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on Open Economy Macroeconomics |
| By: | Stefano Carattini; Giseong Kim; Givi Melkadze; Aude Pommeret |
| Abstract: | Ambitious climate policy, coupled with financial frictions, has the potential to create macrofinancial stability risk. Such stability risk may expand beyond the economy implementing climate policy, potentially catching other countries off guard. International spillovers may occur because of trade and financial channels. Hence, we study the design and effects of climate policies in the world economy with international trade and financial flows. We develop a two-sector, two-country, dynamic general equilibrium model with financial frictions, climate policies, including carbon tariffs, and macroprudential policies. Using the calibrated model, we evaluate spillovers from unilateral domestic carbon pricing to foreign economies and back. We also examine more ambitious climate architectures involving carbon tariffs or a global carbon price. We find that accounting for cross-border financial flows and frictions in credit markets is crucial to understand the effects of climate policies and to guide the implementation of macroprudential policies at the global scale aimed at minimizing transition risk and paving the way for ambitious climate policy. |
| Keywords: | financial frictions, carbon tax, carbon tariffs, open economy |
| JEL: | E44 E58 F38 F42 G18 Q58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10851&r=opm |
| By: | Sullivan, Megan |
| Abstract: | This paper investigates the determinants of countries' choice of monetary policy frameworks (MPF) for emerging and developing countries. Countries make different MPF choices and we think it is because they have different country-level characteristics (e.g. democratic strength and trade networks). By covering 87 countries from 1985-2017, we investigate the role these characteristics play in predicting MPF choice. A highlight of this paper is that it uses a tailored variable to measure the volume of trade with a network that pegs to an anchor currency. We find that a country is significantly more likely to choose an exchange rate MPF when the volume increases. The model used in this paper correctly predicts 74% of MPF choice when done via a cross-validation method. This paper enables policymakers to see which MPF countries similar to their own have chosen, and they can decide if it is suitable for them, too. |
| Keywords: | Inflation targeting, central bank independence, trade networks, cross-validation |
| JEL: | E42 E52 E58 F40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hwuaef:280994&r=opm |
| By: | Javier Bianchi; Louphou Coulibaly |
| Abstract: | Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that determine whether the Nash equilibrium exhibits under-tightening or over-tightening: the output gap, sectoral differences in labor intensity, and the trade balance response to changes in nominal rates. Independently of the shocks hitting the economy, we find that under-tightening is possible during economic expansions or contractions. For large shocks, the gains from coordination can be substantial. |
| Keywords: | Macroeconomic and financial spillovers; Monetary policy cooperation |
| JEL: | E23 E43 E52 E21 E62 E44 F32 |
| Date: | 2024–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:97546&r=opm |
| By: | Agostina Brinatti; Xing Guo |
| Abstract: | We study how the effects of U.S. restrictions on skilled immigration affect the Canadian economy and American workers’ welfare. In 2017, the United States implemented a policy that tightened the eligibility criteria for U.S. visas. This was followed immediately by a trend break in the number of skilled immigrant admissions to Canada. We use quasi-experimental variation introduced by this policy over time and across immigrant groups, along with U.S. and Canadian visa applications data, to show that in 2018 visa applications for moving to Canada increased by 30% relative to the period before the restrictions were imposed. We then study how the restrictions affected Canadian firms. We use comprehensive Canadian administrative databases containing the universe of employer-employee linked records, immigration records, and international trade data. We find that Canadian firms that were relatively more exposed to the inflow of immigrants increased production, exports, and employment of Canadian workers. Finally, we study the policy’s impact on American workers by incorporating immigration policy into a multi-sector international trade model. With international trade, the increase in immigration to other countries due to the restrictions affects American wages through U.S. exports and consumption prices. We calibrate the model using our novel data and reduced-form estimates. We find that the welfare gains for American workers targeted for protection by the 2017 policy are up to 25% larger in a closed economy than they are in an open economy with the observed trade levels. |
| Keywords: | International topics; Labour markets; Recent economic and financial developments; Trade integration |
| JEL: | F16 F22 J61 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-60&r=opm |
| By: | Ambrocio, Gene; Hasan, Iftekhar; Li, Xiang |
| Abstract: | We study the implications of forging stronger political ties with the US on the sensitivities of stock returns around the world to a global common factor - the global financial cycle. Using voting patterns at the United Nations as a measure of political ties with the US along with various measures of the global financial cycle, we document evidence indicating that stronger political ties with the US amplify the sensitivities of stock returns in developing countries to the global financial cycle. We explore several channels and find that a deepening of financial linkages along with a reduction in information asymmetries and an amplification of sentiment are potentially important factors behind this result. |
| Keywords: | Political Ties, Global Financial Cycle, International Spillovers, Stock returns |
| JEL: | E44 F30 F50 G15 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:281065&r=opm |
| By: | McCully, Tuuli |
| Abstract: | The paper focuses on China's onshore bond market and the drivers of non-resident net portfolio flows into Chinese debt securities. Building on a theoretical model of push and pull factors as a foundation for the empirical analysis on drivers of bond flows into China, static and time-varying models are estimated to explain the importance of various push and pull factors in the context of China's bond market development. While China-specific pull factors, such as domestic economic growth prospects and asset returns, are important drivers of bond flows, the results reveal that global push factors, such as US interest rates and investor risk aversion, have recently gained significance as drivers of flows into China. This shift goes hand in hand with China's gradual bond market liberalization measures. The findings confirm China's continued bond market deepening and integration with the rest of the world. |
| Keywords: | capital flows, portfolio flows, push factors, pull factors, financial openness |
| JEL: | F32 F34 F36 F41 G11 G28 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:280981&r=opm |