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on Open Economy Macroeconomics |
| By: | Ricardo Correa; Julian di Giovanni; Linda S. Goldberg; Camelia Minoiu |
| Abstract: | This paper uses U.S. loan-level credit register data and the 2018–2019 Trade War to test for the effects of international trade uncertainty on domestic credit supply. We exploit cross-sectional heterogeneity in banks’ ex-ante exposure to trade uncertainty and find that an increase in trade uncertainty is associated with a contraction in bank lending to all firms irrespective of the uncertainty that the firms face. This baseline result holds for lending at the intensive and extensive margins. We document two channels underlying the estimated credit supply effect: a wait-and-see channel by which exposed banks assess their borrowers as riskier and reduce the maturity of their loans, and a financial frictions channel by which exposed banks facing relatively higher balance sheet constraints contract lending more. The decline in credit supply has real effects: firms that borrow from more exposed banks experience lower debt growth and investment rates. These effects are stronger for firms that are more reliant on bank finance. |
| Keywords: | trade uncertainty; bank loans; trade finance; global value chains; trade war |
| JEL: | F34 F42 G21 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:97289&r=opm |
| By: | Luis Brandao-Marques; Marco Casiraghi; Gaston Gelos; Olamide Harrison; Güneş Kamber |
| Abstract: | This paper examines whether high public debt levels pose a challenge to containing inflation. It does so by assessing the impact of public debt surprises on inflation expectations advanced- and Emerging Market Economies. It finds that debt surprises raise long-term inflation expectations in Emerging Market Economies in a persistent way, but not in advanced economies. The effects are stronger when initial debt levels are already high, when inflation levels are initially high, and when debt dollarization is significant. By contrast, debt surprises have only modest effects in countries with inflation targeting regimes. Increased debt levels may complicate the fight against inflation in Emerging Market Economies with high and dollarized debt levels, and weaker monetary policy frameworks. |
| Keywords: | inflation expectations, monetary policy, fiscal dominance, debt |
| JEL: | E31 E41 E52 E62 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1141&r=opm |
| By: | Juan Carlos Conesa; Timothy J. Kehoe |
| Abstract: | By preemptive austerity, we mean a policy that increases taxes to deter potential rollover crises. The policy is so successful that the usual danger signal of a rollover crisis, a high yield on new bonds sold, does not show up because the policy eliminates the danger. Mechanically, high taxes make the safe zone in the model — the set of sovereign debt levels for which the government prefers to repay its debt rather than default — larger. By announcing a high tax rate at the beginning of the period, the government ensures that tax revenue will be high enough to service sovereign debt becoming due, which deters panics by international lenders but is ex-post suboptimal. That is why, as it engages in preemptive austerity, the government continues to reduce the level of debt to a point where, asymptotically, high taxes are no longer necessary. |
| JEL: | E6 F3 F4 H2 H3 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31828&r=opm |
| By: | Mignot, Sarah; Westerhoff, Frank H. |
| Abstract: | We propose a simple agent-based version of Paul de Grauwe's chaotic exchange rate model. In particular, we assume that each speculator follows his own technical and fundamental trading rule. Moreover, a speculator's choice between these two trading philosophies depends on his individual assessment of current market circumstances. Our agent-based model setup is able to explain a number of important stylized facts of foreign exchange markets, including bubbles and crashes, excess volatility, fat-tailed return distributions, serially uncorrelated returns and volatility clustering. A stability and bifurcation analysis of its deterministic skeleton provides us with useful insights that foster our understanding of exchange rate dynamics. |
| Keywords: | Foreign exchange markets, exchange rates, chartists and fundamentalists, agent-based computational economics, stability and bifurcation analysis |
| JEL: | D84 F31 G14 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:279554&r=opm |
| By: | Mahlkow, Hendrik; Wanner, Joschka |
| Abstract: | International trade is highly imbalanced both in terms of values and in terms of embodied carbon emissions. We show that the persistent current value trade imbalance patterns contribute to a higher level of global emissions compared to a world of balanced international trade. Specifically, we build a Ricardian quantitative trade model including sectoral input-output linkages, trade imbalances, fossil fuel extraction, and carbon emissions from fossil fuel combustion and use this framework to simulate counterfactual changes to countries' trade balances. For individual countries, the emission effects of removing their trade imbalances depend on the carbon intensities of their production and consumption patterns, as well as on their fossil resource abundance. Eliminating the Russian trade surplus and the US trade deficit would lead to the largest environmental benefits in terms of lower global emissions. Globally, the simultaneous removal of all trade imbalances would lower world carbon emissions by 0.9 percent or 295 million tons of carbon dioxide. |
| Keywords: | Carbon emissions, international trade, gravity |
| JEL: | F14 F18 Q56 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewep:279808&r=opm |
| By: | Valida Pantsulaia (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Ana Jangveladze (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia) |
| Abstract: | Dollarization (usage of a foreign currency in place of a domestic one) is a widely observed phenomenon that historically emerged as a result of extended macro-financial instability and extreme price and nominal exchange rate fluctuations. Complete loss of public confidence in a local currency pushed lenders and borrowers to seek more stable foreign currencies like the US dollar and euro. What is more puzzling though is that in many countries dollarization remained at an elevated level even after taking care of its root cause (i.e. after achieving price stability). There have been several explanations of this phenomenon (the so-called dollarization hysteresis). In this short paper, we propose additional explanations in the form of several dollarization-induced negative externalities, including an amplification of credit procyclicality and exchange rate pass-through or a worsening of credit ratings of dollarized economies. We also offer some back-of-the-envelope calculations showing that these externalities could be economically significant (about 1 pp impact on real GDP growth per year) for a small and highly dollarized country like Georgia. This type of market failures underline the importance of prudential policies that internalize negative externalities and, hence, level the playing field for the local currency. |
| Keywords: | Financial dollarization; Negative externality |
| JEL: | E44 E58 F34 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:aez:wpaper:2023-01&r=opm |
| By: | Victor Pontines; Davaajargal Luvsannyam |
| Abstract: | This study investigates the role of fiscal policy in stabilising resource-rich economies vulnerable to external commodity shocks, with a specific focus on Mongolia. We analyse the effects of various external commodity shocks on Mongolia’s economy and find that fiscal policy’s responses to these shocks have been counter-cyclical. Additionally, we construct policy counterfactuals to examine the insulating role of fiscal policy on real domestic output. The findings reveal that counter-cyclical fiscal measures, particularly government expenditure, and to a lesser extent, government revenue, played an important role in Mongolia’s response to external commodity shocks. |
| Keywords: | external commodity shocks, fiscal policy, real output, Mongolia |
| JEL: | C51 E62 F41 Q43 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-57&r=opm |