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Jel Classification:F6 

Working Paper
Managing Capital Flows in the Presence of External Risks

We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small open economy model subject to the risk of sudden stops?large recessions together with abrupt reversals in capital inflows| and characterize optimal macroprudential policy in response to these shocks. In the model, collateral constraints create a pecuniary externality that leads to "overborrowing" and sudden stops that arise when the constraints bind. The typical sudden stop generated by the model replicates existing empirical evidence for emerging market economies: Low and ...
International Finance Discussion Papers , Paper 1213

Working Paper
International Trade Policy During a Pandemic

This paper studies international trade policy during a pandemic. We consider a multi-sector small open economy model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level along with higher import and export prices of these goods. The economy produces domestic varieties of both types of goods subject to sectoral adjustment costs, and varieties are traded internationally subject to trade barriers. We find that trade provides limited relief to the increased demand for ...
Working Papers , Paper 2020-010

Report
Import competition and household debt

We analyze the effect of import competition on household balance sheets from 2000 to 2007 using individual data on consumer finances. We exploit variation in exposure to foreign competition using industry-level shipping costs and initial differences in regions? industry specialization. We show that household debt increased significantly in regions where manufacturing industries are more exposed to import competition. A one standard deviation increase in exposure to import competition explains 30 percent of the cross-regional variation in household leverage growth, and is mostly driven by home ...
Staff Reports , Paper 821

Working Paper
The Second Era of Globalization is Not Yet Over:An Historical Perspective

The recent rise of populist anti-globalization political movements has led to concerns that the current wave of globalization that goes back to the 1870s may end in turmoil just like the first wave which ended after World War I. It is too soon to tell. The decline and then levelling off of trade and capital flows in recent years reflects the drastic decline in global real income during the Great Recession. Other factors at work include the slowdown in the growth rate of China and the reversal of the extended international supply chains developed in the 1990s, as well as increased financial ...
Globalization Institute Working Papers , Paper 319

Working Paper
Shortages of Critical Goods in a Global Economy: Optimal Trade and Industrial Policy

This paper studies the role for optimal trade and industrial policy to mitigate shortages of critical goods following global shocks. We develop a dynamic model of trade with producers of essential and non-essential goods owned by heterogeneous households under incomplete markets. Shocks that increase global demand for critical goods lead to underinvestment relative to an economy with a representative household or complete markets. Trade exacerbates the shock as producers reallocate domestic sales toward exports. Shortages can be mitigated, increasing welfare, by taxing exports while ...
Working Papers , Paper 2020-010

Working Paper
International Trade of Essential Goods During a Pandemic

This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country, multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or ...
Working Papers , Paper 2020-010

Working Paper
Shock Transmission through Cross-Border Bank Lending: Credit and Real Effects

We study the transmission of financial shocks across borders through international bank connections. Using data on cross-border interbank loans among 6,000 banks during 1997-2012, we estimate the effect of asset-side exposures to banks in countries experiencing systemic banking crises on profitability, credit, and the performance of borrower firms. Crisis exposures reduce bank returns and tighten credit conditions for borrowers, constraining investment and growth. The effects are larger for foreign borrowers, including in countries not experiencing banking crises. Our results document the ...
Finance and Economics Discussion Series , Paper 2019-052

Working Paper
Shortages of Critical Goods in a Global Economy: Optimal Trade and Industrial Policy

This paper studies shortages of critical goods in a global economy and the role for policy. We develop a dynamic general equilibrium model of trade with producers of essential and non-essential goods owned by heterogeneous households under incomplete markets. A global increase in demand for critical goods increases prices and production, but there is underinvestment relative to an economy with a representative household or complete markets. Trade exacerbates the shock as producers reallocate domestic sales toward exports. Shortages can be mitigated, increasing welfare, by taxing exports while ...
Working Papers , Paper 2020-010

Working Paper
Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Country

The export tax rebate (ETR) policy is one of the most frequently used policy instruments by Chinese policy makers. This paper therefore provides a vital analysis of its allocation effects. To motivate our empirical analysis for the allocation effects of the ETR policy, we first add a tax rebate to the Melitz and Ottaviano (2008) model and examine the impact of this policy on firms' markup size and resource allocation between eligible and non-eligible firms for the rebates. We use customs transactions, tax administration, and firm-level data to measure the effect of variation in export tax ...
Globalization Institute Working Papers , Paper 302

Working Paper
Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries

This paper considers a modification of the standard Susceptible-Infected-Recovered (SIR) model of epidemics that allows for different degrees of compulsory as well as voluntary social distancing. It is shown that the fraction of the population that self-isolates varies with the perceived probability of contracting the disease. Implications of social distancing both on the epidemic and recession curves are investigated and their trade off is simulated under a number of different social distancing and economic participation scenarios. We show that mandating social distancing is very effective ...
Globalization Institute Working Papers , Paper 382

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