|
on Open Economy Macroeconomics |
| By: | Stéphane Auray; Michael B. Devereux; Aurélien Eyquem |
| Abstract: | This paper shows that the currency in which traded goods are invoiced has a first-order implication for the short-run impact of tariffs on the economy. If prices are set in terms of producer’s currency (PCP), a unilateral tariff is contractionary on impact, reducing GDP, and causing a deterioration in the trade balance. By contrast, with prices pre-set in buyers currency (LCP), the same tariff shock is expansionary, and improves the trade balance. The key difference between the two regimes lies in the differential exchange rate pass- through under PCP relative to LCP. In welfare terms however, the situation is reversed. A tariff under LCP leads to a fall in short-run welfare, as consumption and investment fall sharply, while the same tariff may be welfare enhancing under PCP. Under dollar currency pricing (DCP), we find results intermediate between the two invoicing regimes. With retaliation, the stark difference in pricing regimes is attenuated. |
| JEL: | F31 F40 F42 F47 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35398 |
| By: | Gorodnichenko, Yuriy; Obstfeld, Maurice |
| Abstract: | The monumental task of rebuilding postwar Ukraine requires early planning and identification of growth strategies. The earlier accession of Eastern European countries to the European Union and NATO offers a template that relies on massive foreign direct investment and public structural funds. This approach helps to raise incomes directly and can create a virtuous circle where capital deepening facilitates technological upgrades and repatriation of war refugees, which in turn stimulate more investment. We show theoretically that the government can refine this strategy by internalizing positive externalities from having a higher capital stock: Investment in physical capital relaxes borrowing constraints (thus allowing more capital inflows) and raises wages (thus encouraging more Ukrainian refugees to return home). |
| Keywords: | Ukraine; Conflict; Reconstruction; Capital flows; Economic growth |
| JEL: | E2 F2 F5 P2 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21000 |
| By: | Chen Lian; Dmitry Mukhin; Christian K. Wolf |
| Abstract: | How exposed are open economies to global demand shocks? In equilibrium, foreign booms can be absorbed either by domestic consumption ("quantities") or by real exchange rate appreciation ("prices"). We show that failures of Ricardian equivalence and global financial market imperfections, two frictions popular in much recent work, have opposite effects on the split: while elevated marginal propensities to consume push towards quantities, financial frictions instead increase price adjustment. As the flexible-price equilibrium generally features a mix of quantity and price responses, policy needs to be contractionary to achieve flexible-price outcomes if the spending effect dominates, and vice-versa if financial frictions are severe. In our quantitative explorations the spending effect tends to win the race, necessitating aggressive domestic policy action. |
| JEL: | E32 F32 F41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35402 |
| By: | Bongers, Anelí; Canova, Fabio; Luintel, Kul; Torres, José Luis |
| Abstract: | We examine the macroeconomic implications of remittances in Nepal, a low-income country with a high remittance to GDP ratio and a significant trade deficit. Using a small open economy model with urban and rural households, segmented labor, incomplete financial markets, and subsistence consumption, we study exogenous and endogenous remittance variations, and remittance shocks affecting productivity. We analyze a policy forcing a share of remittance to go to capital investment. Remittances finance a trade deficit while maintaining a balanced current account. They increase income and consumption, but not necessarily domestic production. Policy implications are discussed. |
| JEL: | F22 F24 F41 E32 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21204 |
| By: | Acharya, Sushant; Challe, Edouard; Corsetti, Giancarlo |
| Abstract: | We study how monetary policy shapes macroeconomic outcomes in a two-sector small open economy hit by export shocks — due, e.g., to export tariffs, geopolitical tensions, or a recession in destination countries — allowing the shock to have both aggregate and distributional effects. Imperfect worker mobility across sectors, coupled with incomplete markets against aggregate and idiosyncratic shocks, implies that export contractions (i) spill over across sectors due to households’ precautionary response and (ii) affect income and consumption inequalities within and across sectors — in addition to their usual asymmetric effects on sectoral outputs and wages. In this context, exchange-rate flexibility provides insurance against inefficient fluctuations in consumption inequality, which increases the social value of floating-rate regimes. Relative to a nominal exchange-rate peg, flexible inflation targeting helps mitigate the rise in consumption inequality after an export contraction, especially among tradable-sector workers. However, even flexible inflation targeting does not, in general, provide sufficient exchange-rate flexibility relative to the optimal monetary policy. |
| JEL: | F41 F44 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21138 |
| By: | J. Scott Davis; Lillian Derr |
| Abstract: | This paper investigates the relationship between government debt and interest rates in advanced economies. We consider two separate, yet closely related puzzles in the data. Since the Global Financial Crisis, OECD countries have experienced a dramatic surge in government debt-to-GDP ratios, yet there was not a corresponding surge in sovereign bond yields. In addition, across countries there is no relationship between government debt levels and interest rates, and a country like Japan has the highest government debt level among advanced economies yet the lowest sovereign bond rates. To address both of these puzzles, we propose that the effect of government borrowing on interest rates depends critically on who finances that debt. We extend the work of previous studies that have estimated the effect of expected government debt or deficits on interest rates, and we add an international dimension by incorporating forecasts of the current account balance or net foreign asset position. We find that an increase in government debt financed from domestic savings has less of an effect on interest rates than an increase in government debt financed by foreign borrowing, and government debt has less of an effect on interest rates in a country that is a net international creditor than one that is a net international debtor. |
| Keywords: | government bond yields; government debt; current account |
| JEL: | E6 F3 F4 H6 |
