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Journal Article
Financial development, productivity, and economic growth
Working Paper
The composition of capital inflows when emerging market firms face financing constraints
The composition of capital inflows to emerging market economies tends to follow a predictable dynamic pattern across the business cycle. In most emerging market economies, total inflows are procyclical, with debt and portfolio equity flowing in first, followed later in the expansion by foreign direct investment (FDI). To understand the timing of these flows, we use a small open economy (SOE) framework to model the composition of capital inflows as the equilibrium outcome of emerging market firms' financing decisions. We show how costly external financing and foreign direct investment search ...
Journal Article
Does a fall in the dollar mean higher U.S. consumer prices?
This Economic Letter looks at the relationship among changes in the exchange rate value of the dollar and in import prices and overall consumer prices, with a particular focus on the current circumstances. It appears that the lower value of the dollar at this point is affecting U.S. prices less than it has historically. The reasons for the difference include changes in trading partners, changes in the composition of U.S. trade, and improved monetary policy over the last several years. Looking ahead, then, it appears likely that the recent dollar depreciation will have only very moderate ...
Working Paper
A theory of banks, bonds, and the distribution of firm size
We draw on stylized facts from the finance literature to build a model where altering the relative costs of bank and bond financing changes the entire distribution of firm size, with implications for the aggregate capital stock, output, and welfare. Reducing transactions costs in the bond market increases the output and profits of mid-sized firms at the expense of both the largest and smallest firms. In contrast, reducing the frictions involved in bank lending promotes the expansion of the smallest firms while all other firms shrink, even as it increases the profitability of both small and ...
Journal Article
What are the risks to the United States of a current account reversal?
This Economic Letter turns to the recent empirical literature to learn more about the potential risks to the U.S. economy of a possible current account reversal and about the factors that are associated with more disruptive corrections.
Working Paper
Nonlinearities in international business cycles
This paper documents the dynamic properties of national output, its components, and the current account for five OECD countries. There is strong evidence of conditional volatility for almost all time series as well as significant deviations from normality. The deviations are detected particularly in GDP, net exports, investment time series.
Working Paper
Implications of intellectual property rights for dynamic gains from trade
A simple intellectual property rights (IPRs) framework is introduced into a dynamic quality ladder model of technological diffusion between innovating firms in one country and imitating firms in another country. The presence of technological spillovers and feedback effects between firms in the two countries demonstrates that, even when steady state growth increases, transition costs sometimes dominate steady state welfare gains. Most existing models of international IPRs find that high intellectual property enforcement in the imitating country leads to welfare gains in the innovating country ...
Journal Article
The U.S. productivity acceleration and the current account deficit
This Economic Letter reviews the current facts about the current account deficit and its determinants, and describes the channels through which it is affected by an increase in trend labor productivity growth.
Journal Article
What if foreign governments diversified their reserves?
World financial markets paid close attention when officials from both South Korea and Japan said that their governments were considering diversifying their holdings of foreign reserves. Since then, officials in both countries have insisted that they were not considering any major changes to the policy of reserve holdings. Nonetheless, the potential for a sell-off of dollar-denominated assets by foreign governments has raised some questions about the consequences of such a move. This Economic Letter attempts to put these issues into perspective. It begins with a review of recent trends in the ...