. We then turn to the recent literature that uses micro-data to document patterns in global capital allocations. We focus on the importance of the currency of denomination of assets in international portfolios and the role that tax havens and offshore financial centers play in intermediating global capital. We conclude with directions for future research in this area.
    JEL: F0 F3 F30
    Date: 2023–08
  3. By: Sullivan, Megan
    Abstract: This paper investigates the determinants of countries’ choice of monetary policy frameworks for emerging and developing countries. It draws on the literature concerning how exchange rate regimes are determined, and the much smaller body of literature on determination of monetary policy frameworks (for advanced and emerging countries), to identify 3 approaches that account for countries’ choice of monetary policy framework. We empirically test the joint relevance of the variables within each theory and find them to be jointly statistically significant. A key highlight of this paper is that it uses an (emerging and developing) country tailored variable that measures trade networks of potential currency blocs. The model correctly predicts 79% of countries’ choice of framework, when aggregated by target variable, and 84% of countries’ choices, when aggregated by degree of monetary control.
    Keywords: monetary policy frameworks; trade networks; inflation targets; exchange rate targets; discretion; central bank independence
    JEL: E42 E52 E58 F40
    Date: 2023–07
  4. By: Olivier Accominotti (London School of Economics and Political Science); Thilo N. H. Albers (HU Berlin); Kim Oosterlinck (Université libre de Bruxelles)
    Abstract: This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market segmentation. We show that, when secondary debt markets are segmented, a large selective default probability can be priced in bond yield spreads. Selective default risk accounted for one third of the yield spread of German external bonds over the risk-free rate during the 1930s. Selective default expectations arose from differences in the creditor countries' economic power over the debtor.
    Keywords: sovereign risk; debt default; secondary markets; creditor discrimination;
    JEL: F13 F34 G12 G15 H63 N24 N44
    Date: 2023–09–12
  5. By: Mariko Hatase (Director and senior economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Professor, Institute of Economic Research, Hitotsubashi University, E-mail: hatase@; Yoichi Matsubayashi (Professor, Graduate School of Economics, Kobe University (E-mail:
    Abstract: Theories on the determinants of current account balances are not immutable. While Japan's current account surplus was a major issue for international policy debates between the late 1960s and the 1980s, existing theories coexisted with a novel theory known as the savings and investment approach. The review on historical materials from the archives of policymakers, such as the Bank of Japan, and from international organisations, such as the International Monetary Fund, reveals that the early appearance of this theory in research documents could be traced back to the late 1970s, but the penetration of the notion took many years. The choices of the theory are linked to the choices of suggestions or requests of particular types of macroeconomic policies. We examine the development of Japan's current account balances between the mid-1950s and the mid-1980s using the savings and investment approach, which enables us to distinguish between structural and actual fluctuations. The estimated results indicate that the role of structural factors in the current account balance was strengthened during the second half of the 1960s and the first half of the 1970s. Then, in the 1980s, it began to increase rapidly again.
    Keywords: Current accounts adjustment, Balance of payments, Savings and investment approach, Structural current accounts
    JEL: E20 E60 F32 N10
    Date: 2023–08
  6. By: Danny Cassimon (University of Antwerp); Dennis Essers (Economics and Research Department, National Bank of Belgium); Andrea Presbitero (International Monetary Fund and CEPR)
    Abstract: Developing countries have recently proved reluctant to participate in sovereign debt moratoria and debt relief initiatives. We argue that debtors' (non-)participation decisions can be understood through the lens of real options. Eligible countries compare the net benefits of participating in a debt relief initiative now with the value of waiting to potentially execute their participation option later, when they may have more information on the benefits and costs. We corroborate the real option framing with anecdotal evidence and through a survival analysis that exploits cross-country and time variation in the requests to participate in the Debt Service Suspension Initiative (DSSI), which provided temporary debt moratoria during the COVID-19 pandemic. Structured along the policy levers suggested by the real option framework, we discuss a number of ways in which participation in debt relief initiatives can be made more attractive to debtor countries.
    Keywords: sovereign debt, sovereign debt relief, Debt Service Suspension Initiative, Common Framework, real options, survival analysis
    JEL: H63 F34 F55
    Date: 2023–09

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