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Working Paper
Trade policies and fiscal devaluations
Erceg, Christopher J.; Prestipino, Andrea; Raffo, Andrea (2022-06-22)
Fiscal devaluations—an increase in import tariffs and export subsidies (IX) or an increase in value-added taxes and payroll subsidies (VP)—have been shown to provide as much stimulus under fixed exchange rates as a currency devaluation. We find that if agents expect policies to be reversed and the tax pass-through is large, VP is contractionary and IX provides a modest boost. In our medium-scale DSGE model, both features are crucial in accounting for Germany’s underperformance in response to VP in 2007. These findings cast doubt on fiscal devaluations as a cyclical stabilization tool ...
International Finance Discussion Papers , Paper 1347

Speech
Remarks at the CPMI’s 25th Anniversary Conference
Dudley, William (2015-06-30)
Remarks at the Committee on Payments and Market Infrastructure?s 25th Anniversary Conference, Bank for International Settlements, Basel, Switzerland.
Speech , Paper 175

Working Paper
Hedging against the government: a solution to the home asset bias puzzle
Bhattarai, Saroj; Berriel, Tiago C. (2012)
This paper explains two puzzling facts: international nominal bonds and equity portfolios are biased domestically. In our two-country model, holding domestic government nominal debt provides a hedge against shocks to bond returns and the impact on taxes they induce. For this result, only two features are essential: some nominal risk and taxes falling only on domestic agents. A third feature explains why agents choose to hold primarily domestic equity: government spending falls on domestic goods. Then, an increase in government spending raises the returns on domestic equity, providing a hedge ...
Globalization Institute Working Papers , Paper 113

Working Paper
The Seniority Structure of Sovereign Debt
Trebesch, Christoph; Schlegl, Matthias; Wright, Mark L. J. (2019-05-30)
Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that ...
Working Papers , Paper 759

Working Paper
What Determines the Composition of International Bank Flows?
Kerl, Cornelia; Niepmann, Friederike (2016-06)
This paper studies how frictions to foreign bank operations affect the sectoral composition of banks? foreign positions, their funding sources and international bank flows. It presents a parsimonious model of banking across borders, which is matched to bank-level data and used to quantify cross-border frictions. The counterfactual analysis shows how higher barriers to foreign bank entry alter the composition of international bank flows and may reverse the direction of net interbank flows. It also highlights that interbank lending and lending to non-banking firms respond differently to changes ...
International Finance Discussion Papers , Paper 1170

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
International Dollar Flows
Banegas, Ayelen; Judson, Ruth; Sims, Charles; Stebunovs, Viktors (2015-09-09)
Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, ...
International Finance Discussion Papers , Paper 1144

Report
Coordination and Crisis in Monetary Unions
Amador, Manuel; Aguiar, Mark; Gopinath, Gita; Farhi, Emmanuel (2015-05-11)
We study fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over-borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of ...
Staff Report , Paper 511

Working Paper
Financial Crises and the Composition of Cross-Border Lending
Cerutti, Eugenio; Minoiu, Camelia; Hale, Galina (2014-08-10)
We examine the composition and drivers of cross-border bank lending between 1995 and 2012, distinguishing between syndicated and non-syndicated loans. We show that on-balance sheet syndicated loan exposures, which account for almost one third of total cross-border loan exposures, increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis. Our empirical analysis of the drivers of cross-border loan exposures in a large bilateral dataset leads to three main results. First, banks with lower levels of capital favor syndicated over other kinds of ...
Working Paper Series , Paper 2014-20

Working Paper
Pre-Positioning and Cross-Border Financial Intermediation
Tabor, Nicholas K.; Zhang, Jeffery Y. (2022-08-09)
The benefits of cross-border financial activity are wide-ranging, from greater competition and more efficient markets to broader and more stable access to capital. During normal economic times, the official sector and private sector share an incentive to foster such cross-border financial activities. During a financial crisis, however, the short-term alignment of official- and private-sector incentives can divergeâ€”sometimes significantly. We present a game-theoretic model of the underlying trade-offs and discuss lessons for international financial regulators, placing them in the ...
Finance and Economics Discussion Series , Paper 2022-051

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