| Date: | 2026–06–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:103436 |
| By: | Kalemli-Ozcan, Sebnem; Unsal, Filiz |
| Abstract: | Contrary to historical episodes, the 2022–2023 tightening of US monetary policy has not yet triggered financial crisis in emerging markets. Why is this time different? To answer this question, we analyze the current situation through the lens of historical evidence. In emerging markets, the financial channel–based transmission of US policy historically led to more adverse outcomes compared to advanced economies, where the trade channel fails to smooth out these negative effects. When the Federal Reserve increases interest rates, global investors tend to shed risky assets in response to the tightening global financial conditions, affecting emerging markets more severely due to their lower credit ratings and higher risk profiles. This time around, the escape from emerging market assets and the increase in risk spreads have been limited. We document that the historical experience of higher risk spreads and capital outflows can be largely explained by the lack of credible monetary policies and dollar-denominated debt. The improvement in monetary policy frameworks combined with reduced levels of dollar-denominated debt have helped emerging markets weather the recent Federal Reserve hikes. |
| JEL: | F30 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21041 |
| By: | Bolhuis, Marijn; Grigoli, Francesco; Kolasa, Marcin; Meeks, Roland; Presbitero, Andrea; Zhang, Zhao |
| Abstract: | Emerging markets have shown remarkable resilience during risk-off episodes in recent years. While favorable external conditions — good luck — contributed to this resilience, improvements in policy frameworks — good policies — played a critical role in bolstering the capacity of emerging markets to withstand the adverse consequences of these events. Improvements in monetary policy implementation and credibility have reduced reliance on foreign exchange (FX) interventions and capital flow management measures, and stricter macroprudential regulation also contributed to less FX interventions. Also, central banks have become less sensitive to fiscal interference and hold sway over domestic borrowing conditions. Looking ahead, countries with robust frameworks face easier policy trade-offs and are better positioned to navigate risk-off episodes. In contrast, economies with weaker frameworks risk de-anchoring inflation expectations and larger output losses if monetary tightening is delayed, especially when persistent price pressures emerge. In these settings, FX interventions offer only temporary relief and are less necessary when policy frameworks are sound. |
| Keywords: | Emerging markets; Monetary policy; Risk-off shocks |
| JEL: | F14 F60 I18 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20857 |
| By: | Broadbent, Ben; Di Pace, Federico; Drechsel, Thomas; Harrison, Richard; Tenreyro, Silvana |
| Abstract: | The UK economy experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. To understand these adjustments, this paper presents empirical facts using novel UK macroeconomic data and estimates a small open economy model with tradable and non-tradable sectors. We demonstrate that the referendum outcome can be interpreted as news about a future decline in productivity growth in the tradable sector. An immediate fall in the relative price of non-tradable goods induces a temporary “sweet spot†for tradable producers. Economic activity in the tradable sector expands in the short run, while the non-tradable sector contracts. Aggregate output, consumption and investment growth decelerate. |
| Keywords: | Brexit; Small open economy; Productivity; News shocks |
| JEL: | E32 F17 F41 F43 O16 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21019 |
| By: | McLeay, Michael; Tenreyro, Silvana |
| Abstract: | An emerging academic and policy view contends that a monetary-policy induced depreciation by a (non-US) country invoicing in dollars cannot stabilise activity, as the classical expenditure-switching channel is muted. This weakens the exchange-rate channel of monetary policy transmission. The key premises underlying this view are that i) exporters have monopoly power and ii) their prices are sticky in US dollars. However, goods priced in dollars tend to have more flexible prices and higher elasticities of substitution. We propose a new open economy model with more realistic assumptions and show that loosening monetary policy boosts exports and activity; the limit to any expansion is not demand, but supply capacity. We furthermore show that low pass-through is not informative about the degree of nominal stickiness: limited price responses are an equilibrium result in our model, rather than an assumption. We present new evidence that both exports and activity respond strongly to exchange-rate changes driven by monetary policy. |
| Keywords: | Monetary policy; Expenditure-switching channel of monetary policy transmission |
| JEL: | E31 E52 E58 F41 Q02 Q30 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21020 |
| By: | Luttini, Emiliano; Mekonnen, Dawit; Mercer-Blackman, Valerie Anne; Sørensen, Bent E |
| Abstract: | Using world commodity prices as an instrument, this paper proposes a novel method for decomposing channels of international risk sharing for commodity-exporting countries. The method identifies the commodity "sector'' as the projection of gross national product growth on commodity-price growth, and the non-commodity "sector'' as its orthogonal complement. Commodity-price-induced risk is shared significantly more than other risks, in particular via pro-cyclical government savings, but also via counter-cyclical net international factor income. |
| JEL: | F02 F21 F36 Q02 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21100 |
| By: | Wong, Ka Lok; Manger, Mark; Panizza, Ugo |
| Abstract: | Emerging market economies (EMEs) regularly tap domestic and international capital markets through scheduled sovereign bond auctions. In this paper, we leverage a novel dataset covering over 75, 000 sovereign issuance events and 20, 000 securities from 20 EMEs between the early 2000s and 2023 to analyze the determinants of bond issuance choices, focusing on volume, maturity, and currency denomination. We find that local currency debt issuance is largely associated with refinancing needs, while foreign currency issuance reflects more strategic and cyclical considerations. In particular, foreign currency issuance correlates with global macroeconomic conditions, interest rate differentials, and investor sentiment. Our findings suggest that EME governments differentiate their debt management strategies based on the currency of issuance, with local currency issuance shaped by domestic budget mechanics and foreign currency issuance by external constraints and opportunities. |
