|
on Open Economy Macroeconomics |
| By: | Joshua Aizenman; Jamel Saadaoui; Gazi Salah Uddin; Naoki Yago |
| Abstract: | This paper studies the role of foreign exchange and gold reserves in mitigating the US monetary policy spillovers to exchange rates at times of geopolitical fragmentation and de-dollarization. US dollar reserves mitigate depreciation driven by US monetary tightening, while non-dollar reserves do not. Gold reserves are also associated with smaller exchange-rate responses, though less strongly than dollar reserves, suggesting novel complementarity between dollar and gold reserves. Moreover, the estimated effects of dollar and gold reserves are concentrated in countries without swap and repo lines. These findings are consistent with recent large-scale purchases and sales of gold reserves by emerging economies amid sanctions-related restrictions and geopolitical concerns about access to dollar liquidity. Our results suggest that not only the aggregate volume but also the composition of foreign exchange and gold reserves and access to dollar liquidity facilities are empirically relevant for exchange-rate responses to US monetary shocks. Finally, we exploit cross-country heterogeneity and show that countries with large dollar exposure exhibit smaller exchange-rate responses when dollar and gold reserve holdings are larger. |
| JEL: | E52 F31 F32 F41 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35337 |
| By: | Bindseil, Ulrich; Daskalova, Svetla; Senner, Richard |
| Abstract: | We analyse the portfolio-reallocation incentives faced by NIIP-surplus economies under cross-border seizure risk. Assets, such as gold, can be physically imported and held domestically in contrast to financial claims on other jurisdictions. Gold purchases not only reduce the NIIP but can also drive steep increases in gold prices. We review the history of gold as an international settlement asset, the evolution of financial sanctions, and the global distribution of NIIP and gold holdings. We calibrate a simple model to recent gold mining cost curves and show that (assuming a current account balance of zero) closing one trillion dollars of NIIP per year through newly mined gold could push prices above USD 8, 500 per ounce, while a ten-trillion-dollar target could be consistent with USD 67, 000 per ounce. In an extended model, NIIP surplus countries face a trade-off between rapid NIIP reduction, with subsequent valuation losses, versus gradual adjustment, which tempers price impacts but lengthens the period of exposure to cross-border seizure risks. We also model the case of an elastic supply from mobilization of existing private holdings in the rest of the world via a simple portfolio re-allocation channel. |
| Keywords: | Gold, foreign reserves, net international investment position |
| JEL: | E3 E5 G1 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:341430 |
| By: | Arvai, Kai; Coimbra, Nuno; Pinchetti, Marco |
| Abstract: | This paper investigates the determinants of international investors' portfolio choices between gold and sovereign bonds in an environment shaped by economic and geopolitical shocks. We develop an endogenous portfolio choice model where reserve safety has a political dimension — sovereign bonds issued by the dominant reserve country are more liquid but exposed to the issuer's sanctions authority, while gold offers sanctions protection at the cost of lower liquidity. Our model implies that US convenience yields fall during periods of high sanction risk, as safe-asset demand fragments along geopolitical lines. Empirically, periods of elevated geopolitical risk coincide with higher gold prices and 10-year Treasury yields. In such periods, the average composition of official reserves shifts toward gold, with countries less aligned with the US in UN voting patterns increasing their holdings by a greater extent. |
| Keywords: | Dominant currency; Safe assets; Sanctions; Gold |
| JEL: | E42 F02 F33 N10 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21575 |
| By: | Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | States are major international financiers, but their role is poorly understood. We study state-driven cross-border lending over two centuries using a new database covering 1.2 million official loans and grants by 134 governments and 70 multilateral institutions since 1790. We document a dual, state-contingent structure of international credit. In normal times, private creditors dominate cross-border lending. In adverse states of the world, such as wars and financial crises, official creditors step in, at times on a massive scale. These official flows are driven by great powers, are highly subsidized, and are largely absent from canonical models in international macroeconomics. |
| Keywords: | Sovereign debt, Capital flows, Financial crises, Bailouts, War finance, Disaster risk |
| JEL: | E42 F33 F34 F35 F36 G01 G20 N1 N2 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:341632 |
| By: | Hwee Kwan Chow (School of Economics, Singapore Management University); Jordan Lee (Singapore Management University) |
| Abstract: | This study empirically assesses the drivers of risks to the inflation outlook for a small open economy like Singapore. We apply the inflation-at-risk framework of López-Salido and Loria (2020) and incorporate projections from the Survey of Professional Forecasters (SPF) as point forecasts of inflation. Our findings show that macro-financial risk factors—shaped by Singapore’s openness, role as a financial hub, and exchange rate–centered monetary policy framework—enter nonlinearly into inflation risk models and exert differentiated effects. Foreign price pressures heighten upside risks, and exchange rate policy has proven effective at mitigating them. Tighter global financial conditions amplify inflation risks through cost-push channels, whereas demand weakness produces only muted downside effects. We also record sharp gains in log predictive scores for one-quarter ahead conditional distributions relative to unconditional ones during the post-pandemic inflation surge. One-year-ahead predictive distributions become markedly right‑skewed ahead of the surge, effectively signalling a heightened probability of extreme inflation outcomes. Overall, incorporating inflation risk measures improves both the in-sample fit and the forecast accuracy of predictive distributions of inflation one and four quarters ahead, offering insights for central banks navigating uncertain global conditions. |
| Keywords: | Inflation-at-risk; survey of professional forecasters; quantile regressions; forecast accuracy |
| JEL: | C21 C53 E31 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:022912 |
