|
on Open Economy Macroeconomics |
| By: | McLeay, Michael; Tenreyro, Silvana |
| Abstract: | Has the dominance of the dollar in global trade rendered monetary policy ineffective? An emerging view contends that if a country invoices its exports in dollars, exchange rates cannot stabilize economic activity, as the classical expenditure-switching channel is muted. This view rests on the premise that export prices are sticky in dollars, breaking the link between export demand and depreciations. But this assumption is not borne out by the data: goods priced in dollars tend to have more flexible prices, along with higher elasticities of substitution. We propose a model with more realistic assumptions and show that even with dollar pricing, depreciating the currency by loosening monetary policy can still boost exports and activity materially. The limit to any expansion is not demand, but supply capacity. We also show that low exchange-rate pass-through to dollar prices is not informative about price stickiness. The price response to exchange rates is small when demand elasticities are high, even with flexible prices: low pass-through is an equilibrium result, not evidence of a nominal friction. |
| JEL: | E31 E52 F41 Q30 |
| Date: | 2025–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128085 |
| By: | Grey Gordon; Pablo Guerrón-Quintana |
| Abstract: | Hard sovereign defaults—defaults with large haircuts—are associated with deeper recessions, longer durations, and, as we show, larger devaluations than soft defaults. We rationalize these regularities by developing a single-proposer noise bargaining game and embedding it in a two-sector sovereign default model. Creditors weigh the sovereign's haircut offers against likely future offers and idiosyncratic valuation shocks. In short-lived recessions, creditors tend to reject large proposed haircuts, anticipating better terms as the economy recovers—endogenously correlating default intensity with adverse outcomes. Two years after default, our decomposition attributes nearly 80% of the observed output differentials to selection on different shock realizations. |
| Keywords: | Default; Sovereign; Debt; Growth; Haircuts |
| JEL: | F34 C78 E32 |
| Date: | 2025–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:101987 |
| By: | Prema-chandra Athukorala; Arianto Patunru |
| Abstract: | This paper explores Indonesia's experience in leveraging opportunities presented by global manufacturing value chains (GMVCs), with a comparative focus on Southeast Asia. It is motivated by growing concerns in recent policy discussions regarding the country’s underutilized growth potential, which could be unlocked through more effective integration into GMVCs. Indonesia initially had promising prospects for export-oriented industrialization by engaging in GMVCs. However, its industrialization trajectory over the subsequent years has not lived up to expectations. Strong evidence indicates that Indonesia’s deep-rooted policy ambivalence has hindered its full participation in global production networks. The findings highlight the need for a proactive investment promotion strategy to attract multinational enterprises (MNEs) involved in GMVCs. |
| JEL: | F14 F41 F60 L2 L63 O53 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pas:papers:2025-13 |
| By: | Hélène Rey; Vania Stavrakeva |
| Abstract: | We study the anatomy of the international portfolio finance network. As global financial linkages have become denser over time, cross-border portfolio equity positions have grown in importance relative to debt for Emerging markets and Advanced economies. Using the framework developed by Stavrakeva and Rey (2024), we construct a novel proxy of daily foreign investor holdings in both equity and long-term sovereign debt markets across 32 currency areas. Leveraging an instrumental variable strategy, we identify an effect of foreign equity ETF inflows on exchange rates and local stock market prices. Our high-frequency proxy enables us to interpret episodes of turbulence in international finance. It should prove useful to assess how persistent the current shocks to the international financial system are likely to be. |
| JEL: | F3 F32 G15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34409 |
| By: | Torsten Ehlers; Mathias Hoffmann; Alexander Raabe |
