Search Results
Showing results 1 to 10 of approximately 39.
(refine search)
Working Paper
Unconventional Monetary and Exchange Rate Policies
This paper explores the direct effects and spillovers of unconventional monetary and exchange rate policies. We find that official purchases of foreign assets have a large positive effect on a country's current account that diminishes considerably as capital mobility rises. There is an important additional effect through the lagged stock of official assets. Official purchases of domestic assets, or quantitative easing (QE), appear to have no significant effect on a country's current account when capital mobility is high, but there is a modest positive impact when capital mobility is low. The ...
Journal Article
U.S. international transactions in 2000
The U.S. current account deficit widened to $435 billion in 2000, a record 4.4 percent of gross domestic product, as the lagged effect of strong growth in the U.S. economy in late 1999 and early 2000 continued to drive up imports of goods and services faster than exports increased. To a lesser extent, a decline in U.S. price competitiveness also contributed to the expansion in the deficit. The $104 billion increase in the current account deficit was entirely accounted for by an equal-sized increase in the goods and services deficit. Other components of the current account moved in small and ...
Working Paper
International coordination of macroeconomic policies: still alive in the new millennium?
In this paper we provide two building blocks for an analysis of international policy coordination: (1) a survey of models of policy coordination, and (2) an account of experience with policy coordination among the G-7 countries and within Europe since the breakdown of the Bretton Woods System. Using these building blocks, we investigate the correspondence between the models and experience and attempt to draw lessons for both the modelers and the practitioners. We find that the correspondence is close enough that the models help in analyzing several instances of actual policy coordination, but ...
Working Paper
Taxation and inflation: a new explanation for current account imbalances
In a world of mobile capital, the current system of nominal interest taxation implies that the cost of capital and the return to saving in each country are strongly and negatively correlated with the rate of inflation. It follows that a country's net foreign asset position (and its current account balance) ought to be negatively correlated with its inflation rate. The magnitude of these effects is shown to be large, both theoretically and empirically. For OECD countries, cross-sectional regressions confirm that inflation rates are good predictors of current accounts, even after controlling ...
Working Paper
Long memory in inflation expectations: evidence from international expectations
This study provides evidence that 10-year-ahead inflation expectations adapt very slowly to changes in realized inflation. This evidence derives primarily from yields on 10-year government bonds in a sample of OECD countries, including inflation-indexed bonds where they are available. The study examines both the cross-country and time-series behavior of interest rates and inflation rates. For the United States, additional evidence is provided from a survey of 10-year inflation expectations held by market participants. This study does not present a theoretical model of expectations formation. ...
Working Paper
Monetary policy and exchange rate pass-through
Recent research suggests that the pass-through of exchange rate changes into domestic inflation has declined in many countries since the 1980s. We develop a theoretical model that attributes the change in pass-through (defined as the correlation of inflation with exchange rate changes) to increased emphasis on inflation stabilization by many central banks. This hypothesis is tested on eleven industrial countries between 1971 and 2000. We find widespread evidence of both a decline in pass-through and a decline in the variability of inflation in the 1990s. We also find a statistically ...
Working Paper
Exchange rate variability and the level of international trade
There have been numerous theoretical and empirical studies of the effect of exchange rate variability on the level of international trade. Most theoretical studies have concluded that under reasonable assumptions exchange rate variability ought to depress the level of trade. Empirical studies generally have not identified a significant effect of exchange rate variability on trade flows. This paper builds a theoretical model in which exchange rate variability has a negative effect on the level of trade. The model is calibrated to observed trade flows and real exchange rates. Simulation of the ...
Working Paper
Currency Crashes and Bond Yields in Industrial Countries
This paper examines episodes of sudden large exchange rate depreciations (currency crashes) in industrial countries and characterizes the behavior of government bond yields during and after these crashes. The most important determinant of changes in bond yields appears to be inflationary expectations. When inflation is high and rising at the time of a currency crash, bond yields tend to rise. Otherwise--and in every currency crash since 1985--bond yields tend to fall. Over the past 20 years, inflation rates have been remarkably stable in industrial countries after currency crashes.
Working Paper
Nominal interest rate pegging under alternative expectations hypotheses
Nominal interest rate pegging leads to instability in an IS-LM model with a vertical long-run Phillips curve and backward-looking inflation expectations. However, it does not lead to instability in several large multicountry econometric models, primarily because these models have nonvertical long-run Phillips curves. Nominal interest rate pegging leads to price level and output indeterminacy in a model with staggered contracts and rational expectations. However, when a class of money supply rules with interest rate smoothing is introduced, and interest rate pegging is viewed as the limit of ...
Working Paper
Long-run supply effects and the elasticities approach to trade
Krugman (1989) argued that differences across countries in estimated income elasticities of import demand are due to omission of an exporter supply effect. He showed that such an effect can be derived in a theoretical model with economies of scale in production and a taste for variety in consumption. In his model, countries grow by producing new varieties of goods, and they are able to export these goods without suffering any deterioration in their terms of trade. This paper analyzes U.S. import demand from different source countries and finds strong evidence of a supply effect of roughly ...