U.S. Monetary Policy and International Bond Markets

This paper analyzes how U.S. monetary policy affects the pricing of dollar‐denominated sovereign debt. We document that yields on dollar‐denominated sovereign bonds are highly responsive to U.S. monetary policy surprises—during both the conventional and unconventional policy regimes—and that the passthrough of unconventional policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition, a conventional U.S. monetary easing (tightening) leads to a significant narrowing (widening) of credit spreads on sovereign bonds issued by countries with a speculative‐grade credit rating but has no effect on the corresponding weighted average of bilateral exchange rates for a basket of currencies from the same set of risky countries; this indicates that an unanticipated tightening of U.S. monetary policy widens credit spreads on risky sovereign debt directly through the financial channel, as opposed to indirectly through the exchange rate channel. During the unconventional policy regime, yields on both investment‐ and speculative‐grade sovereign bonds move one‐to‐one with policy‐induced fluctuations in yields on comparable U.S. Treasuries. We also examine whether the response of sovereign credit spreads to US monetary policy differs between policy easings and tightenings and find no evidence of such asymmetry.     

The political economy of IMF conditionality and central bank independence

International organizations (IOs) often drive policy change in member countries. Given IOs' limited political leverage over a member country, previous research argues that IOs rely on a combination of hard pressures (i.e., conditionality) and soft pressures (i.e., socialization) to attain their political goals. Expanding this literature, we hypothesize that IOs can enhance their political leverage through loan conditions aimed at enhancing the political independence of key administrative units. Studying this mechanism in the context of the International Monetary Fund (IMF), we argue that through prescribing structural loan conditions on central banks (CBI conditionality), the IMF empowers central banks to gain more political leverage with the aim to limit a government's ability to (ab)use monetary policy for political gain. Divorcing monetary authorities from their respective government, the IMF intends to alter political dynamics towards achieving greater program compliance and enhance long-term macro-financial stability. Relying on a dataset including up to 124 countries between 1980 and 2012, we find that the IMF deploys CBI conditionality to countries with fewer checks and balances, a less independent central bank, and where the government relies more heavily on the monetization of public debt.     

Pain or Gain? Chinese Experience of Capital Account Liberalization

The neoclassical growth model predicts that capital account liberalization could potentially enhance economic performance; however, there is no consistent empirical evidence to support this positive association. Using a novel dataset of Chinese capital account openness, this paper demonstrates a positive relationship between capital account liberalization and aggregate economic performance. The difference‐indifferences method is used to capture the causal effect of capital account liberalization on economic performance by taking advantage of variations in both external financial dependence and the progress of capital account openness. We investigate three channels that could strengthen this positive relationship using a firm‐level dataset. We find that capital account liberalization could: (i) alleviate the degree of resource misallocation, and this effect is more significant in industries relying heavily on external finance and in regions with more favorable business environments; (ii) enhance firms’ total factor productivity; and (iii) promote innovation. Our findings suggest that a strategy of gradual openness will leave some leeway not only for improvement in domestic markets but also to mitigate exposure to unfavorable global shocks.     

Global Economic Divergence and Portfolio Capital Flows to Emerging Markets

This paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows (PCFs) to emerging markets (EMs). Results suggest that PCFs to EMs depend mainly on economic activity at the global level and monetary policy in America and Asia, positively on the former and negatively on the latters. PCFs are procyclical with respect to global activity, but countercyclical to regional activity. In aggregate, regional variations contribute more than global variations. This implies that economic divergence in the developed world can have significant effects on EMs via PCFs.     

EXPORT DIVERSIFICATION AND EXPORT PERFORMANCE BY DESTINATION COUNTRY

The main focus of this paper is the relationship between export diversification and export performance. The key difference with respect to the previous literature is that export diversification is measured and related to export volume by destination country. The approach is empirical and an aggregate export demand setting is adopted to test the significance and influence of export diversification, measured via the Herfindahl index, on export performance by destination country. The econometric estimation is performed using export data for Spain to its partner countries for the period 1999–2011. The main finding is the positive relationship between Spanish export concentration and export performance by destination market. This finding is shown to be robust to several econometric specifications.     

