- 11 Dec 2018
- Research & Ideas
Free Trade Needs Nurturing—and Other Lessons from History
Global free trade is not the natural order of things, so it needs to be carefully tended to and maintained. Sophus Reinert and Dante Roscini discuss trade over time and what history teaches. Open for comment; Comment(s) posted.
- 17 Nov 2016
- Working Paper Summaries
Sovereign Risk, Currency Risk, and Corporate Balance Sheets
Why would a country default on its sovereign debt when the government could instead inflate it away? The authors argue that a government is more inclined to default than inflate when the currency mismatch of the corporate sector implies large adverse balance sheet effects from a currency depreciation. To make this argument they construct a dataset on the currency composition of emerging market external borrowing. Results show that the corporate sector relies on external foreign currency debt even as sovereigns have swiftly moved toward borrowing in their own currency.
- 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.
- 04 Mar 2016
- Working Paper Summaries
Credit-Market Sentiment and the Business Cycle
Using United States data from 1929 to 2013, Jeremy C. Stein and colleagues emphasize the role of credit-market sentiment as an important driver of the business cycle.
Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation
Common wisdom holds that VC investment and VC-backed startups are relatively insulated from downturns. This study shows that the relative quantity and quality of innovation declines more for VC-backed firms than for other types of firms during downturns.