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on Open Economy Macroeconomics |
| By: | UZ AKDOGAN, Idil; Halicioglu, Ferda |
| Abstract: | This study derives an exchange market pressure (EMP) index using a weighted, scaled sum of variables, including exchange rate depreciation, official foreign exchange intervention, and interest rate differentials, for the period 1999-2023. Using the US dollar as a reference currency, it includes various balance of payments components of the EMP to compare and analyse capital flow pressures for emerging economies such as Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, South Africa, and Turkey. The study also analyses the impact of EMP volatility in response to capital inflow and capital outflow controls, utilising EGARCH econometric estimates. Our findings indicate that higher capital controls are generally associated with greater EMP, though the effects differ between inflow and outflow restrictions. We also find that EMP volatility reacts asymmetrically to shocks, with stronger responses to positive developments (‘good news’) than to negative ones (‘bad news’). These results highlight the importance of tailoring capital flow management tools to country-specific vulnerabilities and global financial conditions. |
| Keywords: | Exchange Market Pressure, Capital Flows, Exchange Rates, Foreign Exchange Intervention |
| JEL: | F32 F41 G11 G20 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128311 |
| By: | Iñaki Aldasoro; Paula Beltrán; Federico Grinberg |
| Abstract: | Using data on four USD-pegged stablecoins and 27 fiat currencies, this paper documents spillovers from stablecoin-based foreign exchange (FX) to traditional FXmarkets. We document a gap between the cost of acquiring dollars via stablecoins and via the spot FX market (parity deviations). To establish a causal link between stablecoin flows and FX markets, we use a granular instrumental variable that exploits idiosyncratic shocks to stablecoin net inflows in other currencies. Our estimates indicate that a 1% exogenous increase in net stablecoin inflows raises parity deviations by 40 basis points, depreciates the local currency, and widens the dollar premium in synthetic funding markets (covered interest parity (CIP) deviations). A model of constrained arbitrage rationalizes these findings and provides structural foundations for the identification strategy. Counterfactual simulations show that halving cross-market frictions would attenuate CIP spillovers by roughly one-half and cut exchange rate effects by nearly one-third. A dynamic extension that closely matches the empirical impulse responses shows that spillovers grow disproportionately when intermediaries suffer losses, as depleted capital reduces their capacity to absorb further shocks. Our results establish stablecoins as an emerging segment of global currency markets with direct implications for financial stability. |
| Keywords: | stablecoins, foreign exchange, market segmentation, capital flows, arbitrage |
| JEL: | F31 G15 G12 G23 F38 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1340 |
| By: | Andrea Foschi |
| Abstract: | I develop a model-based definition of time-varying sovereign bond safety, and apply it empirically by constructing a news-based index, the FLY, that measures global safe-assets demand. The FLY captures flight-to-safety episodes, the savings glut, and natural interest rate declines. Estimated FLY loadings allow the classification of bonds as safe, neutral, or risky. Post-Great-Recession, the global set of safe assets shrank, but US safety increased. I detect regime switches in FLY loadings: positive switches (becoming safe) align with expansions, higher government spending, lower debt, and credit upgrades; negative switches (becoming risky) are associated with contractions, reduced spending, higher debt, and downgrades. |
| Keywords: | safe assets, flight to safety, sovereign debt, convenience yield, fiscal policy |
| JEL: | E62 E63 F34 F41 F44 G12 G15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12567 |
| By: | Justin Bloesch; Jacob P. Weber |
| Abstract: | We argue that secular change in both the production and composition of investment goods has weakened investment’s role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes weakening this channel: (i) labor’s share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 23 percent weaker response of labor income and a 17 percent weaker response of consumption to real interest rate shocks in a 2020s economy relative to a 1960s economy. |
| Keywords: | monetary policy; investment; labor income; marginal propensity to consume |
| JEL: | E21 E22 E32 E52 F41 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102964 |
| By: | Koichiro Kamada (Faculty of Business and Commerce, Keio University) |
| Abstract: | We propose a simple method for estimating multiple natural rates in a system of simultaneous equations. Our estimators of natural rates are closely related to the HP filter and accessible by many practitioners. As an application, Japan’s potential output and natural foreign exchange rate are estimated. It is shown that Japan’s potential output has been growing, but the natural foreign exchange rate has experienced stepwise downward shifts since the beginning of the 21st century. While Japan suffered the long-lasting stagnation, emerging markets, particularly China, achieved tremendous economic growth. The declines in the natural foreign exchange rate indicate Japan’s lost competitiveness in the world economy clearly. |
| Keywords: | Phillips curve, net export, potential output, output gap, exchange rate, productivity, international competitiveness, HP filter |
| JEL: | C13 C32 E31 E32 F14 F41 O47 |
| Date: | 2026–03–18 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2026-005 |
| By: | Abubakar Addy (African Department, International Monetary Fund); Alexander Mihailov (Department of Economics, University of Reading); Stephen Kwame (Finance Department, University of Ghana Business School, University of Ghana) |
| Abstract: | This paper contributes to the literature by providing a comparative analysis of inflation targeting (IT) across groups of countries and time periods. We estimate via Bayesian techniques the central bank policy preferences of African inflation targeters (AfITs), employing the medium-scale New Keynesian small open economy model under complete asset markets (CAM) proposed by Kam et al. (2009), with application to advanced-country inflation targeters (ACITs), as extended also to incomplete asset markets (IAM) by McKnight et al. (2020), with application to Latin American inflation targeters (LAITs), and including or not real exchange-rate concerns in the social loss function of IT central banks. Our study convincingly selects CAM over IAM in a Bayesian model comparison of 4 model versions and compares the estimated weights of 4 typical IT central bank policy choices for 2 AfITs, 5 LAITs, and 3 ACITs in a common recent sample period, 2009:Q1-2021:Q4, as well as referring back to the sample periods in the cited original studies, starting in the early 1990s or early 2000s and with no or minimal overlap. Our findings confirm that all 10 IT central banks are firmly committed to their price stability mandate in the sense of prioritizing inflation stabilization, with an estimated almost unchanged 40-60% share across space and time. Adapting to real-world global developments as the millennium was unfolding, IT approaching the age of 40 seems to have evolved toward more ‘flexible’ regimes with increased ‘fear of floating’, but we also point to nuances or specificities across the 3 groups or 10 countries compared. |
| Keywords: | Bayesian model comparison, complete vs incomplete asset markets, inflation targeting mandates and actions, fear of floating, small open economies, medium-scale New Keynesian SOE DSGE models |
| JEL: | C51 E52 F41 |
| Date: | 2026–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2026-02 |