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Working Paper
The Evolution of the Federal Reserve Swap Lines since 1962
Humpage, Owen F.; Bordo, Michael D.; Schwartz, Anna J. (2014-10-02)
In this paper, we describe the evolution of the Federal Reserve?s swap lines from their inception in 1962 as a mechanism to forestall claims on US gold reserves under Bretton Woods to their use during the Great Recession as a means of extending emergency dollar liquidity. We describe the Federal Reserve?s successes and failures. We argue that swaps calm crisis situations by both supplementing foreign countries? dollar reserves and by signaling central-bank cooperation. We show how swaps exposed the Federal Reserve to conditionality and raised fears that they bypassed the Congressional ...
Working Papers (Old Series) , Paper 1414

Working Paper
Even Keel and the Great Inflation
Mukherjee, Sanchita; Humpage, Owen F. (2015-12-21)
Using IV-GMM techniques and real-time data, we estimate a forward looking, Taylor-type reaction function incorporating dummy variables for even-keel operations and a variable for foreign official pressures on the U.S. gold stock during the Great Inflation. We show that when the Federal Reserve undertook even-keel operations to assist U.S. Treasury security sales, the FOMC tended to delay monetary-policy adjustments and to inject small amounts of reserves into the banking system. The operations, however, did not contribute significantly to the Great Inflation, because they occurred during ...
Working Papers (Old Series) , Paper 1532

Report
Who bears the cost of a change in the exchange rate? The case of imported beer
Hellerstein, Rebecca (2004-02-01)
This paper quantifies the welfare effects of a change in the nominal exchange rate using the example of the beer market. I estimate a structural econometric model that makes it possible to compute manufacturers' and retailers' pass-through of a nominal exchange-rate change, without observing wholesale prices or firms' marginal costs. I conduct counterfactual experiments to quantify how the change affects domestic and foreign firms' profits and domestic consumer welfare. The counterfactual experiments show that foreign manufacturers bear more of the cost of an exchange-rate change than do ...
Staff Reports , Paper 179

Working Paper
Euro Area and U.S. External Adjustment: The Role of Commodity Prices and Emerging Market Shocks
Hohberger, Stefan; Kollmann, Robert; Vogel, Lukas; Giovannini, Massimo; Roeger, Werner; Ratto, Marco (2018-08-06)
The trade balances of the Euro Area (EA) and of the U.S. have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and U.S. economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (U.S., EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and U.S. trade balance reversal. Aggregate demand shocks originating in ...
Globalization Institute Working Papers , Paper 344

Report
Drivers of Dollar Share in Foreign Exchange Reserves
Goldberg, Linda S.; Hannaoui, Oliver Zain (2024-03-01)
The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks is sometimes taken as an indicator of dollar status. We show that the observed decline in the aggregate share of U.S. dollar assets does not stem from a systematic shift in currency preferences away from holding dollar assets. Instead, a small group of countries with large foreign exchange reserve balances drive the dollar share decline observed in aggregate statistics. This arises either due to countries conducting monetary policy vis-à-vis the euro or due to preference shifts away from ...
Staff Reports , Paper 1087

Working Paper
Global Drivers of Gross and Net Capital Flows
Davis, J. Scott; Van Wincoop, Eric; Valente, Giorgio (2019-03-27)
While prior to the global financial crisis, the empirical international capital flow literature has focused on net capital flows (the current account), since the crisis there has been an increased focus on gross flows. In this paper we jointly analyze global drivers of gross flows (outflows plus inflows) and net flows (outflows minus inflows) by estimating a latent factor model. We find evidence of two global factors, which we call the GFC (global financial cycle) factor and a commodity price factor as they closely track respectively the Miranda-Agrippino and Rey asset price factor and an ...
Globalization Institute Working Papers , Paper 357

Working Paper
Monetary Policy Divergence, Net Capital Flows, and Exchange Rates: Accounting for Endogenous Policy Responses
Zlate, Andrei; Davis, J. Scott (2017-10-01)
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 ...
Globalization Institute Working Papers , Paper 328

Report
Pass-through of exchange rates to consumption prices: what has changed and why
Campa, Jose Manuel; Goldberg, Linda S. (2006-09-01)
In this paper, we use cross-country and time-series evidence to argue that retail price sensitivity to exchange rates may have increased over the past decade. This finding applies to traded goods as well as to non-traded goods. We highlight three reasons for the change in pass-through into the retail prices of goods. First, pass-through may have declined at the level of import prices, but the evidence is mixed over types of goods and countries. Second, there has been a large expansion of imported input use across sectors, meaning that the costs of imported goods as well as home-tradable goods ...
Staff Reports , Paper 261

Working Paper
Financial performance and macroeconomic fundamentals in emerging market economies over the global financial cycle
Zlate, Andrei; Davis, J. Scott (2016-09-01)
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 ...
Globalization Institute Working Papers , Paper 288

Conference Paper
Bubble thy neighbor: portfolio effects and externalities from capital controls
Fratzscher, Marcel; Kostka, Thomas; Forbes, Kristin J.; Straub, Roland (2012-11)
We use changes in Brazil?s tax on capital inflows from 2006 to 2011 to test for direct portfolio effects and externalities from capital controls on investor portfolios. The analysis is structured based on information from investor interviews. We find that an increase in Brazil?s tax on foreign investment in bonds causes investors to significantly decrease their portfolio allocations to Brazil in both bonds and equities. Investors simultaneously increase allocations to other countries that have substantial exposure to China and decrease allocations to countries viewed as more likely to use ...
Proceedings , Issue Nov , Pages 1-48

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