| Abstract: | Non-US global banks are an important driver of the international synchronization of house price growth. A loosening (tightening) of US dollar funding conditions leads non-US global banks to expand (contract) their international lending, which is largely denominated in US dollars. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of house price growth. Borrowing country pairs whose joint exposure to US dollar funding conditions via their non-US creditor banks (dollar co-dependence) is higher, exhibit a higher synchronization of house price growth. Our results identify a novel international spillover channel of US dollar funding conditions, which is not related to common-lender exposures. We show theoretically and empirically that the exposure of non-US global banks to dollar funding conditions is captured by the bilateral treasury basis between the currency of the non-US global creditor banks' headquarters and the US dollar. As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more exposed to US dollar funding variations exhibit higher house price synchronization. |
| Keywords: | house prices, synchronization, US dollar funding, global US dollar cycle, US treasury basis, convenience yield, global imbalances, capital flows, global banking network |
| JEL: | F34 F36 G15 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-56 |
| By: | Simplice A. Asongu (Johannesburg, South Africa); Jean R. F. K. Bouanza (Brazzaville, Congo); Peter Agyemang-Mintah (Abu Dhabi, UAE) |
| Abstract: | The present study examines the relevance of globalization in lifelong gender inclusive education for structural transformation. The focus of the research is on 41 countries in Africa using data from 2004 to 2021. The generalized method of moments (GMM) is employed to assess the problem statement within the remit of interactive regressions. Gender inclusive lifelong learning is measured as gender inclusive education acquired during the three levels of education, notably: primary, secondary and tertiary inclusive education stages. Total globalization and corresponding components (social, economic and political dynamics) are employed as moderators. The attendant sub-components of economic (i.e., trade and financial) and social (i.e., interpersonal, informational and cultural) globalization are also employed for robustness purposes. The hypotheses that globalization and gender inclusive lifelong learning individually influence structural transformation are not validated. Furthermore, the hypothesis that globalization dynamics moderate lifelong gender inclusive education to promote structural transformation is also not validated. Clarification as to why the hypotheses are not validated is provided. Policy implications are discussed. |
| Keywords: | Globalization; gender; inclusive education; structural transformation; Africa |
| JEL: | E60 F40 F59 D60 O55 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:dbm:wpaper:24/016 |
| By: | Tucci, Candelaria Fernández |
| Abstract: | This paper extends the post-Keynesian model of the firm to an open-economy context to investigate the determinants of firms' target profit rates in developing and emerging economies (DEEs) and the ways in which these rates have been affected by the financialisation phenomenon. Our findings show that firms' intrinsic vulnerabilities, persistent risks, and tighter financial constraints-stemming from the hierarchical structure of the international monetary system-lead to structurally higher target profit rates in DEEs compared to those in advanced economies. At the microeconomic level, we show that financialisation, in the form of increasing foreign indebtedness, can induce the firm to raise profitability targets through the finance, preference, and distribution transmission channels. Moreover, by establishing the link between the microeconomic effects of financialisation with its macroeconomic implications, we identify the conditions under which the changes in firm behaviour induced by financialisation generate either the same macroeconomic outcomes or micro-macro fallacies, giving rise to a paradox of profits, a paradox of growth, a paradox of risk and a paradox of liquidity. |
| Keywords: | target profit rates, financialisation, theory of the firm, foreign indebtedness, portfolio dollarisation |
| JEL: | D21 E12 F33 F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:330332 |
| By: | Gianluca Benigno (University of Lausanne and CEPR); Alessandro Rebucci (Johns Hopkins University, CEPR and NBER); Aliaksandr Zaretski (University of Surrey) |
| Abstract: | In this paper, we revisit the question of how to manage financial crises using the framework proposed by Bianchi and Mendoza (2018). We show that this model economy exhibits a multiplicity of constrained-efficient equilibria, which arises because the private shadow value of collateral influences the forward-looking asset price. Among these equilibria, the specific one studied by Bianchi and Mendoza (2018) can be implemented using a tax/subsidy on debt alone. In that case, both the ex ante tax and ex post subsidy are quantitatively important for welfare under the optimal time-consistent policy. Limiting either component can lead to a welfare loss relative to the unregulated competitive equilibrium, highlighting the complementarity between crisis prevention and crisis resolution tools. We also show that, under certain conditions, all Pareto-dominant constrained-efficient equilibria entail the unconstrained allocation chosen by a social planner subject to the country budget constraint, and this allocation can be implemented with purely ex post policies. |
