Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Foreign Reserves and Capital Controls: Role of Financial Development

Chang MA, Hidehiko MATSUMOTO
This paper develops a small-open-economy model to study optimal capital controls and foreign reserve policy. Private agents hold reserves to prepare for a liquidity shock that requires them to repay a part of outstanding foreign debt before new borrowing. A firesale externality associated with asset...
Keywords: capital controls, Foreign Reserves, Sudden Stops, Liquidity Crisis
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Collateral Advantage: Exchange Rates, Capital Flows, and Global Cycles

Michael B. DEVEREUX, Charles ENGEL, Steve Pak Yeung WU
This paper explores the effect of global shocks in a two-country New Keynesian model in which US government debt has an advantage as a superior collateral asset in the balance sheets of banks. We show that the model can account for the observed response of the US dollar and US bond returns to a glob...
Keywords: Exchange rates, financial frictions, liquidity, convenience yield, dollar specialness
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Fiscal Deficits and Inflation Risks: The Role of Fiscal and Monetary Regimes

Ryan BANERJEE, Valerie BOCTOR, Aaron MEHROTRA, Fabrizio ZAMPOLLI
Using data from a panel of advanced economies over four decades, we show that the inflationary effect of fiscal deficits crucially depends on the prevailing fiscal-monetary policy regime. Under fiscal dominance, defined as a regime in which the government does not adjust the primary balance to stabi...
Keywords: Fiscal deficit, inflation, fiscal policy regime, monetary policy regime, monetary policy independence
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Annual Conference

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International Macroeconomics, Money & Banking, Senior Fellows/Fellows

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May 2023

Quantifying the Benefits of Labor Mobility in a Currency Union

Christopher L. HOUSE, Christian PROEBSTING, Linda L. TESAR
Unemployment differentials are greater between countries in the euro area than between U.S. states. In both regions, net migration responds to unemployment differentials, though the response is smaller in the euro area compared to the United States. We use a multi-country DSGE model with cross-borde...
Keywords: international migration, optimal currency areas, international business cycles
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Webinar Series

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Innovation, Productivity and Challenges in the Digital Era: Asia and Beyond

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Mar 2023

Preparing for the (Non-Existent?) Future of Work

Anton KORINEK, Megan JUELFS
We analyze how to set up institutions that future-proof our society for a scenario of ever-more-intelligent autonomous machines that substitute for human labor and drive down wages. We lay out three concerns arising from such a scenario, culminating in the economic redundancy of labor, and evaluate ...
Keywords: automation, substitutability of labor, redundancy of labor, nostalgic jobs, work amenities, social i
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