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on Open Economy Macroeconomics |
| By: | Altavilla, Carlo; Gürkaynak, Refet S.; Laeven, Luc; Kind, Thilo |
| Abstract: | We empirically examine the role of both official monetary policy announcements and policymakers’ speeches in the transmission of monetary policy to financial markets and the real economy in the euro area. Using intraday data covering a broad cross-section of financial assets, we construct the Euro Area Extended Monetary Policy Event-Study Database (EA-EMPD). We refine the identification of monetary policy surprises by exploiting granular, quote-level data on individual participants’ bid and ask submissions. This novel dataset expands the set of identifiable policy events by an order of magnitude relative to databases based solely on scheduled rate-setting meetings. Our analysis yields three main findings. First, speeches by euro area policymakers exert statistically and economically significant effects on asset prices across maturities, with magnitudes comparable to those observed following official policy announcements. Second, the transmission of speech-induced short-rate changes to the real economy closely mirrors that of policy decisions and combining both types of surprises significantly enhances the precision of statistical inference. Finally, when speeches are included in the measurement of policy surprises, the share of real-economy variance attributable to monetary policy increases fivefold, although its absolute magnitude remains relatively modest. JEL Classification: E43, E44, E52, E58, G14 |
| Keywords: | BVAR, event study, monetary policy surprise, speeches |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253157 |
| By: | Assaf Razin |
| Abstract: | This paper investigates the consequences of regime change for both migration and foreign direct investment (FDI) by employing quasi-natural experiments that exploit external and internal shocks to democratic institutions. It compares evidence from Europe, which was afflicted by the “Syrian Shock”—an external institutional stress testing administrative and fiscal capacity—and Israel, which experienced the “Corruption Shock”—an internal credibility crisis that eroded judicial independence and policy predictability. These two shocks provide a natural experiment to examine how weakening democratic institutions influence both capital mobility and people mobility, using a unified econometric framework. The analysis applies Difference-in-Differences (DiD) estimation to OECD panel data spanning 1995–2023 to isolate the causal effects of institutional deterioration on FDI inflows and migration flows. The DiD approach, complemented by fixed effects at the country and year levels, captures both the short-term disruptions caused by exogenous humanitarian pressures and the long-term persistence of governance-driven uncertainty. The results demonstrate that internal shocks—such as Israel’s judicial and corruption crises—generate large and durable declines in FDI and sustained outward migration, while external shocks—such as Europe’s refugee crisis—produce more transient effect. |
| JEL: | D7 H1 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34497 |
| By: | Bau, Nicolas; Dietrich, Simone |
| Abstract: | We review the literature on the political economy of foreign aid, examining the geopolitical returns generated by Official Development Assistance (ODA). Our paper identifies conditions under which donors are able to influence political and economic outcomes in recipient countries, shape their behavior in global affairs, and adjust to domestic and international challenges. First, we introduce our paper and outline the structure of our review. Second, we examine how the international system influences foreign aid motivations. Third, we discuss the literature on aid-giving practices and their geopolitical effects. Fourth, we explore the relationship between aid and international organizations. Fifth, we identify key challenges to the traditional aid architecture. Sixth, building on an emerging body of research in international development finance, we propose future directions for the study of ODA in a contested global landscape. Finally, we conclude by summarizing the main insights from our review. |
| Keywords: | foreign aid, geopolitics, foreign policy, development, international organizations, development finance, aid effectiveness |
| JEL: | F35 O19 P45 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:331878 |
| By: | Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | This paper provides a comprehensive overview of China's lending to developing countries - a central feature of today's international financial system. Building on our previous research and the work of others, we document the scale, destination, and terms of China's overseas lending boom, as well as the lending bust and defaults that have followed. We compare China's lending boom to past boom-bust cycles and discuss the implications of China's rise as an international creditor on recipient countries and sovereign debt markets. The evidence indicates that Chinese state banks are assertive and commercially sophisticated lenders. For recipient countries, however, the jury is still out: it remains to be seen whether the gains from China's lending - through growth and improved infrastructure - will outweigh the more immediate burdens of debt service or the multifaceted costs of default. |
| Keywords: | China, sovereign debt, default, bailouts, official lending |
| JEL: | E3 F34 F65 F68 N2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:331877 |
| By: | Alberto Cavallo; Paola Llamas; Franco M. Vazquez |
| Abstract: | We use high-frequency retail microdata to measure the short-run impact of the 2025 U.S. tariffs on consumer prices. By matching daily prices from major U.S. retailers to product-level tariff rates and countries of origin, we construct price indices that isolate the direct effects of tariff changes across goods and trading partners. Prices began rising immediately after the broader tariff measures announced in early March and continued to increase gradually over subsequent months, with imported goods rising roughly twice as much as domestic ones. Our estimated retail tariff pass-through is 20 percent, with a cumulative contribution of about 0.7 percentage points to the all-items Consumer Price Index by September 2025. Our results show that tariff costs were gradually but steadily transmitted to U.S. consumers, with additional spillovers to domestic goods. |
| JEL: | E31 F13 F14 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34496 |
| By: | Nenova, Tsvetelina |
| Abstract: | This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors’ demand for bonds. Using a granular dataset of global government and corporate bond holdings by mutual funds domiciled in the world’s two largest currency areas, I estimate heterogeneous and time varying demand elasticities for bonds. Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different. Funds substitute US Treasuries with global bonds, including risky corporate and emerging market bonds, whereas German Bunds are primarily substitutable within a narrow set of euro area safe government bonds. Substitutability deteriorates in times of stress, impairing the transmission of monetary policy. JEL Classification: F30, G11, G15 |