| JEL: | F34 H63 E44 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21251 |
| By: | Ferrari, Alessandro; Freitag, Andreas; Kammerlander, Eric; Lein, Sarah; Pisch, Frank |
| Abstract: | We study exchange-rate pass-through and currency choice in international transactions, focusing on bilateral bargaining power in relationships between domestic buyers and foreign suppliers. Using detailed transaction-level data on Swiss imports from 2014–2023 identifying buyers and suppliers, we show that exchange-rate pass-through is lower for economically important suppliers within a buyer’s network. This pattern is explained by a higher likelihood of invoicing in the buyer’s currency, consistent with a bilateral bargaining model of price setting and endogenous currency choice. Our results imply that bilateral bargaining power shapes how foreign shocks affect prices and external adjustment, making policy transmission network-dependent. |
| Keywords: | Exchange-rate pass-through |
| JEL: | F41 F31 F14 E31 E52 G15 L11 L60 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21144 |
| By: | Kim, Dohan; Milesi-Ferretti, Gian Maria |
| Abstract: | Over the past two decades, many emerging market economies have become more resilient to external financial shocks. This paper assesses whether such resilience is broadly shared across emerging markets and developing economies by classifying them into three tiers based on economic size, income level, institutional strength, and financial integration. The analysis shows that first-tier emerging markets and developing economies have improved their external balance sheets and reduced dependence on official support. However, second- and third-tier emerging markets and developing economies have experienced growing external vulnerabilities since the global financial crisis, marked by rising external debt liabilities and declining foreign exchange reserves. Using a range of indicators, including sovereign defaults, arrears, partial defaults, and International Monetary Fund lending, the paper identifies episodes of external financial distress and shows that distress remains widespread among second- and third-tier emerging markets and developing economies. The empirical analysis confirms that key components of the net international investment position — especially external debt and foreign exchange reserves — predict the onset of external financial distress, with institutional quality shaping the impact. Weak institutions amplify risks, while strong institutions mitigate them. These findings highlight the importance of recognizing heterogeneity across emerging markets and developing economies, strengthening institutional quality alongside external balance-sheet management, and rebuilding buffers to safeguard against renewed global financial stress. |
| JEL: | F34 F36 F65 G15 H63 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21015 |
| By: | Bassetto, Marco; Galli, Carlo; Hall, Jason |
| Abstract: | When public debt is issued in domestic currency, any sudden confidence crisis in the repayment ability of the government need not trigger a default, since it can be accommodated by temporary monetary financing, converting default risk into inflation risk. When the default risk premium is determined by well-informed financial intermediaries while inflation arises from the choices of less-informed workers and producers, this conversion masks adverse news, at least temporarily, and results in lower interest rates following adverse shocks. In this paper, we assess the importance of this channel, and the extent to which it is eroded when persistent fiscal shortfalls shift the prior held by all agents in the economy about the eventual resolution of the imbalance. |
| JEL: | D84 E43 F34 H63 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20947 |
| By: | Shaghil Ahmed; Ozge Akinci; Albert Queraltó |
| Abstract: | The cross-border spillover effects of shifts in U.S. monetary policy have long been a focus of academics and policymakers alike. A common finding in the literature is that changes in the stance of U.S. monetary policy have sizable effects on economic activity and financial markets in emerging market economies (EMEs). In this post, we analyze one specific aspect of these spillovers: how EMEs fared through the U.S. monetary policy tightening cycle of 2022-23 relative to the predictions of a model, which was calibrated to capture empirically relevant features of these economies based on historical data. We find that more vulnerable EMEs fared better in both financial market and growth outcomes than would be expected from our model, while the relatively less vulnerable fared a bit better than the model predictions for financial outcomes but substantially worse for growth outcomes. |
| Keywords: | spillovers; growth-driven U.S. monetary shocks; monetary-driven U.S. monetary shocks; emerging markets; Vulnerabilities |
| JEL: | E32 E44 F41 |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103439 |
| By: | Bertaut, Carol; Curcuru, Stephanie E.; Faia, Ester; Gourinchas, Pierre-Olivier |
| Abstract: | This paper studies the efficiency of international capital flows into and out of the U.S. using security-level equity holdings matched to firm-level measures of economic performance from 1995 to 2022. We find that both US and foreign investors tilt their international equity portfolio toward the top of the firm distributions of Total Factor Productivity (TFP), mark-ups, Marginal Revenue Product of Capital (MRPK) and intangible capital. This allocation to the top occurs primarily through a between-firm component. For US firms with high initial productivity, and for foreign firms with high MRPK, increases in international investors’ equity holdings are associated with higher future investment in the near term. |
| JEL: | E2 F3 F6 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20979 |
| By: | Reis, Ricardo |
| Abstract: | Large stocks of public and external debt tempt policymakers to extract resources from their creditors. This article characterizes three broad forms of financial repression that serve this purpose. The first consists of direct taxation of the financial sector through levies on financial transactions, banks’ income, or pension-fund assets. The second is a sudden and sufficiently persistent devaluation of the currency. The third raises the demand for the non-monetary services provided by different types of government liabilities while keeping their supply scarce, thereby creating yield discounts. Reviewing historical experience, including recent years, the article concludes that each of these revenue sources can occasionally be large, but that policies designed to exploit them often fail. Financial repression is an alluring but ultimately illusory temptation: yielding to it typically generates substantial efficiency losses while producing only limited revenue. |
