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Working Paper
Leverage constraints and the international transmission of shocks
Devereux, Michael B. (2010)
Recent macroeconomic experience has drawn attention to the importance of interdependence among countries through financial markets and institutions, independently of traditional trade linkages. This paper develops a model of the international transmission of shocks due to interdependent portfolio holdings among leverage-constrained financial institutions. In the absence of leverage constraints, international portfolio diversification has no implications for macroeconomic comovements. When leverage constraints bind, however, the presence of diversified portfolios in combination with these ...
Globalization Institute Working Papers , Paper 45

Working Paper
Differential Treatment in the Bond Market: Sovereign Risk and Mutual Fund Portfolios
Converse, Nathan L.; Mallucci, Enrico (2019-10-18)
How does sovereign risk affect investors' behavior? We answer this question using a novel database that combines sovereign default probabilities for 27 developed and emerging markets with monthly data on the portfolios of individual bond mutual funds. We first show that changes in yields do not fully compensate investors for additional sovereign risk, so that bond funds reduce their exposure to a country's assets when its sovereign default risk increases. However, the magnitude of the response varies widely across countries. Fund managers aggressively reduce their exposure to high-debt ...
International Finance Discussion Papers , Paper 1261

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

Report
The Bitcoin–Macro Disconnect
Benigno, Gianluca; Rosa, Carlo (2023-02-01)
This paper investigates the link between Bitcoin and macroeconomic fundamentals by estimating the impact of macroeconomic news on Bitcoin using an event study with intraday data. The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.
Staff Reports , Paper 1052

Working Paper
Measuring Monetary Policy Spillovers between U.S. and German Bond Yields
De Pooter, Michiel; Curcuru, Stephanie E.; Eckerd, George (2018-04)
In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. ...
International Finance Discussion Papers , Paper 1226

Working Paper
International portfolios, capital accumulation and foreign assets dynamics
Coeurdacier, Nicolas; Martin, Philippe; Kollmann, Robert (2009)
Despite the liberalization of capital flows among OECD countries, equity home bias remains sizable. We depart from the two familiar explanations of equity home bias: transaction costs that impede international diversification, and terms of trade responses to supply shocks that provide risk sharing, so that there is little incentive to hold diversified portfolios. We show that the interaction of the following ingredients generates a realistic equity home bias: capital accumulation, shocks to the efficiency of physical investment, as well as international trade in stocks and bonds. In our ...
Globalization Institute Working Papers , Paper 27

Working Paper
Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies
Kollmann, Robert (2020-02-11)
This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘rational bubble’ refers to multiple equilibria due to the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an OLG population structure. If a TVC is imposed, the macro models considered here have a unique solution. Bubbles reflect self-fulfilling fluctuations in agents’ expectations about future investment. In contrast to explosive rational bubbles in linearized models (Blanchard (1979)), the rational bubbles in non-linear models here ...
Globalization Institute Working Papers , Paper 378

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
Institutional quality, the cyclicality of monetary policy and macroeconomic volatility
Duncan, Roberto (2013-12-31)
In contrast to industrialized countries, emerging market economies are characterized by proor acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy - namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of IQL (law and order, government stability, investment profile, etc.), and (i) the cyclicality of monetary policy, and (ii) the volatilities of output and the nominal interest rate. In a DSGE model, foreign investors that choose a portfolio of direct ...
Globalization Institute Working Papers , Paper 163

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

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