| Keywords: | international finance, portfolio choice, safe assets |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253159 |
| By: | Emilio Ocampo; Nicolás Cachanosky |
| Abstract: | In this brief note, we evaluate the conclusions of a recent paper by Lopez Almirante and Neumeyer (2024). Simulations of a well-known model calibrated for Ecuador led them to conclude that dollarization can lead to a higher probability of a sovereign default and that only a high inflation rate would make it a welfare enhancing option for a non-dollarized economy. We find data misspecification and erroneous assumptions invalidate the results of the analysis. |
| Keywords: | Dollarization, Default Risk, Latin America. |
| JEL: | E31 E52 E58 F31 F32 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:871 |
| By: | Gabriel Ehrlich; Owen Kay; Aditi Thapar |
| Abstract: | We use close parliamentary elections as natural experiments to estimate the debt sensitivity of interest rates. Relative to an election in which one party barely secures a majority, an election in which no party achieves a majority causes the debt-to-GDP ratio to increase by 17 percentage points, while real interest rates rise by 99 basis points. If elections only impact real rates via debt, our results imply that a one percentage point increase in the debt-to-GDP ratio causes a 5.8 basis point increase in real rates, larger than most previous estimates and suggesting potential reverse causality from rates to debt. |
| Keywords: | national debt; real interest rates; crowding out; regression discontinuity design |
| JEL: | E62 H63 |
| Date: | 2025–11–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:102173 |
| By: | Manger, Mark S.; Mihalyi, David; Panizza, Ugo; Rescia, Niccolò; Trebesch, Christoph; Wong, Ka LoK |
| Abstract: | This paper introduces the African Debt Database (ADD) - a new, comprehensive dataset that traces both domestic and external debt instruments at a granular level. The main innovation is a detailed mapping of Africa's domestic debt markets, drawing on rich, new data extracted from government auction reports and bond prospectuses. The database covers over 50, 000 individual government loans and securities issued by 54 African countries between 2000 and 2024, amounting to a total of USD 6.3 trillion in debt. For each instrument, it provides harmonized micro-level information on currency, maturity, interest rates, instrument type, and creditor. The data reveal the growing dominance of domestic debt in Africa - albeit with substantial cross-country variation. Four stylized facts stand out: (i) the rapid expansion of domestic debt markets, especially in middle-income countries; (ii) the wide dispersion in bor-rowing costs and real interest rates; (iii) large cross-country differences in maturity structures and associated rollover risks; and (iv) a rising debt-service burden, particularly due to international bonds. Generally, this project shows that debt transparency is both feasible and valuable, even in data-scarce environments. |
| Keywords: | Sovereign Borrowing, Public Debt, Development Finance, Domestic Markets, Africa |
| JEL: | F34 H63 O55 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:331879 |
| By: | Adnan Velic (Technological University Dublin) |
| Abstract: | This paper examines the link between international inflation comovements, deviations from international inflation, and idiosyncratic inflation persistence. Our results indicate that stronger international comovements produce smaller, more persistent gaps between domestic and international inflation. We find that international inflation continues to exert a strong pull on domestic inflation despite notable fluctuations in international comovements. Detecting adjustment nonlinearities, we estimate the typical half-life of inflation shocks for relatively large, moderate, and small inflation deviations to be under 1 month, 2 months, and 18 months respectively. Geographic proximity, openness, exchange rate rigidity, international reserves, economic size, and uncertainty are found to be inversely related to the size of inflation gaps, due to their positive effects on international comovements. The impact on persistence, however, is ambiguous, as it is a function of not just the inflation gap, but also the speed of adjustment for a given size of the deviation. As the latter component covaries positively with most drivers, the net impact on persistence ultimately depends on the channel that dominates in the sample. |
| Keywords: | inflation dynamics, international comovements, inflation gaps, nonlinear adjustment, persistence, openness |
| JEL: | E31 E32 E5 F41 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1825 |
| By: | Peter Deffebach; David Lagakos; Yuhei Miyauchi; Eiji Yamada |
| Abstract: | We study how the spatial distribution of income and commuting patterns within cities vary across the development spectrum, drawing on new granular data from 50, 000 neighborhoods in 121 cities across developed and developing countries. We document that in developing countries, poorer urban households are significantly more likely to live far from city centers, in hilly terrain, and near rivers. These patterns are absent or reversed in developed cities. Commuting shares decline more sharply with distance in less developed countries, indicating higher commuting costs that exacerbate spatial inequality in job access. Job-access measures are considerably worse for the urban poor than for the urban rich in developing countries, while the opposite is true in developed countries. We interpret these findings in a quantitative urban model and show that a parsimonious set of factors—nonhomothetic preferences over amenities, commuting costs, and the spatial concentration of jobs—helps explain most of the cross-country patterns we document. |
| JEL: | O11 R12 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34505 |
| By: | Mr. Selim A Elekdag; Mananirina Razafitsiory; Luis-Felipe Zanna |
| Abstract: | We develop and estimate a parsimonious New-Keynesian small open-economy model that incorporates Diagnostic Expectations (DE)—a behavioral alternative to Rational Expectations (RE). Under DE, agents systematically overreact to new information, generating additional endogenous volatility. Our empirical analysis provides robust support for the DE framework: it fits Canadian data significantly better than the nested RE benchmark and improves forecasts of key macroeconomic variables, including real GDP growth, even during crises such as the Global Financial Crisis. These gains arise because DE reshapes the transmission of shocks, amplifying their effects and strengthening the exchange-rate channel of monetary policy. As a result, the relative importance of structural shocks shifts—with greater roles for supply shocks—and policymakers face a meaningfully worse inflation–output volatility trade-off. Taken together, our results highlight the relevance of behavioral expectations for open-economy dynamics and policy design. |
| Keywords: | Small Open Economy; Diagnostic Expectations; Bayesian Estimation; Forecasting |
| Date: | 2025–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/246 |