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Jel Classification:F32 

Working Paper
Catalytic IMF? a gross flows approach

The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF?s catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze ...
Globalization Institute Working Papers , Paper 254

Working Paper
Leverage constraints and the international transmission of shocks

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
Optimal Monetary Policy and Capital Account Restrictions in a Small Open Economy

The recent financial crisis has led to large declines in world interest rates and surges of capital flows to emerging market economies. We examine the effectiveness and welfare implications of capital control policies in the face of such external shocks in a monetary DSGE model of a small open economy. We consider both optimal, time-varying restrictions on capital inflows and a simple capital account restriction, such as a constant tax on foreign debt holdings. We then compare the effectiveness of such capital account restrictions under alternative monetary regimes. We find that the optimal ...
Working Paper Series , Paper 2013-33

Working Paper
China’s Current Account : External Rebalancing or Capital Flight?

This paper examines an anomaly in China?s current account: its large and rapidly growing travel expenditure. Drawing evidence from counterparty data, Chinese international arrival statistics, and gravity equation models extended to travel trade, I find that a significant amount of China?s travel spending in the period 2014-2016 could not be explained by accounting factors or economic fundamentals. The unexplained travel imports are inversely associated with domestic growth and positively associated with renminbi depreciation expectations against the dollar, suggesting that they are less ...
International Finance Discussion Papers , Paper 1208

Working Paper
The Prudential Use of Capital Controls and Foreign Currency Reserves

We provide a simple framework to study the prudential use of capital controls and currency reserves that have been explored in the recent literature. We cover the role of both pecuniary externalities and aggregate demand externalities. The model features a central policy dilemma for emerging economies facing large capital outflows: the choice between increasing the policy rate to stabilize the exchange rate and decreasing the policy rate to stabilize employment. Ex ante capital controls and reserve accumulation can help mitigate this dilemma. We use our framework to survey the recent ...
Working Papers , Paper 787

Report
On the Desirability of Capital Controls

In a standard two-country international macro model, we ask whether imposing restrictions on international non contingent borrowing and lending is ever desirable. The answer is yes. If one country imposes capital controls unilaterally, it can generate favorable changes in the dynamics of equilibrium interest rates and the terms of trade, and thereby benefit at the expense of its trading partner. If both countries simultaneously impose capital controls, the welfare effects are ambiguous. We identify calibrations in which symmetric capital controls improve terms of trade insurance against ...
Staff Report , Paper 523

Report
Would protectionism defuse global imbalances and spur economic activity?: a scenario analysis

In the evolving analysis of global imbalances, the possibility that countries will resort to increased protectionism is often mentioned but rarely analyzed. This paper attempts to fill that gap, examining the macroeconomic implications of a shift to protectionist policies through the lens of a dynamic general equilibrium model of the world economy that encompasses four regional blocs. Simulation exercises are carried out to assess the consequences of imposing uniform and discriminatory tariffs on trading partners as well as the consequences of tariff retaliation. We also discuss a scenario in ...
Staff Reports , Paper 268

Report
The emerging market economies in times of taper-talk and actual tapering

The emerging market economies (EME) experienced financial distress during two recent periods, both linked to the prospect of the Federal Reserve starting to slow its asset purchases. This policy change was expected to reverse the capital flows directed to the EME. Despite this aggregate effect, a closer analysis shows that there were significant differences across the EME during the time when talk of the upcoming taper began and the period when the policy was implemented. The author makes use of the literature on currency crises to analyze the different cross-country responses and to identify ...
Current Policy Perspectives , Paper 14-6

Journal Article
Recent developments in cross-border investment in securities

Securities have replaced bank lending in recent years as the primary means through which funds are invested internationally, and in the process, the share of U.S. securities owned by foreigners has grown markedly. Between 1974 and 2002, the proportion of the value of outstanding U.S. long-term securities (equities and long-term debt) that was foreign-owned increased from about 5 percent to about 12 percent. At the same time, U.S. holdings of foreign long-term securities also increased, although their growth did not match the rapid growth in foreign holdings of U.S. securities. At $1.8 ...
Federal Reserve Bulletin , Volume 90 , Issue Win

Report
International capital flow pressures

This paper presents a new measure of capital flow pressures in the form of a recast exchange market pressure index. The measure captures pressures that materialize in actual international capital flows as well as pressures that result in exchange rate adjustments. The formulation is theory-based, relying on balance of payments equilibrium conditions and international asset portfolio considerations. Based on the modified exchange market pressure index, the paper also proposes a global risk response index, which reflects the country-specific sensitivity of capital flow pressures to measures of ...
Staff Reports , Paper 834

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