| JEL: | E44 E60 F30 F41 G10 H20 H60 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21072 |
| By: | Benhima, Kenza; Bolliger, Elio; Davenport, Margaret |
| Abstract: | We identify a novel channel of international financial contagion driven by investor expectations. Using a unique dataset linking investors’ cross-country GDP growth expectations to their equity mutual fund investments and to funds’ country allocations, we show that inflows into mutual funds respond strongly to fund-level expected growth, whereas funds’ country allocations react only weakly to country-specific expectations. This asymmetry generates co-ownership spillovers: negative expectations about one country propagate mechanically to other countries held in the same funds, even in the absence of changes in the country's own expected fundamentals. We develop a portfolio choice model with delegated investment and portfolio stickiness to rationalize this pattern. Because country weights in global portfolios are highly granular, these spillovers are quantitatively important, accounting for about 80% of expectation-driven capital flow reallocation. Small countries are disproportionately exposed to these spillovers, while large countries are their main sources. |
| JEL: | D84 F32 G11 G15 G23 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21134 |
| By: | Cristi, José; Kalemli-Ozcan, Sebnem; Sans, Mariana; Unsal, Filiz |
| Abstract: | We study the international transmission of U.S. monetary policy (FED hikes) and a strong U.S.dollar. Both of these variables are endogenous and thus we follow the recent developments in the literature to measure the exogenous components of each from the perspective of the rest of the world (ROW). We show that while U.S. monetary policy shocks act as financial shocks increasing risk premia in emerging markets, a shock to U.S. dollar does not generate the same effect. |
| JEL: | F30 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21042 |
| By: | Mitchener, Kris James; Pedemonte, Mathieu |
| Abstract: | Using newly digitized monthly data on the quantities and prices of imports as well as product-level data on tariff rates, we estimate that in the first year after the passage of the Smoot-Hawley Tariff Act, imports facing rate increases fell swiftly and dramatically relative to imports not affected by tariffs: for a one-percentage-point increase in the tariff rate, they declined by an average of 4%. We also estimate that the incidence of Smoot-Hawley was almost entirely borne by U.S. importers. Using an open-economy model, we attribute our high measured short-run trade elasticity of greater than 4 to fixed exchange rates that the U.S. maintained with most trade partners in the first 15 months after enactment. Our model also suggests that Smoot-Hawley accounted for 27% of the decline in total US imports in the first year after enactment. Finally, we construct both partial equilibrium and general equilibrium welfare estimates of Smoot-Hawley. Both methods deliver welfare losses of about 0.2% of GDP, reflecting the high measured elasticity of substitution and low US import-GDP ratio. |
| Keywords: | trade policy;Pass through;Smoot-Hawley Tariff;trade elasticity;International trade;tariff incidence;welfare analysis of tariffs |
| JEL: | F10 F13 F14 F63 F68 N12 N72 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14631 |
| By: | Acosta-Henao, Miguel; Fernández Martin, Andrés; Gomez-Gonzalez, Patricia; Kalemli-Ozcan, Sebnem |
| Abstract: | Using comprehensive administrative data on Chilean firms, we examine whether credit lines and government-backed credit guarantees mitigated the impact of the large sudden stop event during the pandemic—the abrupt withdrawal of international capital. Our analysis employs a regression discontinuity design to demonstrate that firms eligible for these programs increased their borrowing from domestic lenders at a relatively lower cost. By reducing the cost of domestic currency debt relative to foreign currency debt, these policies effectively lowered the relative cost of domestic capital in the short term. This reduction in borrowing costs is conditional on selection effects at both the firm and bank levels, where only policy-eligible firms benefit from the lower credit costs from the same lender that non-eligible firms also borrow from. An open economy model with heterogeneous firms and financial frictions helps explain our findings: government interventions eased the higher cost of capital during the sudden stop by relaxing firms’ domestic collateral constraints, which in turn reduced domestic financial intermediaries’ risk aversion and boosted the supply of domestic credit in the face of shrinking international capital flows. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21040 |
| By: | Schmidt, Sebastian |
| Abstract: | I study price level determination in a currency union when some member countries' government securities earn a convenience yield. These "convenience assets" generate fiscal seigniorage revenues that, given appropriate fiscal and monetary policies, back the union's price level, much like primary surpluses and monetary seigniorage do. An exogenous drop in the private-sector demand for convenience assets reduces seigniorage revenues and raises the price level. It also results in a wealth transfer across countries owing to the heterogeneity in convenience yields. |
| Keywords: | Currency union; Fiscal theory of the price level; Convenience yield; Cross-country heterogeneity |
| JEL: | E31 E63 F45 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21001 |
| By: | BBVA Research |
| Abstract: | Geopolitical shocks reprice sovereign default risk directly; geoeconomic shocks bypass default risk and transmit through expected monetary policy and the global financial cycle. Geopolitical shocks reprice sovereign default risk directly; geoeconomic shocks bypass default risk and transmit through expected monetary policy and the global financial cycle. |
| Keywords: | machine learning, machine learning, geopolitics, geopolitics, Politics and Geopolitics, Politics and Geopolitics, Shapley values, Shapley values, Global, Global, Big Data techniques used, Big Data techniques used, Geostrategy, Geostrategy, Working Paper, Working Paper |
| JEL: | F51 G15 H63 C45 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bbv:wpaper:2604 |
| By: | Ambrosino, Maria Ludovica; Chan, Jenny; Tenreyro, Silvana |
