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on Open Economy Macroeconomics |
| By: | Winkelried, Diego (Universidad del Pacífico); Nicolás Butrón (Banco Central de Reserva del Perú); Carmen Rojas (Banco Central de Reserva del Perú) |
| Abstract: | This research analyzes the dynamics of the current account and its main components — particularly the trade balance and primary income — by identifying the key determinants of their fluctuations and evaluating the relative importance of the associated shocks. The study combines theoretical and empirical approaches, using Peru as a case of study, to exploit macroeconomic data within a structural framework. On the theoretical side, a DSGE model for a small open economy is developed, featuring three productive sectors: exportables, importables, and non-tradables. Production relies on domestic inputs, foreign capital, and imported intermediate goods, allowing external shocks to propagate to domestic activity. The baseline specification, inspired by Mendoza (1995), includes shocks to sectoral productivity and export prices, and is extended to incorporate shocks to imported input prices, international interest rates, and foreign investment returns. Empirically, the paper successfully replicates the persistence of the terms of trade and the countercyclicality of the current account without compromising business cycle characteristics, which the model also manages to reproduce. Parameters are estimated using Bayesian methods, and alternative specifications are compared to assess the contribution of each mechanism to explaining current account dynamics. |
| Keywords: | Current account, international interest rates, foreign investment, countercyclicality, Bayesian estimation |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-004 |
| By: | César M. Ciappa; Eduardo Levy Yeyati; Franco M. Vazquez |
| Abstract: | Emerging markets have accumulated large reserve buffers, but whether these buffers causally affect inward foreign direct investment (FDI) remains an open question. Using an unbalanced panel of emerging market economies over 2001–2020, we estimate twoway fixed-effects models of net inward FDI inflows with a rich set of lagged controls. We address the endogeneity of reserve accumulation by instrumenting lagged reserves with the two-year-lagged log of each country’s commodity import price index—a source of balance-of-payments pressure orthogonal to export-driven profitability shocks, conditional on a country-specific commodity export price index. The IV estimates imply that a 10% increase in reserves raises FDI inflows by about 18.5% (an elasticity of 1.85), more than four times the fixed-effects OLS estimate of 0.4. The effect is amplified during global stress episodes: the IV elasticity is 1.85 in the full sample but falls to 1.34 when crisis years (2008–2009, 2020) are excluded, consistent with reserves functioning as insurance that matters most when downside risks are salient. |
| Keywords: | international reserves; foreign direct investment; emerging markets; commodity prices; instrumental variables. |
| JEL: | F21 F31 F32 E58 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpgobi:wp_gob_2026_08 |
| By: | Maximilian Böck; Alina Steshkova (ViennaUniversity of Economics and Business); Thomas Zörner (Oesterreichische Nationalbank (OeNB)) |
| Abstract: | This paper examines how carry trade activity affects the transmission of monetary policy in currency markets. It analyzes a set of developed and emerging market currencies against the U.S. dollar. The U.S. dollar appreciates in response to a conventional monetary policy shock but depreciates to a central bank information shock. A threshold vector autoregressive model is fitted to discriminate between different regimes of speculative carry trade activity. Higher carry trade intensity is associated with larger excess returns and higher crash risk. Across regimes, the differences in exchange rates are mild, while those in interest rates are more pronounced. A currency trading strategy created on the day of central bank announcements, which takes into consideration the joint co-movement of interest rates and stock prices, substantially outperforms the carry trade in terms of the Sharpe ratio and downside risk. |
| Keywords: | Currency markets, Carry Trade Strategy, Monetary Policy, Threshold VAR |
| JEL: | C24 C32 E52 F31 F41 |
| Date: | 2024–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:258 |
| By: | Fernando Pérez (Banco Central de Reserva del Perú) |
| Abstract: | The increase in uncertainty has harmful effects on both financial markets and the aggregated economy. At a global level, we have observed events that are known to have increased uncertainty and volatility in different indicators, especially the recent announcements associated with changes in trade policies (2025). These shocks generally involve an increase in indicators such as the VIX (volatility), the EPU (economic policy uncertainty), as well as collateral effects in both advanced and emerging financial markets. These effects are generally observed as a supply shock, generating higher inflation and lower economic activity. In this context, we seek to measure the impact of this type of combined shock on Latin American financial markets (measured through the EMBI, the exchange rate, and stock market indexes), as well as on activity and inflation. The countries analyzed are Brazil, Chile, Colombia, Mexico, and Peru, and the sample includes monthly data from January 2004 to September 2025. To quantify these effects, we estimated a Bayesian Hierarchical Panel VAR model, which has an external block that represents global markets and is not affected by shocks in the LATAM block. The global uncertainty shocks are identified through zero and sign restrictions. Results indicate that these shocks produce a favorable effect on the financial markets of the economies under analysis, in terms of a strengthened currency, lower country risk, and a temporary expansion in the stock market. |
