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on Open Economy Macroeconomics |
By: | Miguel Acosta-Henao; Andrés Fernández; Patricia Gomez-Gonzalez; Sebnem Kalemli-Ozcan |
Abstract: | We analyze whether central bank credit lines and government-backed guarantees helped mitigate the impact of the pandemic's sudden stop, marked by the abrupt withdrawal of international capital, using administrative data on the universe of Chilean firms. Our regression discontinuity design reveals that eligible firms increased domestic borrowing at lower costs. These policies reduced the cost of domestic debt compared to foreign debt, easing access to capital. An open economy model explains the complementarity of both interventions--credit lines and guarantees--in relaxing collateral constraints, reducing financial intermediaries' risk aversion and boosting domestic credit supply amidst shrinking international flows. |
Keywords: | Capital flows; firm financing; unconventional policies; foreign currency |
Date: | 2025–04–11 |
URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/072 |
By: | Mr. Eugenio M Cerutti; Antonio I Garcia Pascual; Yosuke Kido; Longji Li; Mr. Giovanni Melina; Ms. Marina Mendes Tavares; Mr. Philippe Wingender |
Abstract: | This paper examines the uneven global impact of AI, highlighting how its effects will be a function of (i) countries’ sectoral exposure to AI, (ii) their preparedness to integrate these technologies into their economies, and (iii) their access to essential data and technologies. We feed these three aspects into a multi-sector dynamic general equilibrium model of the global economy and show that AI will exacerbate cross-country income inequality, disproportionately benefiting advanced economies. Indeed, the estimated growth impact in advanced economies could be more than double that in low-income countries. While improvements in AI preparedness and access can mitigate these disparities, they are unlikely to fully offset them. Moreover, the AI-driven productivity gains could reduce the traditional role of exchange rate adjustments due to AI’s large impact in the non-tradable sector—a mechanism akin to an inverse Balassa-Samuelson effect. |
Keywords: | Artificial Intelligence; Productivity; Multi-Region DSGE Model |
Date: | 2025–04–11 |
URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/076 |
By: | Yang Jiao (Fanhai International School of Finance, Fudan University); Ohyun Kwon (School of Economics, Drexel University) |
Abstract: | This paper investigates firm-level linkage between international finance and trade. Specifically, we present evidence that Korean firms rely more on financing in foreign currency if there is a positive export shock. We address the crucial endogeneity problem by capitalizing on South Korea’s as well as its trading partners’ demand shocks. We further show that global supply chains also play an important role as higher imported intermediate input shares induce lower foreign currency debt shares. Our findings point to a firm-level hedging channel and are pertinent to exchange rate policies that aim to reduce a (developing) country’s vulnerability to exchange rate shocks. |
Keywords: | Trade Shocks, Debt Finance, Currency Composition, Exchange Rate Risk, Global Supply Chains |
JEL: | F14 F31 G32 |
Date: | 2025–04 |
URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202518 |
By: | Kolasa, Marcin (International Monetary Fund); Laséen, Stefan (Monetary Policy Department, Central Bank of Sweden); Lindé, Jesper (Sveriges Riksbank and International Monetary Fund) |
Abstract: | This paper provides a comprehensive assessment of the macroeconomic and fiscal impact of unconventional monetary tools in small open economies. Using a DSGE model, we show that the exchange rate plays a critical role to amplify the favourable impact of unconventional monetary policy while it attenuates the effectiveness of conventional fiscal policy to jointly boost output and inflation. We then use the model as a laboratory to do a case study of the Swedish Riksbank asset purchases and negative policy rates 2015-2019. We find that the Riksbank unconventional policy measures provided meaningful macroeconomic stimulus to economic activity and inflation, with the dual benefit of reducing overall government debt by about 5 percent of GDP. If conventional fiscal policy had been used to provide a commensurate output boost, inflation would have risen notably less, and the fiscal cost would have amounted to a deterioration of the government debt position with nearly 5 percent of GDP. |
Keywords: | Monetary Policy; Asset Purchases; Quantitative Easing; Negative Interest Rate Policy; Fiscal Policy |
JEL: | D44 E52 E58 E63 |
Date: | 2025–04–01 |
URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0450 |
By: | Ablam Estel Apeti (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); 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: | 2024–06 |
URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04130477 |
By: | Eiji Fujii; Xingwang Qian |
Abstract: | This paper investigates the cyclicality of international reserves and their role in macroeconomic stabilization. We challenge two widely held assumptions: (1) central banks typically manage IR counter-cyclically—accumulating reserves during booms and drawing them down during downturns; and (2) such interventionist management is primarily associated with rigid exchange rate regimes. Analyzing data from 179 countries (1972-2022), we find that counter-cyclical IR management is less common than often assumed. However, as a macroprudential policy, counter-cyclical international reserves significantly reduce output volatility, particularly when interacting with de facto flexible exchange rate regimes. This stabilizing effect is especially pronounced in emerging markets between the 1997 Asian financial crisis and the 2008 global financial crisis. |