| JEL: | E61 F38 F44 H23 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0625 |
| By: | Mr. Alexander Culiuc; Hyunmin Park |
| Abstract: | We introduce a novel dataset of large depreciations worldwide since 1971. First, we use a multi-step approach to accurately pinpoint large depreciation events on monthly data. We then construct large depreciation episodes that cover 24 months after the initial depreciation event. The month-level data allows for a granular characterization of the dynamics of large depreciations across multiple metrics, including maximum and equilibrium depreciations, overshooting, and number of depreciation events within a single episode. We then present stylized facts on episodes across various characteristics and groups (income, REER trajectory, number of events, exchange rate flexibility, and IMF-supported program status). Among these: (i) a few months into an episode, REER tends to appreciate unless there is an “aftershock” depreciation, (ii) attempts to peg following the initial depreciation are associated with a higher likelihood of “aftershocks”, and (iii) equilibrium REER depreciations are largest when an IMF-supported program is put in place after the initial depreciation takes place. |
| Keywords: | exchange rate; crisis; inflation; real exchange rate; overshoooting; equilibrium depreciation |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/221 |
| By: | Arturo Huerta G. |
| Abstract: | The article analyzes why exchange rate stability has been prioritized in Mexico and why the national currency has appreciated; which policies and factors have made this possible, the costs and consequences of the strong peso, and its sustainability and temporality are also examined. Mexico's economy does not have the endogenous conditions necessary to maintain such a strong currency--which has relied on the inflow of capital, thus exposing the economy to high vulnerability vis-a-vis the behavior of capital flows. The exchange rate stability has been very costly, due to the fact that there is no longer an economic policy in favor of growth; furthermore, the entry of capital leads to continuous productive imbalances which are behind the external deficit. In essence, Mexico has fallen into the Ponzi effect, whereby debt covers the deficit and pays off debt. This article posits that an effective, flexible exchange rate should be used to lower the interest rate and increase public spending in favor of growth and employment, and that economic policy should aim to encourage import substitution and increase the domestic value added of exports in order to reduce the external deficit and capital inflow requirements. This should be accompanied by regulating the movement of goods and capital to avoid speculation and protect domestic production from imports, in turn allowing for a more flexible economic policy in favor of the productive sector and employment. Lastly, the article proposes that the economy should be financed with its own currency to boost growth potential and reduce the foreign trade deficit in order to avoid relying on external financing. |
| Keywords: | Government and the Monetary System; Financial Markets and the Macroeconomy; Fiscal and Monetary Policy in Development; Policy Designs and Consistency; Financial Markets and the Macroeconomy; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Foreign Exchange Policy; Factor Movement Policy |
| JEL: | E42 E43 E44 E63 O23 O24 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1075 |
| By: | Joseph Kopecky (Department of Economics, Trinity College Dublin) |
| Abstract: | Has the euro improved trade evenly across member states? This paper revisits the impact of the euro on trade, focusing on systematic heterogeneity between core and peripheral members. I develop a stylized conceptual framework showing that while the elimination of exchange-rate volatility should raise trade for all European Monetary Union (EMU) members, other forms of price convergence may generate asymmetric effects. Using bilateral trade data from 1960–2018, I estimate a gravity model with Poisson pseudo maximum likelihood (PPML) and apply a doubly robust inverse-propensity score weighting estimator. The results show that the average EMU effect masks substantial heterogeneity across member states. On average, euro membership increases trade by about 6%, with stronger gains, around 12%-for core country exports (to both core and periphery destinations) and within periphery exports. However, trade flows from the periphery to core members decline by an estimated 7%. |
