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Working Paper
COVID-19 Fiscal Support and Its Effectiveness
Chudik, Alexander; Mohaddes, Kamiar; Raissi, Mehdi (2021-04-06)
This paper uses a threshold-augmented Global VAR model to quantify the macroeconomic effects of countries’ discretionary fiscal actions in response to the Covid-19 pandemic and its fallout. Our results are threefold: (1) fiscal policy is playing a key role in mitigating the effects of the pandemic; (2) all else equal, countries that implemented larger fiscal support are expected to experience less output contractions; (3) emerging markets are also benefiting from the synchronized fiscal actions globally through the spillover channel and reduced financial market volatility.
Globalization Institute Working Papers , Paper 408

Working Paper
Fiscal Stimulus under Sovereign Risk
Presno, Ignacio; Ottonello, Pablo; Bianchi, Javier (2019-09-12)
The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to ...
Working Papers , Paper 762

Working Paper
Modeling Time-Variation Over the Business Cycle (1960-2017): An International Perspective
Martinez-Garcia, Enrique (2018-10-01)
In this paper, I explore the changes in international business cycles with quarterly data for the eight largest advanced economies (U.S., U.K., Germany, France, Italy, Spain, Japan, and Canada) since the 1960s. Using a time-varying parameter model with stochastic volatility for real GDP growth and inflation allows their dynamics to change over time, approximating nonlinearities in the data that otherwise would not be adequately accounted for with linear models (Granger et al. (1991), Granger (2008)). With that empirical model, I document a period of declining macro volatility since the 1980s, ...
Globalization Institute Working Papers , Paper 348

Working Paper
Labor Market Institutions and the Effects of Financial Openness
Wei, Shang-Jin; Nie, Jun; Du, Qingyuan (2020-02-03)
We propose a new channel to explain why developing countries may fail to beneﬁt from ﬁnancial globalization, based on labor market institutions. In our model, ﬁnancial openness in a developing country with a rigid labor market leads to capital outﬂow, and both employment and output fall. In contrast, ﬁnancial openness in a developing country with a ﬂexible labor market beneﬁts the country. Our model suggests that enhancing labor market ﬂexibility is a complementary reform for developing countries opening capital accounts.
Research Working Paper , Paper RWP 19-11

Working Paper
Country-specific oil supply shocks and the global economy: a counterfactual analysis
Mohaddes, Kamiar; Pesaran, M. Hashem (2015-05-01)
This paper investigates the global macroeconomic consequences of country-specific oilsupply shocks. Our contribution is both theoretical and empirical. On the theoretical side, we develop a model for the global oil market and integrate this within a compact quarterly model of the global economy to illustrate how our multi-country approach to modelling oil markets can be used to identify country-specific oil-supply shocks. On the empirical side, estimating the GVAR-Oil model for 27 countries/regions over the period 1979Q2 to 2013Q1, we show that the global economic implications of oil-supply ...
Globalization Institute Working Papers , Paper 242

Working Paper
Innovation, Productivity, and Monetary Policy
Moran, Patrick Donnelly; Queraltó, Albert (2017-11-22)
To what extent can monetary policy impact business innovation and productivity growth? We use a New Keynesian model with endogenous total factor productivity (TFP) to quantify the TFP losses due to the constraints on monetary policy imposed by the zero lower bound (ZLB) and the TFP benefits of tightening monetary policy more slowly than currently anticipated. In the model, monetary policy influences firms incentives to develop and implement innovations. We use evidence on the dynamic effects of R&D and monetary shocks to estimate key parameters and assess model performance. The model suggests ...
International Finance Discussion Papers , Paper 1217

Working Paper
Low Risk Sharing with Many Assets
Singh, Sanjay R.; Marin, Emile A. (2023-11-30)
Classical contributions in international macroeconomics rely on goods-market mechanisms to reconcile the cyclicality of real exchange rates when financial markets are incomplete. However, cross-border trade in one domestic and one foreign-currency-denominated risk-free asset prohibits these mechanisms from breaking the pattern consistent with complete markets. In this paper, we characterize how goods markets drive exchange rate cyclicality, taking into account trade in risk-free and/or risky assets. We show that goods-market mechanisms come back into play, even when there is cross-border ...
Working Paper Series , Paper 2023-37

Working Paper
Labor Market Institutions and the Effects of Financial Openness
Du, Qingyuan; Wei, Shang-Jin; Nie, Jun (2019-11-26)
We propose a new channel to explain why developing countries may fail to beneﬁt from ﬁnancial globalization, based on labor market institutions. In our model, ﬁnancial openness in a developing country with a rigid labor market leads to capital outﬂow, and both employment and output fall. In contrast, ﬁnancial openness in a developing country with a ﬂexible labor market beneﬁts the country. Our model suggests that enhancing labor market ﬂexibility is a complementary reform for developing countries opening capital accounts.
Research Working Paper , Paper RWP 19-11

Working Paper
Fair weather or foul? the macroeconomic effects of El Niño
Raissi, Mehdi; Mohaddes, Kamiar; Cashin, Paul (2015-05-01)
This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Nio weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Nio shocks but also indirect effects through third-markets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Nio weather events over time, and their impact on different regions cross-sectionally, to causatively identify the effects of El Nio shocks on ...
Globalization Institute Working Papers , Paper 239

Working Paper
The U.S. oil supply revolution and the global economy
Raissi, Mehdi; Mohaddes, Kamiar (2016-01-01)
This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, ...
Globalization Institute Working Papers , Paper 263

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