Capital Flows

Suman Basu · Emine Boz · Gita Gopinath · Francisco Roch · Filiz Unsal

Prepared as background for the IMF's Integrated Policy Framework, this paper builds a three-period small open economy in which monetary policy, capital inflow controls, sterilized foreign exchange …

Jeremy Bulow · Kenneth Rogoff

This 1989 Journal of Political Economy paper by Jeremy Bulow and Kenneth Rogoff models sovereign debt renegotiation as an ongoing bilateral bargaining process (following Rubinstein's …

Tobias Adrian · Christopher Erceg · Marcin Kolasa · Jesper Lindé · Pawel Zabczyk

A microfounded two-country New Keynesian model, calibrated separately to a representative emerging market and a representative advanced economy, in which limited FX-market risk-bearing capacity and an …

Tobias Adrian · Christopher Erceg · Jesper Lindé · Pawel Zabczyk · Jianping Zhou

An empirically-oriented New Keynesian small open economy model, of the kind central banks use, built to quantify when foreign exchange intervention and capital flow management tools improve monetary …

Emmanuel Farhi · Iván Werning

This paper builds a theory of macroprudential policy whose only friction is nominal rigidity in goods and labor markets, possibly combined with a constraint on monetary policy such as the zero lower …

Peter Blair Henry

The literature's standard finding -- that countries with open capital accounts do not grow faster -- tests a prediction the neoclassical growth model never makes, because in that model liberalization …

Maurice Obstfeld

This 1986 Journal of International Economics paper by Maurice Obstfeld re-examines the classic monetary-approach claim that devaluation under capital controls has no long-run real effects, by adding …

Kristin J. Forbes · Francis E. Warnock

Dating extreme capital-flow episodes from gross rather than net flows splits the picture in two -- "surges" and "stops" driven by foreign investors, "flight" and "retrenchment" driven by domestic …

Valentina Bruno · Hyun Song Shin

Bank leverage is the linchpin of a risk-taking channel through which monetary policy travels across borders: in a pre-crisis quarterly VAR a tighter US policy rate raises the VIX, lowers broker-dealer …

Anusha Chari · Karlye Dilts Stedman · Christian Lundblad

Shifts in global risk appetite move not just the middle of the emerging-market capital-flow and return distributions but their left tails, and usually the left tail more. Estimating panel quantile …

Pierre-Olivier Gourinchas · Olivier Jeanne

The textbook neoclassical growth model says countries whose productivity is catching up should invest more and import more capital. Across 68 developing countries over 1980-2000 the cross-country …

Maurice Obstfeld · Kenneth Rogoff

The intertemporal approach treats the current account as the outcome of forward-looking saving and investment decisions rather than as a function of relative prices, and this chapter develops it from …

Aart Kraay · Jaume Ventura

This 2000 Quarterly Journal of Economics paper by Aart Kraay and Jaume Ventura reexamines a classic question -- how does the current account respond to a transitory income shock? -- and overturns the …

Torsten Persson

Persson extends Diamond's (1965) overlapping-generations model of public debt to open economies, asking how a one-time, debt-financed tax cut to the currently young generation redistributes welfare …

Adrien Auclert · Hannes Malmberg · Frédéric Martenet · Matthew Rognlie

A popular argument — the "asset market meltdown" of the 1990s, revived as the "great demographic reversal" — holds that once the old start running down their savings, aging will push interest rates …

Anusha Chari · Peter Blair Henry · Racha Moussa

In a calibrated neo-classical growth model, moving from financial autarky to integration raises consumption most in the first years after opening, so the standard infinite-horizon Hicksian welfare …

Martin Feldstein · Charles Horioka

Across 16 industrial countries whose saving and investment rates are averaged over 1960-74, a one-percentage-point higher ratio of gross domestic saving to GDP comes with roughly nine-tenths of a …

Kenneth A. Froot · Jeremy C. Stein

This 1991 Quarterly Journal of Economics paper by Kenneth Froot and Jeremy Stein explains the empirical correlation between dollar depreciation and foreign direct investment (FDI) inflows into the …

