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Working Paper
International Financial Spillovers to Emerging Market Economies: How Important Are Economic Fundamentals?
We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the so-called taper-tantrum episode of 2013 and six earlier episodes of severe EME-wide financial stress since the mid-1990s. Cross-country regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. ...
Working Paper
The 2023 Banking Turmoil and the Bank Term Funding Program
We use high-frequency data to examine the effectiveness of the Bank Term Funding Program (BTFP) in supporting the liquidity positions of vulnerable banks during the March 2023 banking turmoil. We uncover three key findings. First, our high-frequency data confirm that banks with high reliance on uninsured deposits and large unrealized losses on securities holdings suffered larger deposit outflows at the onset of the episode. Second, the BTFP played an outsized role in meeting these outflows at banks with larger securities losses, reflecting the at-par valuation of securities collateral at ...
Working Paper
Immigration, remittances and business cycles
We use data on border enforcement and macroeconomic indicators from the U.S. and Mexico to estimate a two-country business cycle model of labor migration and remittances. The model matches the cyclical dynamics of labor migration to the U.S. and documents how remittances to Mexico serve an insurance role to smooth consumption across the border. During expansions in the destination economy, immigration increases with the expected stream of future wage gains, but it is dampened by a sunk migration cost that reflects the intensity of border enforcement. During recessions, established migrants ...
Working Paper
Offshore production and business cycle dynamics with heterogeneous firms
Cross-country variation in production costs encourages the relocation of production facilities to other countries, a process known as offshoring through vertical foreign direct investment. I examine the effect of offshoring on the international transmission of business cycles. Unlike the existing macroeconomic literature, I distinguish between fluctuations in the number of offshoring firms (the extensive margin) and in the value added per offshoring firm (the intensive margin) as separate transmission mechanisms. The firms' decision to produce offshore depends on the firm-specific level of ...
Working Paper
Slowdown in Immigration, Labor Shortages, and Declining Skill Premia
We document a slowdown in low-skilled immigration that began around the onset of the Great Recession in 2007, which was associated with a subsequent rise in low-skilled wages, a decline in the skill premium, and labor shortages in service occupations. Falling returns to education also coincided with a decline in the educational attainment of native workers. We then develop and estimate a stochastic growth model with endogenous immigration and training to rationalize these facts. Lower immigration leads to higher wages for low-skilled workers but also to higher consumer prices and lower ...
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 ...
Working Paper
Offshore Production and Business Cycle Dynamics with Heterogeneous Firms
To examine the effect of offshoring through vertical FDI on the international transmission of business cycles, I propose a two-country model in which firms endogenously choose the location of their production plants over the business cycle. Firms face a sunk cost to enter the domestic market and an additional fixed cost to produce offshore. As such, the offshoring decision depends on the firm-specific productivity and on fluctuations in the relative cost of effective labor. The model generates a procyclical pattern of offshoring and dynamics along its extensive margin that are consistent with ...
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
Financial performance and macroeconomic fundamentals in emerging market economies over the global financial cycle
This paper explores the relationship between financial performance and macroeconomic fundamentals in emerging market economies not only in times of crises, but in general during crisis and non-crisis years over the global financial cycle. Using a panel framework with data for 119 emerging market economies at an annual frequency, we examine whether the relationship between performance and fundamentals varies in magnitude and/or switches sign between crisis and non-crisis years. We find that better macroeconomic fundamentals (such as a stronger net foreign asset positions and higher stocks of ...
Working Paper
Offshoring, Low-skilled Immigration, and Labor Market Polarization
During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded in high- and low-skill occupations. Real wages have not followed the same pattern. While earnings for high-skill occupations have risen robustly, wages for both low- and middle-skill workers have remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize their asymmetric effect on employment and ...