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on Open Economy Macroeconomics |
| By: | Hugo Oriola; Jamel Saadaoui |
| Abstract: | This research provides novel empirical evidence about the exchange rate reaction to international organization loans and geopolitical preferences using an unbalanced panel of 153 countries observed from February 1993 to December 2019. For elected temporary members of the UN Security Council, the IMF loans cause a sizeable appreciation in the exchange rate vis-à-vis the USD of around 2 percent at the 12-month horizon, after controlling for institutional quality. ADB loans cause an appreciation of around 0.25 percent at the 4-month horizons. These effects are stronger when the geopolitical distance with China is higher, indicating a higher credibility for these loans. |
| Keywords: | Exchange rates, Geopolitical preferences, International organization loans, Institutional quality, Local projections |
| JEL: | D78 F30 F42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-2 |
| By: | Gaaitzen de Vries; Hagen Kruse; Emmanuel Mensah; Yabo Vidogbena; Kei-Mu Yi |
| Abstract: | We study the evolution of manufacturing value added shares in 11 sub-Saharan African (SSA) countries through the lens of an open economy model of structural change. Our analysis leverages recent developments in input-output tables in SSA countries. Our model allows for income effects via non-homothetic preferences, substitution and relative price effects, as well as comparative advantage and specialization effects. We calibrate our model to include each SSA country with nine other major economies for each year between 2000 and 2018. We also do a similar set of calibrations for 11 developing Asian (DA) countries. Our main results are that domestic and foreign sectoral TFP are important drivers of structural change. Trade integration over time plays only a small role. However, trade is important as a transmission mechanism of foreign productivity trends. Finally, the drivers and mechanisms of industrialization are broadly similar in low-income SSA and DA countries. |
| Keywords: | international trade; structural change; input-output; low-income countries |
| JEL: | F11 F43 O11 O41 |
| Date: | 2024–12–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99314 |
| By: | Kris James Mitchener; Kirsten Wandschneider |
| Abstract: | The Great Depression is the canonical case of a widespread currency war, with more than 70 countries devaluing their currencies relative to gold between 1929 and 1936. What were the currency war’s effects on trade flows? We use newly-compiled, high-frequency bilateral trade data and gravity models that account for when and whether trade partners had devalued to identify the effects of the currency war on global trade. Our empirical estimates show that a country’s trade was reduced by more than 21% following devaluation. This negative and statistically significant decline in trade suggests that the currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs. |
| JEL: | F13 F14 F33 F42 N10 N70 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33313 |
| By: | Karen Davtyan (Departament d'Economia Aplicada, Universitat Autònoma de Barcelona (UAB)); Omar Elkaraksy (Departament d'Economia Aplicada, Universitat Autònoma de Barcelona (UAB)) |
| Abstract: | We evaluate the financial effects of monetary policy over the transition period from a fixed to a floating exchange rate regime in Egypt. The baseline evaluation is implemented through an event study methodology (high frequency identification) by estimating the effects of monetary policy announcements on financial indicators. The results reveal that a currency devaluation leads to a significant increase in stock prices. A change in the monetary policy interest rate significantly affects treasury yields. It takes more time for treasury yields with longer maturities to reflect the effects of monetary policy announcements. The results are mainly driven by the period when the exchange rate regime was closer to a floating system. The results also highlight the importance of politically and economically stable environment for the efficient transmission of monetary policy. |
| Keywords: | monetary policy, financial markets, exchange rate regime, developing economy, Egypt |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:uab:wprdea:wpdea2407 |
| By: | Hugo Oriola; Jamel Saadaoui |
| Abstract: | This research investigates the intricate dynamics between the catalytic and inhibitory effects of projects financed by international institutions and geopolitical interests. Thanks to the construction of a monthly dataset, we first examine the impact of the approval of a project financed by one out of five international institutions on the global macroeconomic situation on non-permanent members of the United Nations Security Council (UNSC). In particular, we study the potential catalytic effect or inhibitory effect of the International Monetary Fund, the World Bank, the Asian Development Bank, the European Investment Bank, and the Asian Infrastructure Investment Bank. We underline the existence of a catalytic effect and an inhibitory effect in non-permanent members of the UNSC that can significantly impact national macroeconomic situations in a positive or negative way. Second, we contribute to the literature by emphasizing the importance of the country's geopolitical preferences in the existence and nature of the catalytic effect. We measure these geopolitical preferences through the distance between one country's ideal point in the United Nations General Assembly and the ideal points of UNSC permanent members session after session. |
| Keywords: | International institutions, United Nations, Geopolitical preferences, Catalytic effect, Inhibitory effect |
| JEL: | D78 F30 F42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-3 |
| By: | Huixin Bi; Andrew Foerster; Nora Traum |
