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Working Paper
Large Capital Inflows, Sectoral Allocation, and Economic Performance
This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are ...
Asset Prices, Leverage and Portfolio Rebalancing Drive Global Capital Flows Cycle
The amount of leverage—borrowed funds relative to the value of underlying assets—increases for risky holdings during downturns, motivating their ultimate sale to achieve a more secure financial position. The opposite occurs during upswings, as risky assets gain favor.
Working Paper
A Theory of the Global Financial Cycle
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 ...
Don’t Look to the 2013 Tantrum for the Effect of Tapering on Emerging Markets
Many emerging markets have improved their external balance sheets since the volatility evidenced during the "taper tantrum" of 2013 and would be much less vulnerable to Federal Reserve tapering today.
Corporate Indebtedness: Improving Financial Stability Monitoring
U.S. nonfinancial corporate credit has been identified as an area where growth in the quantity of debt and deterioration in the quality of underwriting could be a source of concern.
Risks Abound If China Uses Debt to Stimulate Economy from Current Downturn
The Chinese economy is losing steam. As China considers how to work through its difficulties, its chances of success may depend on how it finances the debt it incurs while attempting to boost economic activity.
Working Paper
The Consequences of Bretton Woods’ International Capital Controls and the High Value of Geopolitical Stability
This paper quantifies the positive and normative effects of international capital controls on global and regional economic activity under The Bretton Woods international financial system and thereafter. A three region, open economy, DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World, is developed to identify capital controls and quantify their impact. We find these controls had large positive and normative effects by restricting international capital flows. Counterfactual analyses show world output would have been 0.6% higher had there ...
Working Paper
The Consequences of Bretton Woods Impediments to International Capital Mobility and the Value of Geopolitical Stability
This paper quantifies the positive and normative effects of capital controls on international economic activity under The Bretton Woods international financial system. We develop a three-region world economic model consisting of the U.S., Western Europe, and the Rest of the World. The model allows us to quantify the impact of these controls through an open economy general equilibrium capital flows accounting framework. We find these controls had large effects. Counterfactuals show that world output would have been 6% larger had the controls not been implemented. We show that the controls led ...
Working Paper
The International Consequences of Bretton Woods Capital Controls and the Value of Geopolitical Stability
This paper quantifies the positive and normative effects of capital controls on international economic activity under The Bretton Woods international financial system. We develop a three region world economic model consisting of the U.S., Western Europe, and the Rest of the World. The model allows us to quantify the impact of these controls through an open economy general equilibrium capital flows accounting framework. We find these controls had large effects. Counterfactuals show that world output would have been 6% larger had the controls not been implemented. We show that the controls led ...
Working Paper
Bretton Woods and the Reconstruction of Europe
The Bretton Woods international financial system, which was in place from roughly 1949 to 1973, is the most significant modern policy experiment to attempt to simultaneously manage international payments, international capital flows, and international currency values. This paper uses an international macroeconomic accounting methodology to study the Bretton Woods system and finds that it: (1) significantly distorted both international and domestic capital markets and hence the accumulation and allocation of capital; (2) significantly slowed the reconstruction of Europe, albeit while limiting ...