| Keywords: | Euro; Currency unions; Trade; Gravity |
| JEL: | F10 F13 F45 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1625 |
| By: | Mark S. Manger (University of Toronto); David Mihalyi (World Bank and Kiel Institute); Ugo Panizza (Geneva Graduate Institute (International Economics) and CEPR,); Niccolò Rescia (Global Sovereign Advisory and Aix Marseille Univ, CNRS, AMSE, Marseille, France); Christoph Trebesch (Kiel Institute and CEPR); Ka Lok Wong (N Economic Commission for Africa) |
| Abstract: | This paper introduces the African Debt Database (ADD) - a new, comprehensive dataset that traces both domestic and external debt instruments at a granular level. The main innovation is a detailed mapping of Africaâs domestic debt markets, drawing on rich, new data extracted from government auction reports and bond prospectuses. The database covers over 50, 000 individual government loans and securities issued by 54 African countries between 2000 and 2024, amounting to a total of USD 6.3 trillion in debt. For each instrument, it provides harmonized micro-level information on currency, maturity, interest rates, instrument type, and creditor. The data reveal the growing dominance of domestic debt in Africa â albeit with substantial cross-country variation. Four stylized facts stand out: (i) the rapid expansion of domestic debt markets, especially in middle-income countries; (ii) the wide dispersion in borrowing costs and real interest rates; (iii) large cross-country differences in maturity structures and associated rollover risks; and (iv) a rising debt-service burden, particularly due to international bonds. Generally, this project shows that debt transparency is both feasible and valuable, even in data-scarce environments. |
| Keywords: | Sovereign Borrowing; Public Debt; Development Finance; Domestic Markets; Africa |
| JEL: | F34 H63 O55 |
| Date: | 2025–10–20 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2025 |
| By: | Ablam Estel Apeti; Samuel Obeng; Abrams M.E. Tagem; Maureen Were |
| Abstract: | Public debt has increased steadily over the years, leaving many countries at risk of debt distress and even pushing some to default. This paper analyses the impact of sovereign default on post-default debt-to-GDP ratios in 144 countries from 1980 to 2019. Applying the entropy balancing method, we provide robust evidence that sovereign defaults are associated with higher debt-to-GDP ratios. Furthermore, we find that the effect of default on debt is robust to alternative scenarios, empirical methods, and dynamic effects. |
| Keywords: | Debt, Entropy balancing weights, Fiscal policy, Sovereign debt |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-70 |
| By: | Hanin Khawaja (Department of Economics, New School For Social Research, USA) |
| Abstract: | The international monetary system (IMS) has long been interpreted through the lens of singularity, where global stability hinges on a single dominant currency fulfilling all core monetary functions—store of value, medium of exchange, and unit of account. This paper challenges that paradigm by introducing the concept of functional fragmentation. The IMS is evolving toward different currencies increasingly specializing in specific roles, without any single issuer monopolizing the system. The transformation draws on wholesale central bank digital currencies (wCBDCs) and distributed ledger technologies (DLTs), but also reflects deliberate institutional choices shaped by geopolitical tensions and the erosion of trust in dollar-centric infrastructure. The U.S. dollar is likely to maintain its primacy in global reserves, but new platforms are enabling regional currencies to gain ground in payments and settlement. First, emerging markets are building wCBDC-based networks designed to bypass traditional correspondent banking. Second, the European Union is advancing interoperability and financial infrastructure resilience to safeguard the euro’s regional role. Third, the USA and the UK, slower to adopt CBDCs, are leveraging regulatory frameworks around stablecoins to reinforce dollar dominance through fintech intermediaries. The implications for global liquidity, reserve strategies, and financial stability are profound, requiring renewed attention to institutional coordination and systemic design in a modular, post-hegemonic IMS. |
| Keywords: | International Political Economy, international monetary system (IMS), singularity, world money, central bank digital currency (CBDC), functional fragmentation |
| JEL: | E42 F02 F53 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2514 |