| Keywords: | Panel Bayesian Vector Autorregressions, Uncertainty |
| JEL: | C23 E44 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-008 |
| By: | Fernando Pérez (Banco Central de Reserva del Perú) |
| Abstract: | This paper examines the impact of exchange rate variations on the consumer price inflation in Peru, i.e. the exchange rate pass-through effect to prices (ERPT), emphasizing the inherent nonlinearities of this process, such as the differences between depreciations and appreciations, and also exploring the differences associated with the magnitude of the shocks. The ERPT is not necessarily constant over time, so it is necessary to identify the source of the temporal variation. This leads to the consideration of different models: i) A Linear Bayesian Structural VAR, ii) A non-linear censored SVAR, iii) A time varying coefficients SVAR with Stochastic Volatility, and iv) A Threshold Bayesian SVAR with volatility feedback. In all the models mentioned, an exchange rate shock is identified, and the dynamic effect that this has on measures of total inflation is examined. We find strong evidence of asymmetries and non-linearities in the ERPT, with a time varying effect that fluctuates between 0.1 and 0.3 over 12 months, but can be potentially higher in more uncertain and volatile episodes. |
| Keywords: | Exchange Rate Pass-Through, Inflation, Asymmetric effects, Non-linearities |
| JEL: | C32 E31 F31 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-007 |
| By: | Alexander Meléndez (Banco Central de Reserva del Perú) |
| Abstract: | This paper examines the influence of monetary policy and the zero lower bound (ZLB) on government consumption and investment multipliers in Peru from 1996Q1 to 2023Q3. Using a hybrid Time-Varying Parameter Vector Autoregression with Stochastic Volatility (TVP-VAR-SV), the study estimates impulse response functions, fiscal multipliers, forecast error variance decompositions, and historical decompositions for each quarter of the sample. The results indicate that a tighter monetary policy stance is associated with lower estimated government consumption and investment multipliers, consistent with standard monetary-fiscal interaction mechanisms documented in the literature. Moreover, following the adoption of an explicit policy rate framework, estimated fiscal multipliers exhibit greater sensitivity to interest rate conditions. In this context, the COVID-19 period provides a natural episode of historically low policy rates, approximating a ZLB-type environment from an analytical perspective, under which estimated government investment multipliers increase significantly, in line with the international literature. These findings contribute to the literature on monetary–fiscal policy interactions in emerging market economies operating under inflation targeting and a managed floating exchange rate regime. |
| Keywords: | fiscal multipliers, monetary policy, zero lower bound, emerging country |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-016 |
| By: | Gustavo S. Cortes; Lucas A. Mariani; Vinicios Sant'Anna |
| Keywords: | Financial Markets, trade |
| Date: | 2024–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:rza:ersawp:890 |
| By: | Mitchener, Kris James (Santa Clara University, CAGE, CEPR, CESifo & NBER); Pina, Gonçalo (ESCP Business School) |
| Abstract: | State-contingent debt (SCD) instruments have been proposed as an improvement to sovereign debt markets, but their issuance costs are not well understood. We estimate the SCD premium at issuance and for more than a decade thereafter, employing a quasi-twin bond strategy that uses two very similar French government bonds issued in 1956: one conventional bond and one state-contingent bond with coupons linked to industrial production. At issuance, the expected yield on the SCD bond was 77 basis points higher than its twin. Due to robust growth in the French economy ex-post, the realized SCD premium at issuance was roughly twice as large (146 basis points). However, rising market prices of the state-contingent bond reduced both spreads to zero by 1964. They rose again in May 1968 following an unexpected general strike, which significantly reduced French industrial production; however, by 1970, the SCD premium had fallen to values close to zero. |
| Keywords: | State-contingent debt; risk premia; public debt; GDP bonds; capital markets (France) JEL Classification: H63, N14, E43, E65 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:cge:wacage:801 |
| By: | Jennie Bai; Luc Laeven; Yaojun Ke; Hong Ru |
