- 12 Jul 2020
- Working Paper Summaries
Sticky Capital Controls
One of the legacies of the 2007–2008 global financial crisis has been a reassessment of the potential for restriction of capital flows policies. This paper documents a set of stylized facts on capital controls along their intensive and extensive margins for emerging markets and document them to be “sticky.” We then rationalize them through a model that includes fixed cost of implementing such policies, which lower the welfare gains of implementation.
- 01 Jul 2020
- Working Paper Summaries
Social Interactions in Pandemics: Fear, Altruism, and Reciprocity
An analysis of 89 cities worldwide shows that mobility responds to infection risk, altruism, and reciprocity. Correcting the SIR model to account for this behavior shows that a balanced approach involving stringency measures, in respect of human dignity, and responsible social preferences mitigates the pandemic health and economic costs.
- 09 Jun 2020
- Working Paper Summaries
Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time
This paper explains the seemingly conflicting narratives from the stock and labor market about the underlying state of the economy. We show that day-to-day changes in the predictions of standard models of infectious disease forecast changes in aggregate stock returns in pandemics.
- 12 May 2020
- Working Paper Summaries
Elusive Safety: The New Geography of Capital Flows and Risk
Examining motives and incentives behind the growing international flows of US-denominated securities, this study finds that dollar-denominated capital flows are increasingly intermediated by tax haven financial centers and nonbank financial institutions.
- 16 Apr 2020
- Research & Ideas
Has COVID-19 Broken the Global Value Chain?
4Questions Companies and consumers depend on the global value chain to create and distribute products around the world. What happens when the chain breaks? Insights from Laura Alfaro and Ester Faia. Open for comment; Comment(s) posted.
- 14 Oct 2019
- Working Paper Summaries
Undisclosed Debt Sustainability
Presenting a scenario in which non-Paris Club lending and borrowing is fully disclosed, this study illustrates that transparency has potential effects of decreased debt sustainability for investors such as China, and significant welfare gains for recipient countries. Effects are particularly strong if the debt is large.
- 20 Aug 2019
- Working Paper Summaries
Spatial Agglomeration and Superstar Firms: Firm-level Patterns from Europe and US
Large, productive, or internationalized firms tend to co-locate geographically. This study of the United States and Eurozone shows greater agglomeration around high performance plants, particularly multinationals. For policymakers, then, policies aimed at improving industry performance should pay attention to firm productivity distribution and not only focus on average performance.
- 30 Jan 2018
- Working Paper Summaries
Credit Supply Shocks, Network Effects, and the Real Economy
Using data for Spain between 2003 and 2013, this study examines firms’ responses to credit supply shocks during times of boom (expansion) and bust (financial crisis and recession). Results indicate that propagation of these shocks through the Spanish production network doubles the magnitude of the real effects typically estimated in the literature. This study also shows how such effects vary greatly during booms and busts.
- 23 Jan 2018
- First Look
First Look at New Research and Ideas, January 23, 2018
Why is productivity declining? ... Angel investmernts around the world ... How do the children of employed moms turn out?
- 08 Jan 2018
- Working Paper Summaries
Come Together: Firm Boundaries and Delegation
The study develops a simple model and provides new data to examine the relationship between vertical integration and delegation of decision-making, two critical aspects of a firm organizational design that are typically studied in isolation. The results show that delegation and vertical integration are positively correlated.
- 14 Dec 2017
- Working Paper Summaries
The Real Exchange Rate, Innovation and Productivity
Addressing debates on the effects of real exchange rate (RER) movements on the economy, this study examines manufacturing firm-level effects of medium-term fluctuations, in particular firm-level productivity across a wide range of countries. RER changes have different impacts depending on the export and import orientation of regions and the prevalence of credit constraints. Effects are non-linear and asymmetric, suggesting that the link between RER changes and macroeconomic performance might be much more nuanced than usually thought.
- 15 Sep 2017
- Working Paper Summaries
Debt Redemption and Reserve Accumulation
This study examines how reserve accumulation affects governments’ decisions to default. The analysis assumes that countries can accumulate reserves and borrow internationally using their own currency. Results suggest that the optimal level of international reserves is fairly large because their cost is mitigated by valuation-smoothing gains. The model matches some features of Brazil’s economic fluctuations.
