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Working Paper
U.S. Housing as a Global Safe Asset: Evidence from China Shocks
Barcelona, William; Wong, Anna; Converse, Nathan L. (2021-11-12)
This paper demonstrates that the measured stock of China's holding of U.S. assets could be much higher than indicated by the U.S. net international investment position data due to unrecorded historical Chinese inflows into an increasingly popular global safe haven asset: U.S. residential real estate. We first use aggregate capital flows data to show that the increase in unrecorded capital inflows in the U.S. balance of payment accounts over the past decade is mainly linked to inflows from China into U.S. housing markets. Then, using a unique web traffic dataset that provides a direct measure ...
International Finance Discussion Papers , Paper 1332

Working Paper
New Evidence on the US Excess Return on Foreign Portfolios
Bertaut, Carol C.; Curcuru, Stephanie E.; Faia, Ester; Gourinchas, Pierre-Olivier (2024-11-13)
We provide new estimates of the return on US external claims and liabilities using confidential, high-quality, security-level data. The excess return is positive on average, since claims are tilted toward higher-return equities. The excess return is large and positive in normal times but large and negative during global crises, reflecting the global insurance role of the US external balance sheet. Controlling for issuer's nationality, we find that US investors have a larger exposure to equity issued by Asia-headquartered corporations than reported in the aggregate statistics. Finally, equity ...
International Finance Discussion Papers , Paper 1398

Working Paper
The Global (Mis)Allocation of Capital
Bertaut, Carol C.; Curcuru, Stephanie E.; Faia, Ester; Gourinchas, Pierre-Olivier (2024-11-25)
The allocative efficiency of capital flows is one of the oldest and most contentious questions. We answer it by matching cross-border securities holdings reported in the US external statistics from 1995 to 2022 with the corresponding firm-level measures of allocative efficiency. We find that US investors tilt their international equity investment toward firms with high MRPK and markups, thereby fostering their potential for growth. Foreign investors tilt their holdings toward US firms with high productivity and intangible capital. A horse race shows that productivity is the best predictor of ...
International Finance Discussion Papers , Paper 1399

Working Paper
Bretton Woods and the Reconstruction of Europe
Restrepo-Echavarria, Paulina; Wright, Mark L. J.; Ohanian, Lee E.; Van Patten, Diana (2019-10-13)
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 ...
Working Papers , Paper 2019-30

Working Paper
Exchange Rate Policies at the Zero Lower Bound
Amador, Manuel; Bianchi, Javier; Bocola, Luigi; Perri, Fabrizio (2017-03-16)
We study how a monetary authority pursues an exchange rate objective in an environment that features a zero lower bound (ZLB) constraint on nominal interest rates and limits to international arbitrage. If the nominal interest rate that is consistent with interest rate parity is positive, the central bank can achieve its exchange rate objective by choosing that interest rate, a well-known result in international ?nance. However, if the rate consistent with parity is negative, pursuing an exchange rate objective necessarily results in zero nominal interest rates, deviations from parity, capital ...
Working Papers , Paper 740

Working Paper
The Global Financial Cycle and Capital Flows During the COVID-19 Pandemic
Zlate, Andrei; Davis, J. Scott (2022-11-11)
We estimate the heterogeneous effect of the global financial cycle on exchange rates and cross-border capital flows during the COVID-19 pandemic, using weekly exchange rate and portfolio flow data for a panel of 59 advanced and emerging market economies. We begin by estimating a global financial cycle (GFC) index at the weekly frequency with data through the end of 2021, and observe an outsized decline in the index over a period of just four weeks during February and March 2020. We then estimate the country-specific sensitivities of exchange rates and capital flows to fluctuations in the GFC. ...
Globalization Institute Working Papers , Paper 416

Emerging-Market Economies Face COVID-19 and a 'Sudden Stop' in Capital Flows
Davis, J. Scott (2020-04-14)
A rise in global risk at a time of investor risk aversion led to a rapid flight from emerging-market assets.
Dallas Fed Economics

Report
Liquidity traps, capital flows
Acharya, Sushant; Bengui, Julien (2016-01-01)
Motivated by debates surrounding international capital flows during the Great Recession, we conduct a positive and normative analysis of capital flows when a region of the global economy experiences a liquidity trap. Capital flows reduce inefficient output fluctuations in this region by inducing exchange rate movements that reallocate expenditure toward the goods it produces. Restricting capital mobility hampers such an adjustment. From a global perspective, constrained efficiency entails subsidizing capital flows to address an aggregate demand externality associated with exchange rate ...
Staff Reports , Paper 765

Working Paper
The Consequences of Bretton Woods Impediments to International Capital Mobility and the Value of Geopolitical Stability
Ohanian, Lee E.; Restrepo-Echavarria, Paulina; Van Patten, Diana; Wright, Mark L. J. (2021-10-01)
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 Papers , Paper 2020-042

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