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Bank:Federal Reserve Bank of Dallas  Series:Globalization Institute Working Papers 

Working Paper
The cyclicality of (bilateral) capital inflows and outflows

Recent research has shown that gross capital inflows and outflows are positively correlated and highly procyclical. This poses a puzzle since most theory predicts that capital inflows and outflows should be negatively correlated, and while capital inflows should be procyclical, capital outflows should be countercyclical. This previous work has examined the behavior of aggregate capital inflows and outflows (capital flows between a country and the rest of the world). This paper shows that bilateral capital inflows and outflows (flows between a pair of countries) are also positively correlated ...
Globalization Institute Working Papers , Paper 247

Working Paper
The U.S. oil supply revolution and the global economy

This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, ...
Globalization Institute Working Papers , Paper 263

Working Paper
Inflation dynamics: the role of public debt and policy regimes

We investigate the roles of a time-varying inflation target and monetary and fiscal policy stances on the dynamics of inflation in a DSGE model. Under an active monetary and passive fiscal policy regime, inflation closely follows the path of the inflation target and a stronger reaction of monetary policy to inflation decreases the equilibrium response of inflation to non-policy shocks. In sharp contrast, under an active fiscal and passive monetary policy regime, inflation moves in an opposite direction from the inflation target and a stronger reaction of monetary policy to inflation increases ...
Globalization Institute Working Papers , Paper 124

Working Paper
Does foreign exchange intervention volume matter?

We investigate whether foreign exchange intervention volume matters for the exchange rate effects of intervention. Our investigation employs daily data on Japanese interventions from April 1991 to April 2012 and time-series estimations, nontemporal threshold analysis, as well as binary choice models. We find that intervention volume matters for the effects of intervention, but only to the extent that the exchange rate effect per intervention unit is magnified in a linear sense by the larger intervention amount. This is a policy-relevant finding that also adds to our understanding of how ...
Globalization Institute Working Papers , Paper 115

Working Paper
Monetary Rule, Central Bank Loss and Household’s Welfare: an Empirical Investigation

Which monetary policy rule best fits the historical data? Which rule is most effective to reach the central bank?s objectives? Is minimizing a central bank loss equivalent to maximizing households? welfare? Are NGDP growth or level targeting good options, and if so, when? Do they perform better than Taylor-type rules? In order to answer these questions, we use Bayesian estimations to evaluate the Smets and Wouters (2007) model under nine monetary policy rules with US data ranging from 1955 to 2017 and over three different sub-periods (among them the zero lower bound period where a shadow rate ...
Globalization Institute Working Papers , Paper 329

Working Paper
Indeterminacy and forecastability

Recent studies document the deteriorating performance of forecasting models during the Great Moderation. This conversely implies that forecastability is higher in the preceding era, when the economy was unexpectedly volatile. We offer an explanation for this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium models. First, we analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a prototypical New Keynesian model, we numerically demonstrate that indeterminacy due to passive ...
Globalization Institute Working Papers , Paper 91

Working Paper
The Distributional Effects of COVID-19 and Optimal Mitigation Policies

This paper develops a quantitative heterogeneous agent–life cycle model with a fully integrated epidemiological model in which economic decisions affect the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to study the distributional consequences and effectiveness of two mitigation policies: a stay-at-home subsidy that subsidizes reduced hours worked and a stay-at-home order that limits outside hours. First, the stay-at-home subsidy is preferred because it reduces deaths by more and output by less, leading to a larger average welfare ...
Globalization Institute Working Papers , Paper 400

Working Paper
In the shadow of the United States: the international transmission effect of asset returns

We examine how the fluctuations in financial and housing markets in U.S. affect the asset returns and GDP in Hong Kong. In contrast to the results from linear specifications, which concludes that the U.S. and Hong Kong are virtually delinked in terms of the asset markets, our regime-switching models indicate that the unexpected shock of US stock returns, followed by the TED spread, has the most significant effect on HK asset returns and GDP, typically in the regime with high return and low volatility. For the in-sample one-step-ahead forecasting, US Term spread stands out to be the best ...
Globalization Institute Working Papers , Paper 121

Working Paper
The Globalisation of Inflation: the Growing Importance of Global Value Chains

Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that ...
Globalization Institute Working Papers , Paper 300

Working Paper
Diversification and specialization of U.S. states

This paper documents the evolution of the international relationships of individual U.S. states along three dimensions: trade, migration, and finance. We examine how specialized or diversified state economies differ in terms of the products they export and with whom they trade, the origins of the immigrants who live in the state, and the origins of the foreign banks operating in the state. We show that states that are diversified along one of these dimensions are often quite specialized along others. New York is?perhaps, not surprisingly?the most diversified state in terms of global linkages.
Globalization Institute Working Papers , Paper 284

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