Stefan Avdjiev · Cathérine Koch · Hyun Song Shin

Across four econometric approaches and up to 114 borrowing countries, a stronger international funding currency goes with less cross-border bank lending denominated in that currency: a one percentage …

Alberto Alesina · Guido Tabellini

This 1989 Journal of International Economics paper by Alberto Alesina and Guido Tabellini explains the simultaneous accumulation of public external debt and private capital flight observed in …

Harold L. Cole

This 1988 International Economic Review paper by Harold Cole builds a minimal two-country, two-period model -- output in each of two projects per country is subject to i.i.d. country- and …

Maurice Obstfeld · Alan M. Taylor

Global capital mobility traces a U over the past century and a half, and the authors argue the shape is explained by the open-economy policy trilemma rather than by technology: capital moved freely …

John Ammer · Stijn Claessens · Alexandra Tabova · Caleb Wroblewski

When the sovereign yield in an investor's own country falls, that country's private investors hold more U.S. bonds and tilt the mix toward riskier corporate debt rather than Treasuries. Across 31 …

Matteo Maggiori · Brent Neiman · Jesse Schreger

Using a new security-level dataset covering $32 trillion in global investment positions, this paper establishes that the currency a bond is denominated in -- not the nationality of its issuer -- is …

Andrew Atkeson

This 1991 Econometrica paper by Andrew Atkeson examines optimal international lending when a sovereign borrower can both repudiate its debt and privately choose whether to invest or consume borrowed …

Julian di Giovanni · Şebnem Kalemli-Özcan · Mehmet Fatih Ulu · Yusuf Soner Baskaya

Using the universe of Turkish corporate credit transactions matched to bank balance sheets over 2003-13, this paper shows that an easing of global financial conditions lowers domestic borrowing costs …

Maurice Obstfeld

This 1983 Journal of International Money and Finance paper by Maurice Obstfeld (NBER Working Paper No. 1100) uses an infinite-horizon optimizing model of a small open economy to show that a temporary …

Kenneth R. French · James M. Poterba

At the end of 1989 Japanese investors held 1.9 percent of their equity abroad, US investors 6.2 percent and British investors 18 percent. Inverting a standard portfolio first-order condition, the …

Vittorio Grilli · Nouriel Roubini

This 1992 Journal of International Economics paper by Vittorio Grilli and Nouriel Roubini builds a two-country extension of Lucas's (1988) cash-in-advance model of asset-market liquidity, in which …

Toni Ahnert · Kristin Forbes · Christian Friedrich · Dennis Reinhardt

Macroprudential rules on banks' foreign currency exposure do what they are meant to do -- cross-border FX borrowing by banks falls by roughly a third, and bank stock returns become markedly less …

Natalie Bau · Adrien Matray

India liberalised foreign equity investment industry by industry in 2001 and 2006, and that staggered timing identifies what the policy did to the *distribution* of capital rather than only its level. …

Mark Gertler · Kenneth Rogoff

This 1990 Journal of Monetary Economics paper by Mark Gertler and Kenneth Rogoff builds a model of North-South lending in which information asymmetries between individual borrowers and world capital …

Antonio Coppola · Matteo Maggiori · Brent Neiman · Jesse Schreger

Because global firms raise capital through subsidiaries incorporated in tax havens, official residency-based statistics attribute those securities to the haven rather than to the parent's country; …

Yan Bai · Jing Zhang

A frictionless multi-country model implies no cross-country correlation between long-run savings and investment rates, so the Feldstein-Horioka finding really is a puzzle for it. Neither limited …

Mark Aguiar · Manuel Amador

A Handbook survey that organises the economics of sovereign debt around a single benchmark limited-commitment model, then shows how each strand of the literature -- debt overhang, equilibrium default, …

Jeremy Bulow · Kenneth Rogoff

A sovereign that can still hold assets abroad after defaulting can always replace any reputation-based loan contract with a sequence of cash-in-advance insurance contracts collateralised out of the …

Juan J Cruces · Christoph Trebesch

The first present-value estimates of creditor losses for all 180 sovereign debt restructurings with foreign banks and bondholders between 1978 and 2010 -- average haircut 37%, with half the cases …