| Abstract: | How does trade fragmentation affect inflationary pressures? What is the response of monetary policy needed to sustain inflation at target? To address these questions, we develop a two-sector, small open-economy model featuring imperfect international risk-sharing and household heterogeneity, capturing both the supply-side and demand side effects of fragmentation. In the model, fragmentation takes the form of import-price increases or a decline in tradable-sector productivity. The sign and magnitude of its impact on inflationary pressures, and the appropriate policy response, depend not only on the direct effect of higher import prices or lower productivity on supply but also, crucially, on how aggregate demand adjusts to lower real incomes. In turn, this depends on the pace of fragmentation (gradual versus front-loaded) and other key structural factors highlighted by the model. We compare outcomes under Taylor-type monetary policy rules to a constrained-efficient allocation. |
| Keywords: | Monetary policy; Inflation; Heterogeneity; Globalization |
| JEL: | F12 F15 F41 F62 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21024 |
| By: | Dao, Mai Chi; Gourinchas, Pierre-Olivier |
| Abstract: | We study the behavior of Covered Interest Parity (CIP) deviations – aka the CIP basis - in Emerging Markets (EM). A major challenge in computing the CIP basis in EM’s lies in measuring local currency interest rates which are free of local credit risk. To do so, we construct a ‘purified’ CIP basis for eight major EM currencies using supranational bonds issued in EM local currencies and US dollar going back twenty years. We show that this ‘purified’ CIP basis aligns well with theory-implied predictions. In the cross-section and the time-series, the basis correlates with fundamental forces driving supply and demand for dollar forwards. Shocks to global dollar funding costs, global intermediary’s balance sheet capacity, and the demand for dollar safe assets interact with currency-specific dollar hedging and funding needs in moving the CIP basis in EM’s. |
| Keywords: | Emerging markets |
| JEL: | F31 G15 G12 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20927 |
| By: | Kremens, Lukas; Varela, Liliana |
| Abstract: | Short-horizon exchange rate forecasts systematically - and incorrectly - predict a partial reversal of their previous errors, both in consensus and forecaster-by-forecaster measures. This pattern spans almost two-thirds (two-fifths) of the variation in consensus (individual) forecasts and explains their poor predictive performance at short horizons. We decompose short-term forecasts into three orthogonal components correlated with (i) long-term forecasts, (ii) past errors, and (iii) residual noise. The first two components account for three-quarters of forecast variance and strongly predict realizations. But the error-loading component predicts in the wrong direction, offsetting predictive information in the long-term component, and renders the overall forecast uninformative. |
| Keywords: | forecasts |
| JEL: | F31 G15 G17 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21258 |
| By: | Brian Fabo (National Bank of Slovakia); Juraj Falath (National Bank of Slovakia) |
| Abstract: | We examine how renewed United States (US) protectionism under the second Trump administration affects the euro area (EA) economy. Using evidence from structural and empirical studies, we synthesise the main transmission channels through which tariffs influence output and inflation. We show that tariffs operate simultaneously as supply and demand shocks, with the balance depending on trade structure, exchange-rate adjustments, and policy responses. A 10% US universal import tariff is estimated to lower euro area GDP by around 0.1–0.5% in the scenario without global retaliation to US actions. There is minimal inflationary impact on Europe across all types of models. The results suggest that euro area policymakers should treat such shocks primarily as external demand disturbances rather than inflationary threats. |
| JEL: | F13 F41 E52 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1143 |
| By: | Kalemli-Ozcan, Sebnem; Soylu, Can; Yıldırım, Muhammed A. |
| Abstract: | We analyze how tariff uncertainty affects exchange rates, motivated by the U.S. dollar’s depreciation after the 2025 tariff announcements. Standard macro-trade models predict that unilateral tariffs appreciate the implementing country’s currency, but we show this result can be overturned by policy uncertainty. We build a two-country general equilibrium model with risk-averse agents and segmented financial markets, where tariff volatility enters uncovered interest parity through a risk-premium wedge. Higher tariff uncertainty increases precautionary savings and risk premia, leading to immediate currency depreciation even as tariffs rise. Quantitatively, the model replicates the size and timing of the observed dollar depreciation episode dynamics. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21062 |
| By: | Bergant, Katharina; Fernández Martin, Andrés; Teoh, Ken; Uribe, Martín |
| Abstract: | Employing large language models to analyze official documents, we construct a comprehensive record of daily changes in de jure restrictions on cross-border flows worldwide since the 1950s. Our analysis uncovers the wide array of instruments used to regulate cross-border financial flows and documents their evolving prevalence over the past seven decades. The fine granularity of the new measures allows us to characterize cross-country and time-series variation across eight categories of restrictions, further distinguishing by flow, direction, instrument type, and overall policy stance. We exploit the high frequency nature of the new data to document novel patterns in the use of these restrictions, as well as their relationship to crises, and political economy determinants. We validate our measures against established indicators of capital account regulation and show that our LLM-based classifications both replicate and substantially extend these benchmarks along multiple dimensions. Finally, we examine policymakers’ stated motivations for adopting these restrictions and account for the intensive margin of these policy actions. |
| JEL: | F32 F38 F41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21045 |
| By: | Copestake, Alexander; Firat, Melih; Furceri, Davide; Redl, Chris |
| Abstract: | We estimate the spillovers of demand- and supply-driven shocks in China to foreign countries and firms. We combine a Structural Vector Autoregression (SVAR) framework with a broad-based measure of domestic economic activity in China and narrative evidence on domestic shocks to distinguish supply versus demand components of Chinese growth. We then assess the responses to such shocks of GDP (revenue) in other countries (firms). The results suggest that: (i) global GDP responds more to Chinese supply shocks than to Chinese demand shocks; (ii) both supply and demand slowdowns in China are followed by declines in partner country GDP and firm revenue, especially in countries and firms with stronger trade linkages to China; and (iii) Chinese supply shocks have larger impacts on countries and firms with relatively stronger input linkages to China, while Chinese demand shocks have larger impacts on countries and firms with relatively stronger output linkages to China. |