| By: | Artyom Ghazaryan (Central Bank of Armenia); Anahit Matinyan (Central Bank of Armenia); Gevorg Minasyan (Central Bank of Armenia); Aleksandr Shirkhanyan (Central Bank of Armenia) |
| Abstract: | Quantifying the transmission of monetary policy in emerging markets remains a significant challenge due to data scarcity and structural shifts. This study addresses these constraints by identifying monetary policy shocks in Armenia through a dual approach: a high-frequency method following Bu et al. (2021) and a modified narrative strategy adapted from Romer & Romer (1989). We propose a specific modification to the narrative approach that allows identification even when qualitative information is limited, thereby extending the utility of narrative methods to economies outside the advanced-market spectrum. Despite their distinct methodologies, the shocks identified by both approaches exhibit qualitative consistency. Using these shocks within a Local Projection framework, we estimate the impulse responses of the economic activity index, inflation, the real effective exchange rate, and short-term government bond yields. Our findings indicate that while financial variables respond immediately and sharply to monetary policy, the effect on inflation materializes with a lag. These findings provide a refined empirical basis for understanding monetary policy propagation in Armenia and offer a methodological roadmap for identification in data-limited environments. |
| Keywords: | Monetary Policy; Shock Identification; High-Frequency; Narrative; Monetary Policy Transmission |
| JEL: | E52 E58 E65 E31 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2026-01 |
| By: | Kitamura, Kazuhito |
| Abstract: | The general equilibrium theory, upon which mainstream modern macroeconomics relies, fails to adequately explain the realities enveloping the contemporary economy, including persistent global imbalances. In contrast, our previous studies (Kitamura, 2025, 2026) have proposed a theoretical model based on "asset dynamics" that conceptualizes the global economy as a dissipative structure woven by the concentration and diffusion of funds, understanding it as an "equilibrium theory endogenizing imbalances" where economies, each harboring its own imbalances, maintain a balance by compensating for each other's surpluses and deficits. This paper statistically verifies the empirical validity of this theoretical framework using multi-source macroeconomic data and socio-psychological indicators. Targeting approximately 80 countries for which data are available, we redefine a socio-psychological indicator based on a large-scale international survey regarding time value, patience, and other attributes, as a proxy for the divergence between the real interest rate and the time preference rate—which constitutes one side of the steady-state condition derived from the theoretical model. Conducting a regression analysis using the structural terms that constitute the right-hand side of the conditional equation, namely population changes, capital movement, and asset preference, we obtained statistically significant results, including the sign conditions. Furthermore, by utilizing these estimation results, we visualized the dissipative structure that weaves the global economy, rendering the contrasting positions and interdependence of the two major economic superpowers as data-driven facts, such as the United States as a self-organizing economy and China as a dissipative economy. The contributions of this paper provide an empirical foundation for a new macroeconomic paradigm that reframes imbalances not as an undesirable state to be eliminated, but endogenously explains them as the energy required for the global economic system to maintain its vitality. |
| Date: | 2026–06–07 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:9epsy_v1 |
| By: | Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig; Robert J. Richmond |
| Abstract: | We quantify the impact of the loss of reserve currency status in goods and asset markets. In goods markets, the loss of seigniorage (1% of GDP per annum) makes American households spend less, mostly on U.S. goods, leaving an excess supply of U.S. goods to be cleared by a real depreciation of the dollar. The larger the home bias and the lower the elasticity of substitution between home and foreign goods, the larger the required depreciation. Standard parameters imply an 8.8% real depreciation of the dollar. In asset markets, about 50% of GDP in dollar bonds must be reabsorbed by home investors, raising the U.S. real interest rate. Standard parameters imply a 90 basis points rise, leading to an aggregate wealth loss of roughly one year of U.S. GDP. |
| JEL: | F0 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35328 |
| By: | Wabenga Yango, James; Moran, Kevin |
| Abstract: | This paper presents an empirical analysis of the impacts of global demographic changes on GDP growth. It categorizes countries into advanced, emerging and developing economies and conducts the analysis region by region. The first results pertain to a decomposition of per capita GDP growth into its main contributors. They show that in advanced economies, productivity per hour and total hours worked are the main contributors to GDP per capita growth. In contrast, productivity per hour and an expanding working-age population in emerging economies are important for GDP growth. Finally, in advanced economies, hours worked per job have fallen and thus have a negative effect on GDP per capita growth. The second results are obtained from panel models that estimate the impact of demographic trends on GDP per capita growth. This analysis is once again conducted region by region and one demographic (aging, fertility, life expectancy, immigration, etc.) and growth in GDP per capita at a time. The results notably report that larger proportions of older adults positively influence GDP per capita growth in emerging and developing economies, whereas this ageing has a detrimental effect in advanced economies. The findings indicate that shifts in the working-age population positively impact GDP per capita across developing, emerging, and advanced economies, whereas changes in the youth population have a negative effect on GDP per capita in these economies as well. Finally, net immigration increases GDP per capita growth in advanced and developing economies, but it decreases growth in emerging economies. These findings contribute to the ongoing debates about the macroeconomic consequences of demographic shifts and highlight the importance of conditioning the analysis on the region or the stage of economic development. |
| Keywords: | Demographic trends; International migration; Economic Growth |
| JEL: | E2 F22 F41 J11 J21 O47 |
| Date: | 2025–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129481 |