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Journal Article
China’s Capital Controls Appear to Arrest Flight, Stabilize Currency
China?s yuan and balance of payments appear to have stabilized by early 2017. Controls on capital outflows may have been a key factor that averted a full-blown financial crisis in the country.
Working Paper
The Global Financial Cycle and Capital Flows During the COVID-19 Pandemic
We estimate the heterogeneous effect of the global financial cycle on exchange rates and cross-border capital flows during the COVID-19 pandemic, using weekly exchange rate and portfolio flow data for a panel of 48 advanced and emerging market economies. We begin by estimating the global financial cycle at a weekly frequency with data through 2021 and observe the two standard deviation fall in our global financial cycle index over a period of four weeks in March 2020. We then estimate the country-specific sensitivities of exchange rates and capital flows to fluctuations in the global ...
Risks Abound If China Uses Debt to Stimulate Economy from Current Downturn
The Chinese economy is losing steam. As China considers how to work through its difficulties, its chances of success may depend on how it finances the debt it incurs while attempting to boost economic activity.
Working Paper
Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts
Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase ...
Working Paper
Monetary Policy Divergence, Net Capital Flows, and Exchange Rates: Accounting for Endogenous Policy Responses
This paper measures the effect of monetary tightening in key advanced economies on net capital flows and exchange rates around the world. Measuring this effect is complicated by the fact that the domestic monetary policies of affected economies respond endogenously to the foreign tightening shock. Using a structural VAR framework with quarterly panel data we estimate the impulse responses of domestic policy variables and net capital flows to a foreign monetary tightening shock. We find that the endogenous responses of domestic monetary policy depends on each economy?s capital account openness ...
Working Paper
Central bank credibility and the persistence of inflation and inflation expectations
This paper introduces a model where agents are unsure about the central bank's inflation target. They believe that the central bank's inflation target could lie between two extremes, and their beliefs vary depending on the central bank's stock of credibility. They form the expectations used in price and wage setting using this perceived inflation target, and they use past observations of inflation to update their beliefs about the credibility of the central bank. Thus a series of high inflation observations can lead them to believe (incorrectly) that the central bank has adopted a high ...
Working Paper
The asymmetric effects of deflation on consumption spending: evidence from the Great Depression
Does expected deflation lead to a fall in consumption spending? Using data for U.S. grocery store sales and department store sales from 1919 to 1939, this paper shows that expected price changes have asymmetric effects on consumption spending. Department store sales (durable consumption) react negatively to the expectation of falling prices, but grocery store sales (non-durable consumption) do not react to expected price changes.
Journal Article
Relating commodity prices to underlying inflation: the role of expectations
Temporary supply factors may boost some commodity prices?a drought in the Midwest can jolt food costs, or a conflict in the Middle East might propel oil higher. These, in turn, can increase the overall consumer price index (CPI) and the headline inflation rate. ; Because central bank anti-inflation measures sometimes take a long time to affect prices, policymakers don?t necessarily react to short-term fluctuations in headline inflation (an overall rate that?s not seasonally adjusted). In fact, the mandate of many inflation-targeting central banks is to aim to keep headline inflation at a ...
Working Paper
The macroeconomic effects of debt- and equity-based capital inflows
This paper will consider whether debt- and equity-based capital inflows have different macroeconomic effects. Using external instruments in a structural VAR, we first identify the component of capital inflows that is driven not by domestic economic and financial conditions but by conditions in the rest of the world. We then estimate the response to an exogenous shock to debt or equity-based capital inflows in a structural VAR model that includes domestic variables like GDP, inflation, the exchange rate, stock prices, credit growth, and interest rates. An exogenous increase in debt inflows ...
Working Paper
The effect of commodity price shocks on underlying inflation: the role of central bank credibility
This paper seeks to document and explain the effect of a commodity price shock on underlying core inflation, and how that effect changes both across time and across countries. Impulse responses derived from a structural VAR model show that across many countries there was a break in the response of core inflation to a commodity price shock. In an earlier period, a shock to commodity prices would lead to a large and significant increase in core inflation, but in later periods, the effect was insignificant. ; To explain this, we construct a large-scale DSGE model with both headline and core ...