| Keywords: | Network spillovers |
| JEL: | F14 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21111 |
| By: | Ana Fostel (University of Virginia); John Geanakoplos (Yale University); Gregory Phelan (Williams College) |
| Abstract: | Cross-country disparities in collateral technologies alone can account for large capital flows among mature economies, and allow the most advanced country to run a permanent trade deficit. When the collateral technology advantage is in creating negative beta (super safe) financial assets backed by positive beta assets, a Global Collateral Cycle emerges, with pro-cyclical gross and net flows and increased global asset price volatility. The supply of super safe assets is necessarily curtailed in downturns, providing a complementary (supply) channel to the flight to safety (demand) channel for explaining why US safe asset prices rise during crises. |
| Date: | 2026–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2521 |
| By: | Lutz Kilian; Michael D. Plante; Alexander W. Richter |
| Abstract: | The 2026 Iran war has raised the question of how exposed the U.S. economy is to geopolitical oil supply disruptions. It is widely believed that the U.S. economy has become less vulnerable to such disruptions as it has reduced its dependence on oil and changed from a major net oil importer to a net oil exporter. We develop a two-country model of the global economy with large geopolitical oil supply disruptions that distinguishes between the U.S. economy and the rest of the world. We find that the response of U.S. real GDP growth to the disruption in global oil supplies today is only one-twentieth of what it would have been in 1980. Moreover, the response of U.S. real GDP growth today is only one-sixth of the decline in the rest of the world. |
| Keywords: | oil price; geopolitics; oil supply disruptions; open economy; structural change |
| JEL: | E13 E32 F41 F43 Q43 |
| Date: | 2026–06–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:103437 |
| By: | Erdal Yalcin |
| Abstract: | Sanctions, export controls, and friend-shoring shift the margin of trade policy from cost alone to exposure. When supplier risks are correlated, the value of a trade relationship cannot be evaluated in isolation; it depends on the sourcing network in which it is embedded. This paper develops a general-equilibrium theory of relationship-based trade under correlated risk. Countries allocate sourcing across partners whose risks load on common factors, while terms of trade clear markets and scale the uninsured covariance carried by each relationship. The mechanism separates individually optimal de-risking from collective resilience. Reallocation away from a risky supplier raises demand for substitutes; if capacity is scarce, or if substitutes load on the same systemic factor, equilibrium prices can erode, and even reverse, the risk reduction the reallocation was meant to achieve. The model yields a risk-augmented Viner decomposition into trade creation, terms-of-trade redistribution, and induced risk. Quantitatively, this induced-risk channel is small with broad re-sourcing and abundant substitutes, but first-order for critical inputs and high-loading supplier clusters. |
| Keywords: | geopolitical risk, friend-shoring, de-risking, supply chain resilience, trade networks, terms of trade |
| JEL: | F13 F15 F42 D52 D81 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12797 |
| By: | Dao, Mai Chi; Gourinchas, Pierre-Olivier; Itskhoki, Oleg |
| Abstract: | We offer a unifying empirical model of covered and uncovered currency premia, interest rates and spot and forward exchange rates, both in the cross section and time series of currencies. We find that the rich empirical patterns are in line with a partial equilibrium model of the currency market, where hedged and unhedged currency is supplied by intermediary banks subject to value-at-risk balance-sheet constraints, emphasizing the frictional nature of equilibrium currency premia and exchange rate dynamics. In the cross section, the excess supply of local-currency savings is the key determinant of low relative interest rates, negative covered and uncovered currency premia, cheap forward dollars; and vice versa. In the time series, covered currency premia change infrequently and in concert across currencies, driven by aggregate financial market conditions. In contrast, uncovered currency premia move frequently in response to currency-specific demand shocks, which we capture with the dynamics of net currency futures positions of dealer banks. Exchange rate depreciations in response to negative shifts in currency demand are followed by small persistent appreciations that generate predictable expected returns necessary to ensure intermediation of currency demand shocks, irrespective of their financial or macroeconomic origin. Changes in net futures positions of dealer banks account for most of the variation in the spot exchange rate for every currency. |
| Keywords: | Currency markets; Frictional intermediation; Futures and forwards |
| JEL: | E4 F3 G12 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20792 |
| By: | Cosimo Petracchi (Tor Vergata University of Rome); Luca Riva (Central Bank of Ireland and University College Dublin); Marco Stenborg Petterson (University of Naples Federico II and CSEF.) |
| Abstract: | This paper proposes a firm-level mechanism that explains why exchange-rate regimes are largely neutral with respect to real macro variables: exporters actively adjust marginal costs and markups to absorb nominal exchange-rate fluctuations. We quantify this mechanism using micro-level data from the European car market (1970–99). We show that floating regimes are associated with limited adjustment in destination-currency prices and limited response in quantities sold. We then estimate a structural demand-and-supply system to recover product-level markups and marginal costs. At breaks from pegged to floating regimes, producer-currency markups (marginal costs) fall on impact by around 11% (10%). A two-country real business cycle model with segmented financial markets, incorporating pricing-to-market and operational hedging, rationalises these patterns. Our model underscores the role of real micro rigidities, rather than nominal rigidities, in the weak transmission of exchange-rate fluctuations to real macro variables. |
| Keywords: | European car market, exchange-rate regimes, demand estimation, pricing-to-market, variable markups, real rigidities. |
| JEL: | D22 F31 F41 F44 L11 L62 N14 |
| Date: | 2026–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:789 |
| By: | Miranda-Agrippino, Silvia; Nenova, Tsvetelina; Rey, Hélène |