- 30 May 2017
- Working Paper Summaries
Lessons Unlearned? Corporate Debt in Emerging Markets
Emerging markets are contending with a worrisome slowdown in economic growth accompanied by the build-up of corporate debt. Understanding this and other potential vulnerabilities requires knowing more about the state of emerging market corporate balance sheets, the drivers of debt accumulation, and the effects of both on the macroeconomy.
- 08 Sep 2016
- Working Paper Summaries
A Model of Credit Market Sentiment
Recent empirical research in finance and economics has revived the idea that investor sentiment drives credit booms and busts. To explore the drivers of sentiment in credit markets, the authors model the two-way feedback between credit market sentiment and credit market outcomes. In their model the propagation of credit cycles is driven by the interplay between expectations and the refinancing nature of credit markets.
- 29 Aug 2016
- Working Paper Summaries
Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms
Understanding the location interdependence of multinational firms and how they agglomerate with one another is critical to designing and improving economic policies. These authors’ analysis, using a worldwide plant-level dataset and a novel index of agglomeration, yields a number of insights into the economic geography of multinational production. In addition to market access and comparative advantage motives, multinationals' location choices are significantly affected by agglomeration economies including not only vertical production linkages but also technology diffusion and capital-market externalities.
- 27 Jun 2016
- Working Paper Summaries
Fiscal Rules and Sovereign Default
As they catch up to developed ones, emerging countries tend to overborrow and often default on their debt. This study by Laura Alfaro and Fabio Kanczuk analyzes the welfare gains from alternative fiscal rules, finding the gains economically important. What is more, a simple, easily contractible threshold rule can generate gains virtually as high as the optimal rule.
- 20 Oct 2015
- Working Paper Summaries
Internalizing Global Value Chains: A Firm-Level Analysis
Manufacturing activities that used to be performed in close proximity are increasingly fragmented across firms and countries. This paper provides strong evidence that considerations driven by contractual frictions critically shape firms' ownership decisions along their value chains.
- 02 Jul 2015
- Op-Ed
The Future of the Greek Economy
Before last weekend's referendum in Greece, Laura Alfaro, Dante Roscini, and George Serafeim explored the country's economic, social, and political crisis. Their insights still stand, even as Greece's situation changes hour by hour. Open for comment; 4 Comment(s) posted.
- 30 Sep 2014
- Working Paper Summaries
The Real Effects of Capital Controls: Financial Constraints, Exporters, and Firm Investment
The massive surge of foreign capital to emerging markets in the aftermath of the global financial crisis of 2008-2009 has led to a renewed debate about the merits of international capital mobility. To stem the flow of capital and manage the attendant risks, several emerging markets have recently imposed taxes or controls to curb inflows of foreign capital. The case for capital controls usually rests on measures designed to mitigate the volatility of foreign capital inflows. However, controls also have an implicitly protectionist aspect aimed at maintaining persistent currency undervaluation. In this paper the authors investigate the effects of capital controls on firm-level stock returns and real investment using data from Brazil. Brazil is important because it has taken center stage as a country that has implemented extensive controls on capital flows between 2008 and 2012. Among the authors' key findings, real investment at the firm level falls significantly in the aftermath of controls. Overall, capital controls can increase market uncertainty and reduce the availability of external finance, which in turn can lower investment at the firm level. Capital controls disproportionately affect small, non-exporting firms, especially those more dependent on external finance. Key concepts include: Capital controls policy measures range from large-scale efforts to reduce the volatility of foreign capital inflows to a protectionist stance on maintaining the competitiveness of the external sector. The intended purpose of controls notwithstanding, evidence in this paper suggests that capital controls can increase market uncertainty and reduce the availability of external finance, which in turn can lower investment at the firm level. Controls affect small, non-exporting firms most, especially those more dependent on external finance. Closed for comment; 0 Comment(s) posted.
Currency Hedging in Emerging Markets: Managing Cash Flow Exposure
Economies with less liquid foreign exchange derivative markets offer firms fewer options to hedge their currency risk. Given the limitations of natural hedging, these firms are more exposed to systemic risk.