Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Currencies of emerging markets with stricter capital controls have lower average returns. These return spreads cannot be explained by traditional currency risk factors. The effect of capital controls is concentrated in debtor countries and is not present in currencies of advanced economies. The high...
Keywords: Capital control, Currency risk, Risk premia, Sudden stop, Emerging markets
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

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

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

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

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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