| Abstract: | We study the global footprint and real effects of Chinese overseas corporate ownership. By assembling a comprehensive micro-level dataset of 161, 773 firms across 159 countries (2012–2021), we independently reconstruct multi-layered ownership chains to trace capital through offshore tax havens to its ultimate origin. This approach reveals a global footprint substantially broader than official FDI statistics. Chinese-controlled foreign assets expanded at 20% annually, reaching $2.1 trillion or roughly 3% of global corporate assets by 2021. Chinese investors—particularly state-owned enterprises (SOEs)—strategically target R&D-intensive and supply-chain-linked firms. Following acquisition, target firms increase capital stock and R&D expenditures, yet these inputs fail to generate higher patent output and are accompanied by a significant decline in profitability. We document a novel 'innovation spillback' mechanism: while target innovation remains stagnant, Chinese parent firms experience a sharp acceleration in granted patents following their first developed-economy acquisition. Furthermore, a greater Chinese presence crowds out R&D at non-target peer firms, though aggregate industry-level innovation remains unchanged. China thus represents a distinctively state-driven model of global ownership that accepts weaker near-term performance to internalize technological capacity at home. |
| JEL: | F3 G32 G34 O3 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35106 |
| By: | Robert Ferstl (Off-Site Banking Analysis and Strategy Division); Bernhard Graf |
| Abstract: | The following study analyzes the transmission of monetary policy to bank lending in the euro area. It focuses particularly on the heterogeneity in the speed and strength of propagation of monetary policy shocks across euro area countries. We employ instrumental variables, based on common euro area wide high-frequency identified monetary policy surprises in combination with local projections, to infer the dynamic effect of monetary policy on bank lending. Local projections are estimated for loan growth to non-financial corporations, allowing for a flexible specification that accounts for potential asymmetries in responses to easing versus tightening monetary policy shocks. The robustness of inferred impulse response functions is examined during the pandemic and across different phases of the monetary policy normalization that began in 2022, including both hiking and easing cycles and extending to the end of 2024. We find that the response of bank lending to monetary policy shocks is generally synchronous across euro area countries in that impulse responses peak after 12 to 18 months. However, the magnitude of peak effects varies considerably pointing to pronounced country heterogeneity in the bank lending channel. Moreover, we find significant asymmetries in country-specific bank lending responses wherein monetary policy tightening shocks are generally less strongly propagated suggesting downward rigidity in the bank lending channel. Taken together our results help policymakers quantify the heterogeneity of common euro-area monetary policy transmission to bank lending across member countries. |
| Keywords: | Monetary policy transmission, Bank lending channel, Country heterogeneity |
| JEL: | E52 F45 G21 |
| Date: | 2026–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:277 |
| By: | Juan Manuel Campana; Eckhard Hein |
| Abstract: | This paper investigates the drivers of economic growth by focusing on macroeconomic policy regimes (MPRs) as a key dimension of demand and growth regime (DGR) and growth model (GM) analysis. Building on Campana and Hein’s (2026) results on demand-led growth decomposition based on the national income and financial accounting (NIFA) and the Sraffian supermultiplier (SSM) approaches for seven economies—Germany, Spain, Argentina, Brazil, India, South Africa, and Turkey—across the periods 2000–2007 and 2011–2019, this paper applies the MPR approach to understand the differences in DGRs and their respective changes. The paper thus contributes to post-Keynesian and comparative political economy literature. The analysis shows that the configuration and coordination of monetary, wage, fiscal, and external policies play a central role in shaping dominant sources of autonomous demand and explaining regime shifts over time. While some countries, such as Germany and India, display stability in their MPRs, DGRs, and dominant autonomous demand components, others—Spain, Brazil, South Africa, and Turkey—have undergone significant transformations driven by policy changes and external conditions. Overall, the findings highlight the explanatory power of MPR analysis in understanding growth trajectories and provide foundations for the examination of the political economy dimension of these trajectories. |
| Keywords: | macroeconomic policy regimes, growth decomposition, post-Keynesian macroeconomics, growth drivers, growth models, demand and growth regimes |
| JEL: | E11 E12 E60 F43 O57 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2611 |
| By: | Robert Ferstl (Off-Site Banking Analysis and Strategy Division); Philip Schuster; Michael Sigmund (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division); Maria Teresa Valderrama (Oesterreichische Nationalbank, Economic Analysis Division); Johannes Wächtler (Deutsche Bundesbank) |
| Keywords: | Monetary policy transmission; dynamic programming; unconventional monetary policy; panel vector autoregression |
| JEL: | E43 E44 E58 F42 G20 |
| Date: | 2024–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:257 |