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Working Paper
The effects of government spending on real exchange rates: evidence from military spending panel data
Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account deteriorates in both groups of countries. These findings are not consistent with standard ...
Working Paper
In Search of Dominant Drivers of the Real Exchange Rate
We uncover the major drivers of macro aggregates and the real exchange rate at business cycle frequencies in Group of Seven countries. The estimated main drivers of key macro variables resemble each other and account for a modest fraction of the real exchange rate variances. Dominant drivers of the real exchange rate are orthogonal to main drivers of business cycles, generate a significant deviation of the uncovered interest parity condition, and lead to small movements in net exports. We use these facts to evaluate international business cycle models accounting for the dynamics of both macro ...
Working Paper
In Search of Dominant Drivers of the Real Exchange Rate
We uncover the major drivers of macro aggregates and the real exchange rate at business cycle frequencies in Group of Seven countries. The estimated main drivers of key macro variables resemble each other and account for a modest fraction of the real exchange rate variances. Dominant drivers of the real exchange rate are orthogonal to main drivers of business cycles, generate a significant deviation of the uncovered interest parity condition, and lead to small movements in net exports. We use these facts to evaluate international business cycle models accounting for the dynamics of both macro ...
Working Paper
How Oil Shocks Propagate: Evidence on the Monetary Policy Channel
Using high-frequency responses of oil futures prices to prominent oil market news, we estimate the effects of oil supply news shocks when systematic monetary policy is switched off by the zero lower bound (ZLB) and when it is not (normal periods) in Japan, the United Kingdom, and the United States. We find that negative oil supply news shocks are less contractionary (and even expansionary) at the ZLB compared to normal periods. Inflation expectations increase during both periods, while the short nominal interest rates remain constant at the ZLB, pointing to the importance of monetary policy ...
Working Paper
In Search of Dominant Drivers of the Real Exchange Rate
We uncover the major drivers of each macroeconomic variable and the real exchange rate at the business cycle frequency in G7 countries. In each country, the main drivers of key macro variables resemble each other and none of those account for a large fraction of the real exchange rate variances. We then estimate the dominant driver of the real exchange rate and find that (i) the shock is largely orthogonal to macro variables and (ii) the shock generates a significant deviation of the uncovered interest parity condition. We analyze international business cycle models that are consistent with ...
Journal Article
Oil Shocks when Interest Rates Are at the Zero Lower Bound
New evidence suggests that rising oil prices associated with declining oil supply slow economic activities less when interest rates are constrained at the zero lower bound. Moreover, these oil price spikes can even increase overall output. Evidence points to the following explanation. An oil supply shock raises inflation in all periods, but the nominal interest rate does not react under the zero lower bound, so the shock reduces the real interest rate, stimulating demand in the economy.
Journal Article
Fiscal Multiplier at the Zero Bound: Evidence from Japan
The United States has implemented large-scale fiscal policy measures to help households and businesses cushion the economic fallout from the COVID-19 pandemic and to strengthen the recovery. The Federal Reserve has also supported the economy by keeping its policy rate at the zero lower bound. Evidence from Japan suggests that, in a sustained zero-bound environment, an unexpected increase in government spending has much larger and more persistent effects on real GDP, and even more so when the economy is in a recession.
Working Paper
The Macroeconomic Effects of Cash Transfers: Evidence from Brazil
This paper provides new evidence on the macroeconomic impact of cash transfers in developing countries. Using a Bartik-style identification strategy, the paper documents that Brazil’s Bolsa Familia transfer program leads to a large and persistent increase in relative state-level GDP, formal employment, and informal employment. A state receiving 1% of GDP in extra transfers grows 2.2% faster in the first year, with R$100,000 of extra transfers generating five formal-equivalent jobs, half of which are informal. Consistent with a demand-side mechanism, the effects are concentrated in ...
Journal Article
Global Supply Chain Pressures and U.S. Inflation
Global supply chain disruptions following the onset of the COVID-19 pandemic contributed to the rapid rise in U.S. inflation over the past two years. Evidence suggests that supply chain pressures pushed up the cost of inputs for goods production and the public’s expectations of higher future prices. These factors accounted for about 60% of the surge in U.S. inflation beginning in early 2021. Supply chain pressures began easing substantially in mid-2022, contributing to the slowdown in inflation.