| Abstract: | Using a novel indicator for the People’s Bank of China monetary policy stance, we estimate a policy rule that accounts for the dual nature of its price stability mandate—encompassing domestic inflation and the exchange rate—and for the evolution of its operational framework. The Ins: The domestic transmission follows textbook patterns, with exceptions due to the active management of the renminbi and the financial account. The Outs: International spillovers are powerful and affect commodity markets, global production and trade. The pass-through to foreign (US) prices is substantial. Financial spillovers are second-order, and mostly derivative from trade spillovers. |
| Keywords: | Monetary policy; International spillovers; China |
| JEL: | E44 E52 F33 F42 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20958 |
| By: | Bacchetta, Philippe; van Wincoop, Eric |
| Abstract: | Deviations from Covered Interest Parity (CIP) vary systematically across countries and are strongly correlated with cross-country differences in interest rates, net foreign asset positions, and the extent of hedging of dollar exposures. We develop a macroeconomic model of the United States and a set of smaller advanced economies that introduces cross-country heterogeneity to account for these empirical relationships. The model is disciplined by evidence on the main participants in FX derivatives markets and their underlying hedging motives. We allow for heterogeneity in wealth, productivity, and safe-asset supply. Analytical results characterize how each source of heterogeneity affects CIP deviations, and a calibrated version of the model is shown to match key cross-sectional patterns in the data. In particular, heterogeneity in wealth—captured by differences in saving behavior across countries—emerges as the primary mechanism consistent with the observed evidence. |
| JEL: | F30 G15 F41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21327 |
| By: | Aguilar, Pablo; Darracq Pariès, Matthieu; Dieppe, Alistair; Domínguez-Díaz, Rubén; Gallegos, José-Elías; Quintana, Javier; Eugenelo, Antonio |
| Abstract: | We study the short-run macroeconomic transmission of a US–China tariff war in an open economy multi-sector New Keynesian model with input–output linkages, sectoral nominal rigidities, and heterogeneous currency invoicing. A reciprocal 10 percentage-point tariff increase generates asymmetric incidence: the tariff-imposing country bears more of the inflationary burden, while the targeted country experiences the larger output contraction. Production networks amplify this contraction by propagating the shock beyond the directly tariffed bilateral margin. Currency invoicing further shapes transmission. Under heterogeneous invoicing, dollar-priced border prices weaken the expenditure-switching role of exchange rates, deepening the contraction in China relative to producer-currency pricing and altering third-country spillovers. The EA response is small in the aggregate, but only because positive trade-diversion margins are offset by weaker demand from China and multilateral adjustments. We then exploit the model’s sectoral structure by imposing tariffs on one Chinese sector at a time. Sectoral incidence is highly concentrated, but aggregate effects cannot be inferred from the directly tariffed sector alone: domestic propagation offsets own-sector gains in the US, reinforces own-sector losses in China, and leaves the EA as a net object shaped by opposing trade margins. The results show that tariff incidence depends jointly on where the tariff lands, how the shock propagates through production networks, and how invoicing governs border-price adjustment. A framework that combines these margins delivers a materially different assessment from one built on bilateral trade shares alone. JEL Classification: E31, E32, E52, F13, F41, F42 |
| Keywords: | dominant currency pricing, DSGE, multicountry, networks, tariffs, trade |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263254 |
| By: | Forbes, Kristin; Ha, Jongrim; Kose, M. Ayhan |
| Abstract: | Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through†their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks—particularly global supply shocks—have significant implications for modeling monetary policy and designing central bank frameworks. |
| Keywords: | Federal funds rate |
| JEL: | E31 E32 E52 F41 F42 F44 F47 G2 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21109 |
| By: | Boyarchenko, Nina; Elias, Leonardo |
| Abstract: | We estimate the global price of credit risk from a large cross section of global corporate bond returns. We show that a single factor, constructed as a nonlinear function of past credit spreads, equity market volatility, and their interactions, prices bond returns in both the time series and the cross section. The factor significantly outperforms alternative measures of global financial conditions, explaining up to 13% of variation in bond-level three-month-ahead returns. A high global price of credit risk further translates into deteriorations in local credit conditions, outflows from global funds, and higher expected returns to global funds. |
| Keywords: | Global financial cycle; Return predictability |
| JEL: | F30 G15 G12 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21268 |
| By: | HacıoÄŸlu Hoke, Sinem; Ostry, Daniel; Rey, Hélène; Rousset Planat, Adrien; Stavrakeva, Vania; Tang, Jenny |
| Abstract: | Drawing on 100 million transactions, we show how speculators, hedgers, and market makers interact in the world’s largest FX derivatives market, and that derivatives trading can affect exchange rates. Firms in the largest client sectors — pension and investment funds, insurers, and nonfinancials — use FX derivatives primarily to hedge currency risk, with dealer banks providing the liquidity. Hedge funds, with comparatively smaller net exposures, trade speculatively, whereas dealer banks insulate themselves from changes in speculative demand by taking offsetting positions with hedgers, especially nonfinancials. Non-bank market makers, instead, take residual exchange-rate exposures "on the margin". Hedge funds' speculative flows help transmit monetary policy shocks to exchange rates, while investment funds' unwinding of hedges contribute to dollar appreciations when credit risk rises. Our results highlight that exchange rates depend on the composition of trading activities in FX derivatives markets. |
| Keywords: | Exchange rates; Hedging; Speculation; Market making; Heterogeneity |
| JEL: | F30 F31 G15 G20 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20978 |
| By: | Corsetti, Giancarlo |