Anusha Chari · Karlye Dilts-Stedman · Kristin Forbes

A country's macroprudential stance looks irrelevant to portfolio flows on average, but that average hides the tails. Countries with tighter ex-ante regulation see larger bond and equity outflows in …

Enrique G. Mendoza

A standard small-open-economy business-cycle model, augmented with a collateral constraint that caps total debt -- including within-period working-capital loans -- at a fraction of the market value of …

Anusha Chari · Karlye Dilts Stedman · Christian Lundblad

Identifying US monetary policy shocks from daily moves in five-year Treasury futures around FOMC announcements, this paper shows that during the unconventional-policy years those shocks largely …

Jeffrey D. Sachs

This paper builds a formal, continuous-time model of the current account with intertemporally optimizing households to make two linked points. First, a country's current account depends as much on …

Richard Portes · Hélène Rey

On a panel of bilateral gross cross-border equity transactions among 14 countries from 1989 to 1996, a gravity specification with market capitalisations, distance and a measure of market …

Stefan Avdjiev · Wenxin Du · Cathérine Koch · Hyun Song Shin

The strength of the US dollar, the size of covered interest parity deviations and the growth of dollar-denominated cross-border bank lending move together in what the authors call a triangular …

Kim Ceulemans · Sarfraz Khan · John K. Wald

Two literatures predict opposite things about what happens to a country's pollution when it opens its equity market to foreign investors. Foreign institutional investors have been shown to push firms …

Philip R. Lane · Gian Maria Milesi-Ferretti

Capital flows were tracked continuously, but the stocks of foreign assets and liabilities they accumulate into were largely unmeasured outside a handful of industrial countries. This paper builds …

Maurizio Michael Habib · Fabrizio Venditti

Decomposing a global risk factor built from stock returns in 63 economies into structural shocks, this paper finds that exogenous shifts in the financial sector's risk-bearing capacity matter more …

Francesco Caselli · James Feyrer

Backing the marginal product of capital straight out of output, the capital stock and the capital share gives a return in poor countries more than twice that in rich ones -- until two corrections are …

Felipe Saffie · Liliana Varela · Kei-Mu Yi

Using the 2001 Hungarian capital account liberalization as a quasi-natural experiment and census-level firm data covering the entire economy (1992–2008), the paper identifies two channels through …

Laura Alfaro · Anusha Chari · Fabio Kanczuk

Brazil's IOF tax on foreign portfolio inflows was announced overnight and without warning, which makes it readable in stock prices. Two-day cumulative abnormal returns for listed Brazilian firms fall …

Anusha Chari · Jennifer Rhee

Measured firm by firm from accounting and stock-market data rather than imputed from national accounts, the marginal product of capital really is higher in poorer countries -- but inflation-adjusted …

C. Bora Durdu · Alex Martin · Ilknur Zer

US monetary tightening raises the probability of a banking crisis abroad, but only where the exposure to the United States is direct -- heavy bilateral trade or large dollar-denominated liabilities. …

Maurice Obstfeld · Kenneth Rogoff

Six of international macroeconomics' most stubborn puzzles -- home bias in trade, Feldstein-Horioka, home bias in equity portfolios, low consumption correlations, the slow mean reversion of real …

Lars E. O. Svensson

This 1988 American Economic Review paper by Lars Svensson extends the law of comparative advantage from trade in goods to trade in any arbitrarily specified set of risky assets, complete or …

Silvia Miranda-Agrippino · Hélène Rey

A single global factor extracted from a large panel of risky asset prices traded around the world falls sharply after a US monetary contraction, alongside deleveraging by global banks, a rise in …

Stephen G. Cecchetti · Tommaso Mancini-Griffoli · Machiko Narita · Ratna Sahay

Across nearly 1,000 listed financial firms in 21 countries, prolonged monetary easing raises leverage -- and for non-US firms, sustained easing in the United States raises leverage by more than easing …

Robert E. Lucas, Jr.

If two countries produce the same good with the same constant-returns technology, diminishing returns imply the poorer one has the higher marginal product of capital -- and on 1988 data, US output per …