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Working Paper
Fewer but Better : Sudden Stops, Firm Entry, and Financial Selection
Saffie, Felipe; Ates, Sina T. (2016-11)
We incorporate endogenous technical change into a real business cycle small open economy framework to study the productivity costs of sudden stops. In this economy, productivity growth is determined by the entry of new firms and the expansion decisions of incumbent firms. New firms are created after the implementation of business ideas, yet the quality of ideas is heterogeneous and good ideas are scarce. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop ...
International Finance Discussion Papers , Paper 1187

Report
A bargaining theory of trade invoicing and pricing
Goldberg, Linda S.; Tille, Cedric (2013-04-01)
We develop a theoretical model of international trade pricing in which individual exporters and importers bargain over the transaction price and exposure to exchange rate fluctuations. We find that the choice of price and invoicing currency reflects the full market structure, including the extent of fragmentation and the degree of heterogeneity across importers and across exporters. Our study shows that a party has a higher effective bargaining weight when it is large or more risk tolerant. A higher effective bargaining weight of importers relative to exporters in turn translates into lower ...
Staff Reports , Paper 611

Working Paper
Breaking down world trade elasticities: a panel ECM approach
Martinez-Martin, Jaime (2016-07-18)
This paper exhaustively analyses the recent decline of international trade elasticities to output growth. We extend an empirical model of import demand functions to account not only for transitory factors, such as relative prices and import intensity-adjusted measures of demand (I-O Tables), but also for habitually neglected permanent factors such as protectionism, vertical integration (i.e. Global Value Chains) and foreign direct investment (FDI). Dealing with a non-stationary heteregenous panel of 27 countries, we estimate a panel Error Correction Model from 1960 to 2015 in order to break ...
Globalization Institute Working Papers , Paper 275

Discussion Paper
Remittances and COVID-19: A Tale of Two Countries
Vilan, Diego; Mandelman, Federico S. (2020-10-21)
Looking at the effects of the COVID-19 pandemic on workers' remittances flowing from the United States, this article focuses on the experiences of two countries, El Salvador and Mexico, which account for approximately 30 percent of all immigrants currently residing in the United States. Following the second quarter's economic lockdown, transfers to these countries experienced perplexing dynamics. Specifically, remittances to El Salvador witnessed a record 40 percent sudden drop, while Mexico recorded an unexpected 35 percent increase. We discuss some of the narratives proposed to explain this ...
Policy Hub , Paper 2020-12

Report
The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States
Atkeson, Andrew; Heathcote, Jonathan; Perri, Fabrizio (2022-04-25)
The US net foreign asset position has deteriorated sharply since 2007 and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US-specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and we argue that the rise in equity prices in the United States likely reflects rising profitability of domestic firms rather than ...
Staff Report , Paper 639

Working Paper
Vehicle currency
Shi, Shouyong; Devereux, Michael B. (2008)
While in principle, international payments could be carried out using any currency or set of currencies, in practice, the U.S. dollar is predominant in international trade and financial flows. The dollar acts as a "vehicle currency" in the sense that agents in nondollar economies will generally engage in currency trade indirectly using the U.S. dollar rather than using direct bilateral trade among their own currencies. Indirect trade is desirable when there are transactions costs of exchange.> ; This paper constructs a dynamic general equilibrium model of a vehicle currency. We explore the ...
Globalization Institute Working Papers , Paper 10

Working Paper
Oil Prices and Consumption across Countries and U.S. States
De Michelis, Andrea; Ferreira, Thiago Revil T.; Iacoviello, Matteo (2019-11-07)
We study the effects of oil prices on consumption across countries and U.S. states, by exploiting the time-series and cross-sectional variation in oil dependency of these economies. We build two large datasets: one with 55 countries over the years 1975-2018, and another with all U.S. states over the period 1989-2018. We then show that oil price declines generate positive effects on consumption in oil-importing economies, while depressing consumption in oil-exporting economies. We also document that oil price increases do more harm than the good afforded by oil price decreases both in the ...
International Finance Discussion Papers , Paper 1263

Working Paper
SONOMA: a Small Open ecoNOmy for MAcrofinance
Croce, Mariano; Jahan-Parvar, Mohammad R.; Rosen, Samuel (2022-07-14)
We develop a new small open economy model (SONOMA) in which domestic corporate debt and equities are affected by shocks to both external credit and equity markets. In a novel empirical analysis of several small-but-developed economies, we show that both external debt and equity shocks are important determinants of domestic economic fluctuations, corporate leverage, and net foreign asset positions. SONOMA replicates our empirical facts about asset prices, financial flows, and economic activity.
International Finance Discussion Papers , Paper 1349

Working Paper
A Theory of the Global Financial Cycle
Davis, J. Scott; Van Wincoop, Eric (2021-09-09)
We develop a theory to account for changes in prices of risky and safe assets and gross and net capital flows over the global financial cycle (GFC). The multi-country model features global risk-aversion shocks and heterogeneity of investors both within and across countries. Within-country heterogeneity is needed to account for the drop in gross capital flows during a negative GFC shock (higher global risk-aversion). Cross-country heterogeneity is needed to account for the differential vulnerability of countries to a negative GFC shock. The key vulnerability is associated with leverage. In ...
Globalization Institute Working Papers , Paper 410

Working Paper
Evolving comparative advantage, sectoral linkages, and structural change
Sposi, Michael (2015-03-01)
I quantitatively examine the effects of location-and sector-specific productivity growth on structural change across countries from 1970-2011. The results shed new light on the ?hump shape" in industry's share in GDP across levels of development. There are two key features. First, otherwise identical changes in the composition of final demand translate differently into changes in the composition of value added because of systematic differences in sectoral linkages. Second, the mapping between sector-specific productivity and the composition of final demand systematically differs because of ...
Globalization Institute Working Papers , Paper 231

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