Keywords: | international reserves, cyclicality, exchange rate regime, macroprudential policy, output volatility. |
JEL: | F34 F31 |
Date: | 2025 |
URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11800 |
By: | Mr. Cian Allen; Mr. Rudolfs Bems; Lukas Boer; Racha Moussa |
Abstract: | US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery. |
Keywords: | Uncovered Interest Parity; International Spillovers; Global Financial Cycle; Commodity Prices |
Date: | 2025–04–04 |
URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/065 |
By: | Stefan Avdjiev; Leonardo Gambacorta; Linda S Goldberg; Stefano Schiaffi |
Abstract: | The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the balance sheet (capital and leverage) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We document that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans to international debt securities was associated with a decline in the risk sensitivity of global liquidity flows to EME borrowers. |
Keywords: | global liquidity, international bank lending, international bond flows, emerging markets, advanced economies |
JEL: | G10 F34 G21 |
Date: | 2025–04 |
URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1262 |
By: | Gita Gopinath; Josefin Meyer; Carmen Reinhart; Christoph Trebesch |
Abstract: | Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20 years. We use rich new data to compare high-yield US corporate (“junk”) bonds to high-yield emerging market sovereign bonds 2002-2021. Investor experiences in these two asset classes were surprisingly aligned, with (i) similar average excess returns, (ii) similar average risk-return patterns (Sharpe ratios), (iii) similar default frequency, and (iv) comparable haircuts. A notable difference is that the average default duration is higher for sovereigns. Moreover, the two markets co-move differently with domestic and global factors. US “junk” bond yields are more closely linked to US market conditions such as US stock returns, US stock price volatility (VIX), or US monetary policy. |
Keywords: | sovereign debt and default, default risk, corporate bonds, corporate default, junk bonds, chapter 11, crisis resolution. |
JEL: | F30 G10 F40 |
Date: | 2025 |
URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11799 |
By: | Jesper Lindé; Marcin Kolasa; Stefan Laseen |
Abstract: | This paper provides a comprehensive assessment of the macroeconomic and fiscal impact of unconventional monetary tools in small open economies. Using a DSGE model, we show that the exchange rate plays a critical role to amplify the favourable impact of unconventional monetary policy while it attenuates the effectiveness of conventional fiscal policy to jointly boost output and inflation. We then use the model as a laboratory to do a case study of the Swedish Riksbank asset purchases and negative policy rates 2015-2019. We find that the Riksbank unconventional policy measures provided meaningful macroeconomic stimulus to economic activity and inflation, with the dual benefit of reducing overall government debt by about 5 percent of GDP. If conventional fiscal policy had been used to provide a commensurate output boost, inflation would have risen notably less, and the fiscal cost would have amounted to a deterioration of the government debt position with nearly 8 percent of GDP. |
Keywords: | Monetary Policy; Asset Purchases; Quantitative Easing; Negative Interest Rate Policy; Fiscal Policy |
Date: | 2025–04–04 |
URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/066 |
By: | António Afonso; José Alves; José Carlos Coelho; Jamel Saadaoui |
Abstract: | We implement a two-step analysis of fiscal and external causality patterns using a data set covering the 27 EU countries in the period 2002Q1-2023Q4. In the 1st step, we compute fiscal and external sustainability time-varying coefficients, modelling the cointegration relationship between government revenues and government spending, and between exports and imports. In the 2nd step, we use three recursive strategies, combined with Granger causality tests: forward expanding, rolling, and recursive window methods to capture causal relationships. Our results show that: (i) peripheral countries have lower sustainability coefficients, while non-Eurozone countries have higher sustainability coefficients, (ii) after the 2008 global financial crisis, there was an improvement in fiscal and external sustainability for most countries, (iii) during the Eurozone crisis in 2010-2012, in Austria, France, Greece, Ireland, Netherlands, Slovakia and Spain, there was causality between fiscal and external sustainability, (iv) during that period, causality was observed between the external and fiscal sustainability in EMU countries (Austria, Germany, Malta, Netherlands, Slovakia, Slovenia, Spain) and in non-EMU countries. |
Keywords: | fiscal sustainability, external sustainability, European Union, time-varying causality, lag-augmented vector autoregression |
JEL: | C22 C23 F32 F41 H30 H62 |
Date: | 2025 |
URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11694 |