|
on Open Economy Macroeconomics |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Francis E. Warnock |
| Abstract: | Identifying the impact of capital inflows on output is challenging because inflows are forward-looking and respond to expectations about future economic conditions. We develop a new measure of capital inflow shocks using a simple and broadly applicable expectations-based framework that isolates the unexpected component of inflows by purging movements predicted by professional forecasters' expectations. Estimates using the new measure for 27 emerging market economies indicate that capital inflows have sizable expansionary effects on output, operating through stronger domestic consumption and investment and easier financing conditions. Additional analysis indicates that equity-type inflows generate greater and more persistent effects than debt-type inflows, while large inflow reversals result in more pronounced effects than comparable increases in inflows. These results are robust to a wide range of alternative specifications. |
| Keywords: | emerging market economies, FDI, debt flows, expectations, business cycle fluctuations |
| JEL: | E32 F32 F41 G11 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-80 |
| By: | Jongrim Ha; Daisoon Kim; Inhwan So |
| Abstract: | Does the global financial cycle still dominate capital flows to emerging markets? Lever-aging granular investor-level data, this paper examines a structural shift in the drivers of global equity flows. Using a dynamic factor model to decompose flows into global (push) and country-specific (pull) components, we show that while global factors historically dominated, local factors have emerged as the primary driver of capital allocation, particularly in the post-COVID period. Local projections reveal the mechanism behind this shift as a resurgence of active return chasing: investors have become increasingly sensitive to local excess returns, re-coupling flows to domestic price discovery. We trace this shift to greater portfolio concentration among emerging markets within investors and improved macroeconomic resilience in emerging market economies. Our findings suggest that global investors increasingly differentiate across emerging markets based on local return factors rather than responding uniformly to common global factors. This deepening sensitivity to domestic conditions may expand the scope for domestic policy frameworks and, in turn, enhance the developmental benefits of financial integration by better aligning capital with local investment opportunities in emerging and developing economies. |
| Keywords: | global equity flows, emerging market, excess returns, fund-level data, portfolio management, return-chasing |
| JEL: | F32 G11 G15 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-77 |
| By: | de Beauffort, Charles; Rannenberg, Ansgar |
| Abstract: | Government spending falls disproportionately on non-tradable services. We show empirically that government spending shocks stimulate private consumption along with sizable spillovers to the goods sector and a relative decline in goods prices. We rationalize these findings with a two-sector open-economy HANK model. Uninsurable income risk and precautionary savings lead to a persistent income-driven expansion in private consumption. In the tradable sector, import intensity and limited labor reallocation dampen wage pass-through to prices, matching observed co-movements. The resulting expenditure switching produces a positive tradable output response despite deteriorating net exports. Household heterogeneity and trade openness jointly shape sectoral fiscal multipliers. JEL Classification: E62, F41, E21, C11, C32 |
| Keywords: | consumption, fiscal policy, government spending, heterogeneous agents, open economy, sectoral spillovers, SVAR, trade |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263279 |
| By: | Juan Manuel Rodriguez Repeti; Danilo Rogelio Trupkin |
| Abstract: | This paper documents how inventory dynamics vary across levels of development and how they respond to real and financial shocks. Using a balanced panel of 72 small open economies over 1993-2022, spanning advanced to low-income economies, we show that inventories are strongly procyclical in advanced economies but become acyclical at lower income levels, while volatility and persistence rise as development declines. Using local projections, we estimate inventory responses to a long-run productivity shock and to a financial shock identified from the spread between U.S. corporate bond yields and Treasury yields. Productivity shocks generate temporary inventory accumulation across all groups, with smoother adjustment in advanced economies and more irregular cycles in emerging and developing economies. Financial shocks trigger decumulation followed by a rebound in higher-income groups, but a delayed, unreversed decline in low-income economies. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.19455 |
| By: | Boris Hofmann; Xiaoxi Liu; Ilhyock Shim |
| Abstract: | Using firm-bank linked data for 10 Asian emerging market economies (EMEs) over 2005–2021, we study the domestic and cross-border implications of zombie firms. We document three main findings. First, the number of zombie firms in emerging Asia has increased significantly over the past 15 years, sustained by evergreening practices from weak banks. Second, zombie prevalence domestically depresses firm performance, crowds out healthy firms, and depresses inflation and GDP growth. Third, the macroeconomic effects of zombie firms extend across borders: expo sure to zombie firms in Asian EMEs significantly reduces inflation and growth in advanced economies. These spillover effects operate mainly through global value chains (GVCs) and an intermediate goods import price channel, while cross-border bank linkages do not play any major role. |
| Keywords: | zombie firms, evergreening, global value chains, cross-border spillovers, disinflation, financial stability |
| JEL: | E31 F14 F36 G21 G33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1375 |
| By: | Arisa Chantaraboontha |
| Abstract: | This paper examines the responses of foreign exchange rates to the Federal Reserve’s large-scale asset purchases (LSAP) and forward guidance (FWG) from 2009 to 2022. I confirm heterogeneous responses of examined foreign exchange rates to unconventional shocks, varying by magnitude and duration depending on the type of shock and monetary policy condition. Both shocks led to an appreciation of foreign currencies against the US dollar across all monetary policy regimes, except for the forward guidance (FWG) shock during the monetary policy normalization period, for which no statistically significant effect was observed. Over the course of the response horizon, the FWG shock had a greater impact magnitude on the examined foreign exchange rates than the LSAP shock. The effects of both unconventional shocks were more persistent during periods of zero lower bound (ZLB) on the policy interest rate than during normalization periods of monetary policy. However, the impact of such shocks on foreign exchange rates diminished within a couple of months, contrasting with the literature that finds more persistent effects. The implementation of variance decomposition reveals that the FWG shock had a significantly greater influence on foreign exchange rate variation than the LSAP shock, emphasizing the importance of effective guidance communication to the markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1276r |
| By: | Korhonen, Iikka; Simola, Heli |
| Abstract: | We examine the impact from sanctions on global capital flows. Sanctions can be understood as an extreme version of geopolitical decoupling that affects economic relations, including trade and foreign direct investment. Specifically, we look at how the introduction of wide-ranging financial sanctions has affected foreign portfolio investment, treating Western sanctions packages on Russia in 2014 and 2022 as a natural experiment. Applying a triple-difference setup and using annual portfolio investment data collected by the IMF, our results show that portfolio investment flows into Russia sharply declined from both sanctioning and non-sanctioning countries particularly after 2022. The decline in investment from sanctioning countries was much more severe, however. Unlike with trade, we find little evidence of investment diversion for Russia after imposition of sanctions. |
| Keywords: | sanctions, portfolio investment, emerging economies, Russia |
| JEL: | F02 F2 F51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:343548 |