- Joshua Aizenman, Yothin Jinjarak, and Nancy P. Marion. “China’s Growth, Stability, and Use of International Reserves.” NBER Working Paper #19739. National Bureau of Economic Research, December 2013.
In the run-up to the financial crisis the world economy was characterized by large and growing current-account imbalances. Since the onset of the crisis, China and the U.S. have rebalanced. As a share of GDP, their current-account imbalances are now less than half their pre-crisis levels. For China, the reduction in its current-account surplus post-crisis suggests a structural change. Panel regressions for a sample of almost 100 countries over the thirty-year period 1983-2013 confirm that the relationship between current-account balances and economic variables such as performance, structure, wealth and the exchange rate changed in important ways after the financial crisis.
- Menzie Chinn. “Global Spillovers and Domestic Monetary Policy.” BIS Working Paper No. 346. Bank for International Settlements, December 2013.
I discuss how the unconventional monetary policy measures implemented over the past several years – quantitative and credit easing, and forward guidance – can be analysed in the context of conventional models of asset prices, with particular reference to exchange rates. I then discuss alternative approaches to interpreting the effects of such policies, and review the empirical evidence. Finally, I examine the ramifications for thinking about the impact on exchange rates and asset prices of emerging market economies. I conclude that although the implementation of unconventional monetary policy measures may introduce more volatility into global markets, in general it will support global rebalancing by encouraging the revaluation of emerging market currencies.
- Markus Eberhardt and Andrea Presbitero. “This Time They Are Different: Heterogeneity and Nonlinearity in the Relationship Between Debt and Growth.” IMF Working Paper No. 13/248. International Monetary Fund, December 2013.
We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modeling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities (debt thresholds) in both the cross-country and within-country dimensions, employing novel methods and diagnostics from the time-series literature adapted for use in the panel. We find some support for a nonlinear relationship between debt and long-run growth across countries, but no evidence for common debt thresholds within countries over time.
- Atish R. Ghosh, Mahvash S. Qureshi, Juk Il Kim and Juan Zalduendo. “Surges.” Journal of International Economics, forthcoming.
This paper examines when and why capital sometimes surges to emerging market economies (EMEs). Using data on net capital flows for 56 EMEs over 1980−2011, we find that global factors, including US interest rates and investor risk aversion act as “gatekeepers” that determine when surges of capital to EMEs will occur. Whether a particular EME receives a surge, and the magnitude of that surge, however, are largely related to domestic factors such as its external financing need, capital account openness, and exchange rate regime. Differentiating between surges driven by exceptional behavior of asset flows (repatriation of foreign assets by domestic residents) from those driven by exceptional behavior of liability flows (nonresident investments into the country), shows the latter to be relatively more sensitive to global factors and contagion.
- Jonathan D. Ostry and Atish R. Ghosh. Obstacles to International Policy Coordination, and How to Overcome Them. IMF Staff Discussion Note No. 13/11. International Monetary Fund, December 2013.
In bilateral and multilateral surveillance, countries are often urged to consider alternative policies that would result in superior outcomes for the country itself and, perhaps serendipitously, for the world economy. While it is possible that policy makers in the country do not fully recognize the benefits of proposed alternative policies, it is also possible that the existing policies are the best that they can deliver, given their various constraints, including political. In order for the policy makers to be able and willing to implement the better policies some quid pro quo may be required—such as a favorable policy adjustment in the recipients of the spillovers; identifying such mutually beneficial trades is the essence of international policy coordination. We see four general guideposts in terms of the search for globally desirable solutions. First, all parties need to identify the nature of spillovers from their policies and be open to making adjustments to enhance net positive spillovers in exchange for commensurate benefits from others; but second, with countries transparent about the spillovers as they see them, an honest broker is likely to be needed to scrutinize the different positions, given the inherent biases at the country level. Third, given the need for policy agendas to be multilaterally consistent, special scrutiny is needed when policies exacerbate global imbalances and currency misalignments; and fourth, by the same token, special scrutiny is also needed when one country’s policies has a perceptible adverse impact on financial-stability risks elsewhere.