| Abstract: | Central bank asseUsing a two-country monetary-union framework with financial frictions, we study sovereign default and liquidity risks and quantify the efficacy of asset purchases. Default risk increases with government indebtedness and shifts in the fiscal limit perceived by investors. Liquidity risks increase when the default probability affects credit market tightness. The framework indicates that shifts in fiscal limits, more than rising government debt, played a crucial role for Italy around 2012. While both default and liquidity risks can dampen economic and financial conditions, the model suggests that the magnifying effect from liquidity risks can be more consequential. In this context, asset purchases can stabilize economic conditions especially under scenarios of elevated financial stress.t purchases can effectively stabilize economic conditions, especially in scenarios of elevated financial stress. |
| Keywords: | Monetary and fiscal policy interaction; unconventional monetary policy; Regime-Switching Models |
| JEL: | E58 E63 F45 |
| Date: | 2024–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:99294 |
| By: | Shafiqullah Yousafzai; Hisahiro Naito |
| Abstract: | Exchange rate is one of the most volatile macroeconomic price variables. The fluctuations in the exchange rate generate volatility in the profits of firms and reduce the incentives of firms to enter the market or to expand their capacity. In response to exchange rate volatility firms may reduce labor costs to mitigate the negative impact through firing workers, reducing the work hours, eliminating severance pay, etc. However, labor market rigidity restricts a firm’s ability to implement such adjustment, consequently amplifying the negative impact of exchange rate volatility on economic outcomes. This study contributes to literature by investigating the interaction effects of exchange rate volatility and labor market rigidity on industrial exports growth. We utilized a country-industry-level disaggregated panel dataset covering 17 industries for the span of 14 years (2005-2018) across 62 developed and developing countries. For our benchmark regression analysis, we employ the labor market regulation rigidity index developed by Campos et al. (2018), employing alternative indices constructed by Forteza and Rama (2006) and Botero et al. (2004) for robustness checks. Our unique measure of exchange rate volatility captures unpredictable fluctuations in the real exchange rate over the last three months. We used the fixed effects model, analogous to the triple-D estimation for the empirical analysis. We find negative and statistically significant impact of the interaction between exchange rate volatility and labor market rigidity on export growth. The findings indicate that in a country where labor market rigidity is one standard deviation higher, a one standard deviation increases in exchange rate volatility reduce export growth by 3.45 percentage points. The estimated coefficient is economically significant as well. This implies that the estimated coefficient reduces annual export growth by 3.45 percentage points relative to the annual average export growth of 3.2%. However, the estimated coefficient is smaller relative to the 40% standard deviation of annual average export growth. In subsample analysis, the results for developed and developing countries are consistent with the main findings. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:tsu:tewpjp:2024-004 |
| By: | Pamela Cardozo; Andrés Fernández; Jerzy Jiang; Felipe D Rojas |
| Abstract: | Cross-border crypto flows (CBCFs) are not systematically measured and are poorly understood. After defining CBCFs and the channels through which they materialize, we review the various approaches to measure them through two case studies. We also quantify the dynamics and drivers of CBCFs through a push/pull factor SVAR model. We find an increasingly large volume of CBCFs, although considerable heterogeneity remains across estimates. Furthermore, CBCFs are more sensitive to push factors than regular capital flows. Our findings call for accurate and comprehensive measurement and monitoring of CBCFs and the need to rethink capital account restrictions in a more digitalized world. |
| Keywords: | Crypto assets; cross-border flows; capital flows; measurement; push-pull factors; capital account restrictions |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/261 |
| By: | Swapan-Kumar Pradhan; Előd Takáts; Judit Temesvary |
| Abstract: | We use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending. For instance, a reduction in the German debt-to-GDP ratio amplifies the negative impact of US monetary policy tightening on USD-denominated cross-border bank lending outflows from German banks. The interaction effects are the strongest for US monetary policy. |
| Keywords: | Monetary policy; Government debt; Cross-border claims; Difference-in-differences |
| JEL: | E63 F34 F42 G21 G38 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1400 |
| By: | Christopher Clayton; Matteo Maggiori; Jesse Schreger |
| Abstract: | Hegemonic powers, like the United States and China, exert influence on other countries by threatening the suspension or alteration of financial and trade relationships. Mechanisms that generate gains from integration, such as external economies of scale and specialization, also increase the hegemon’s power because in equilibrium they make other relationships poor substitutes for those with a global hegemon. Other countries can implement economic security policies to shape their economies in order to insulate themselves from undue foreign pressure. Countries considering these policies face a tradeoff between gains from trade and economic security. While an individual country can make itself better off, uncoordinated attempts by multiple countries to limit their dependency on the hegemon via economic security policies lead to inefficient fragmentation of the global financial and trade system. We study financial services as a leading application both as tools of coercion and an industry with strong strategic complementarities. We estimate that U.S. geoeconomic power relies on financial services, while Chinese power relies on manufacturing. Since power is nonlinear and increases disproportionally as the hegemon approaches controlling the entire supply of a sectoral input, we estimate that much economic security could be achieved with little overall fragmentation by diversifying the input sources of key sectors currently controlled by the hegemons. |
| JEL: | F02 F12 F15 F33 F36 F38 F43 F45 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33309 |