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Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest
Martinez-Garcia, Enrique (2021-02-20)
I investigate the downward drift of U.S. interest rates from 1984:Q1 to 2019:Q4. For this, I bring the workhorse two-country New Keynesian model to data on the U.S. and an aggregate of its major trading partners using Bayesian techniques. I show that the U.S. natural (or equilibrium) interest rate recovered from the model has fallen more gradually than the long-run U.S. real rate, cushioned by productivity shocks. Since inflation expectations became well-anchored in the ‘90s, this implies that the continued interest rate decline is largely explained by the real rate tracking the natural ...
Globalization Institute Working Papers , Paper 403

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest
Martinez-Garcia, Enrique (2020-10-22)
Much consideration has been given among scholars and policymakers to the decline in the U.S. natural rate of interest since the 2007 – 09 global financial crisis. In this paper, I investigate its determinants and drivers through the lens of the workhorse two-country New Keynesian model that captures the trade and technological interconnectedness of the U.S. with the rest of the world economy. Using Bayesian techniques, I bring the set of binding log-linearized equilibrium conditions from this model to the data, but augmented with survey-based forecasts in order to align the solution with ...
Globalization Institute Working Papers , Paper 403

Working Paper
Stagflation and Topsy-Turvy Capital Flows
Coulibaly, Louphou; Bengui, Julien (2023-01-26)
Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on marginal costs in countries where monetary policy is trying to drive down costs to stabilize inflation. Yet, market forces are likely to generate such inflows. Optimal capital flow management instead requires net outflows, suggesting topsy-turvy capital flows following markup shocks.
Working Papers , Paper 795

Working Paper
Macrofinancial History and the New Business Cycle Facts
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2016-10-12)
In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This ?financial hockey stick? coincides with shifts in foundational macroeconomic relationships beyond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well ...
Working Paper Series , Paper 2016-23

Working Paper
Sovereigns versus Banks: Credit, Crises, and Consequences
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2013)
Two separate narratives have emerged in the wake of the Global Financial Crisis. One speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper studies the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies financial stability risks have come from private sector credit booms ...
Working Paper Series , Paper 2013-37

Working Paper
Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007
Ohanian, Lee E.; Restrepo-Echavarria, Paulina; Wright, Mark L. J. (2013-11-25)
After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets ? rather than domestic or international capital markets ? account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium ...
Working Papers , Paper 2014-38

Working Paper
State-dependent pricing, local-currency pricing, and exchange rate pass-through
Landry, Anthony E. (2009)
This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey, King, and Wolman (1999) in which firms price-discriminate across countries by setting prices in local currency. In this model, a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time-dependent pricing. In addition, the predictions of the state-dependent pricing model match the business-cycle moments better than the predictions of the time-dependent pricing model when driven by monetary policy shocks.
Globalization Institute Working Papers , Paper 39

Working Paper
Global Financial Cycles and Risk Premiums
Jordà, Òscar; Ward, Felix; Taylor, Alan M.; Schularick, Moritz (2018-06-11)
This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk ...
Working Paper Series , Paper 2018-5

Journal Article
Evaluating International Economic Policy with the Federal Reserve's Global Model
Rogers, John H.; Tryon, Ralph W.; Levin, Andrew T. (1997-10)
FRB/Global is a large-scale macroeconomic model developed and maintained by the Board's staff. This article provides a historical perspective on the development of the model, gives an overview of its structure, and highlights its dynamic properties with three simulation experiments: a reduction in U.S. government purchases; a depreciation of the U.S. dollar; and an increase in the price of oil exported by OPEC. The article illustrates other uses of FRB/Global by examining the spillover effects of fiscal and monetary policy under alternative European monetary policy regimes.
Federal Reserve Bulletin , Volume 83 , Issue 10 , Pages pp. 797-817

Working Paper
How does the interaction of macroprudential and monetary policies affect cross-border bank lending?
Takats, Elod; Temesvary, Judit (2019-06-21)
We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on ...
Finance and Economics Discussion Series , Paper 2019-045

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