| Abstract: | Countries around the world hold large stocks of reserves—on average 10% of GDP, with some countries holding as much as 90%. This paper examines the role of international reserve accumulation through the lens of the Fiscal Theory of the Price Level (FTPL). The main insights are as follows. First, for a given level of net debt, issuing reserves against nominal debt modifies the government’s asset base, increasing the stock of liabilities that can be devalued via price-level movements. A high stock of reserves therefore reduces inflation volatility stemming from fiscal shocks. Second, for a given stock of reserves, the greater the equilibrium elasticity of the exchange rate to domestic inflation, the stronger the valuation effects on foreign-currency assets, which help stabilize prices and the exchange rate by affecting net debt. However, these valuation effects are double-edged: a positive stock of international reserves also influences the transmission of foreign nominal (inflation and currency) shocks. In addition to providing a rationale for foreign exchange interventions, nominal-to-real spillovers raise issues in fiscal and monetary policy design. |
| Keywords: | Valuation effects; Debt sustainability; International spillovers; Fiscal policy |
| JEL: | E31 E62 E63 F31 F34 H63 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21113 |
| By: | Tarek Alexander Hassan; Thomas M. Mertens; Jingye Wang; Tony Zhang |
| Abstract: | This paper develops a calibrated general-equilibrium model to study how different configurations of trade and financial policy reshape the hierarchy of global currencies—and the U.S. dollar's position at its anchor. Currency safety and anchor status arise endogenously from each economy's 'effective size'—the weight its domestic shocks carry in setting world prices. Tariffs reduce this effective size on the goods side; capital controls do the same on the financial side. A unifying result emerges: The economy that maintains the deepest integration with the global trading network retains the largest safety premium and gains anchor status. We use this framework to evaluate the effects of three policy levers for Europe that affect the effective size of the euro: internal harmonization and enlargement, trade openness, and capital-account openness. The stakes are large: In our model, shifts in currencies' safety can redirect global capital flows and alter sovereign borrowing costs by hundreds of billions of dollars annually. |
| JEL: | F13 F31 F33 F36 F38 F41 G15 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35386 |
| By: | Bergant, Katharina; Mishra, Prachi; Rajan, Raghuram; Pinzon-Puerto, Freddy |
| Abstract: | We study how U.S. monetary policy shocks transmit to cross-border merger and acquisition (M&A) activity. Using country- and firm-level data, tighter U.S. policy is shown to reduce both the value and the number of cross-border deals. The effects are especially pronounced for acquirer firms with larger foreign-currency liabilities, consistent with a net worth channel. Reflecting agency motives for acquisitions, deals announced under more accommodative U.S. conditions underperform ex post, indicating potential capital misallocation. |
| Keywords: | Cross-border flows |
| JEL: | F63 F65 G34 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21198 |
| By: | Sushant Acharya; Edouard Challe; Louphou Coulibaly |
| Abstract: | We show that incorporating uninsurable countercyclical income risk into a standard international RBC model can qualitatively and quantitatively account for the quantity puzzles in open-economy macro, namely (i) the Backus-Smith puzzle, (ii) the Backus-Kehoe-Kydland puzzle, and (iii) the weak correlation between the trade balance and the exchange rate. We also show that our model can simultaneously account for the Fama puzzle and the evidence that high interest rate countries have stronger currencies—which representative-agents models that rely only on financial or demand shocks cannot jointly account for. Crucially, our model resolves all these puzzles while relying solely on productivity shocks and thus generates the observed domestic and cross-country macroeconomic comovement. |
| Keywords: | incomplete markets; countercyclical risk; exchange rate; open-economy macro puzzles; macroeconomic comovements |
| JEL: | F41 F44 |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103524 |
| By: | Fornaro, Luca; Wolf, Martin |
| Abstract: | We provide a theory connecting trade policies to innovation and technological hegemony, based on the notion that high-tech clusters generate technological rents for the countries hosting them. We show that tariffs on high-tech imports may be used to steal technological rents from the rest of the world, by redirecting innovation activities from foreign to domestic firms. This strategy may lead to welfare gains, which however come at the expense of even larger welfare losses in the rest of the world. Tariffs may backfire even for the country imposing them if they are not well designed, or if the rest of the world retaliates. |
| JEL: | E22 F12 F13 F42 F43 O24 O33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20826 |
| By: | Chari, Anusha; Dilts Stedman, Karlye; Lundblad, Christian |
| Abstract: | This paper defines risk-on risk-off (RORO), an elusive terminology in pervasive use, as the variation in global investor risk aversion. Our high-frequency RORO index captures time-varying investor risk appetite across multiple dimensions: advanced economy credit risk, equity market volatility, funding conditions, and currency dynamics. The index exhibits risk-off skewness and pronounced fat tails, suggesting its amplifying potential for extreme, destabilizing events. Compared with the conventional VIX measure, the RORO index reflects the multifaceted nature of risk, underscoring the diverse provenance of investor risk sentiment. Practical applications of the RORO index highlight its significance for international portfolio reallocation and return predictability. |
| Keywords: | Risk-on Risk-off; Global investor risk aversion; Extreme events; Tail risk; Return predictability |
| JEL: | F21 F36 F65 G11 G12 G15 G23 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20932 |
| By: | Francisco Roch (UTDT); Juan Urquiza (Pontificia Universidad Catolica de Chile); Alejandro Vicondoa (Pontificia Universidad Catolica de Chile) |
| Abstract: | This paper quantifies the international spillovers of U.S. fiscal volatility shocks to emerging economies (EMEs). We identify U.S. fiscal volatility shocks by estimating fiscal reaction functions with time-varying volatility. A one standard deviation U.S. fiscal volatility shock, similar to the 2011 debt-ceiling episode, reduces output by 0.4 percent and investment by 0.7 percent in EMEs after one year, lasting around 10 quarters. The shock propagates primarily through global financial conditions and commodity prices, affecting EMEs borrowing costs and accounting for 7 percent of EMEs business cycle fluctuations. The impact is lower in economies with inflation-targeting frameworks and fiscal rules. |
| Keywords: | U.S. Policy Volatility, Fiscal Policy, Volatility Shocks, Emerging Economies, Spillovers. |
| JEL: | E32 E62 F41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:400 |