National Bureau of Economic Research Working Papers

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Externalities as Arbitrage -- by Benjamin M. Hébert

How can we assess whether macro-prudential regulations are having their intended effects? If these regulations are optimal, their marginal benefit of addressing externalities should equal their marginal cost of distorting risk-sharing. These risk-sharing distortions will manifest as trading opportunities that constrained intermediaries are unable to...

Misallocation and Capital Market Integration: Evidence From India -- by Natalie Bau, Adrien Matray

We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation....

Offshoring and Inflation -- by Diego A. Comin, Robert C. Johnson

Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration...

Post COVID-19 Exit Strategies and Emerging Markets Economic Challenges -- by Joshua Aizenman, Hiro Ito

We outline two divergent exit strategies of the U.S. from the post COVID-19 debt-overhang, and analyze their implications on Emerging Markets and global stability. The first strategy is the U.S. aiming at returning to the 2019, pre-COVID mode of loose fiscal policy and accommodating monetary policy. The short-term benefits of this strategy include...

Designing an International Economic Order: A Research Agenda -- by Renee Bowen, J. Lawrence Broz

The institutions that have sustained global economic cooperation for the past 75 years are under threat. Despite admonitions that global peace and prosperity are at risk, policymakers in important countries have ignored the rules of the multilateral order and moved down the path of unilateralism and economic nationalism. What role can social scientists...

The Micro Anatomy of Macro Consumption Adjustments -- by Rafael Guntin, Pablo Ottonello, Diego Perez

We study crises characterized by large adjustments of aggregate consumption through their microlevel patterns. We show that leading theories designed to explain aggregate consumption dynamics differ markedly in their cross-sectional predictions. While theories based on financial frictions predict that rich households with liquid assets should be able...

Optimal Foreign Reserves and Central Bank Policy Under Financial Stress -- by Luis Felipe Céspedes, Roberto Chang

We study the interaction between optimal foreign reserves accumulation and central bank international liquidity provision in a small open economy under financial stress. Firms and households finance investment and consumption by borrowing from domestic financial intermediaries (banks), which in turn borrow from abroad. Binding financial constraints...

Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters -- by Mary Amiti, Oleg Itskhoki, Jozef Konings

Using new data on currency invoicing for Belgian firms, we analyze how firms make their currency choice, for both exports and imports, and the implications of this choice for exchange rate pass-through into prices and quantities. We derive our estimating equations from a theoretical framework featuring variable markups, international input sourcing,...

Capital Flows in Risky Times: Risk-on/Risk-off and Emerging Market Tail Risk -- by Anusha Chari, Karlye Dilts Stedman, Christian Lundblad

This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the left tail. Further, while there are some differences in the effects across bond vs. equity markets...

De-globalization: Driven by Global Crises? -- by Assaf Razin

International trade increased rapidly after 1990, fueled by the growth of a complex network of global value chains. Financial globalization gathered force. Trade globalization, however, reversed course since the Global Financial Crisis. The new trend is expected to endure after the Global Pandemic Crisis. There is no indication so far of significant...

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