Does Real Exchange Rate Depreciation Boost Capital Accumulation? An Intertemporal Analysis

This paper examines the investment‐enhancing effect of real exchange rate (RER) depreciation in a two‐sector small open economy model where a representative firm in the tradable sector maximises its discounted profit over an infinite planning period. In this framework, a one‐time, permanent, unanticipated depreciation in the RER leads to a higher steady‐state level of capital stock and investment. This consequently increases the optimal investment rate associated with an arbitrary level of capital stock as the saddle path shifts upwards. In the benchmark calibration, the investment‐enhancing effect of RER depreciation is sizeable. One per cent depreciation in the RER leads to an increase of 0.4444 per cent in the rate of capital accumulation.     

Job Opportunities in Foreign Firms and Internal Migration in Vietnam

Using the 2004 Vietnam Migration Survey and the 2004 Vietnam Household Living Standards Survey, this paper investigates the role of employment opportunities created by foreign‐owned firms as a determinant of internal migration and destination choice. Multinomial logit and conditional logit models are estimated to study both origin‐and destination‐specific characteristics of migrants. The paper finds that the migration response to foreign job opportunities is larger for female workers than male workers; there appears to be intermediate selection in terms of educational attainment; and migrating individuals tend to go to destinations with higher foreign employment opportunities, even when controlling for income differentials, land differentials and distances between sending and receiving areas.     

Current account balance and dollar standard: Exploring the linkages

This paper examines whether the international role of the dollar as main global reserve currency has contributed to persistent current account imbalances. To this end, we analyse how central banks' accumulation of reserve assets affects the current account balance of both reserve-accumulating and reserve-providing countries.Based on a simple portfolio balance model we show theoretically that the global demand for reserve assets by central banks may lower the current account balance of the reserve-issuing country. Our panel data analysis over the period 1970–2009 confirms this hypothesis: Any dollar of provided reserve assets decreases the US current account by more than one dollar. On average, the demand for dollar reserves has lowered the US current account by 1–2 percentage points relative to GDP. The flip side of this effect is a higher current account balance in reserve-accumulating countries. These novel findings show that the worldwide demand for international reserves has contributed to the buildup of global imbalances.     

Trade,poverty, and social protection in developing countries

How do shifts in trade affect social protections for the poor? Although the fraction of the world's population considered the “extreme” poor has fallen by over one-half over the past quarter century, many of those lifted above the global poverty line remain vulnerable to shocks that could place them back into poverty. These are the groups that require social protection to stabilize their incomes. Among the shocks to which the absolute poor have been exposed are those created by trade liberalization, particularly of the agricultural sector. The resulting risks, uncertainties, and threats to social stability from this type of trade require that the poor be provided with some forms of adjustment assistance. We examine the effects of trade components on several dimensions of social protection in developing countries, including spending, coverage, and adequacy over the past two decades. We find that, contrary to previous studies, disaggregating trade may be a key to determining which international market variables drive expansion of social protection. Disaggregating trade balances in agricultural vs. manufactured goods reveals that net food and agricultural exporters provide better social protection than countries that report agricultural trade deficits. Meanwhile, countries with manufacturing trade surpluses tend to experience reduced social protection coverage. We reason that governments of net agricultural exporters face incentives to invest in social programs that extend eligibility to the rural poor. Manufacturing export-driven economies, on the other hand, are likely participants in global production chains that limit the capacity of the public sector to extend social protection.     

What drives German foreign direct investment? New evidence using Bayesian statistical techniques

Despite the importance of Germany as an issuer of foreign direct investment (FDI), the studies analyzing its determinants are far from conclusive. This research contributes to filling this gap providing new evidence for the period 1996–2012. In order to reduce model uncertainty, we adopt a Bayesian model averaging (BMA) approach. We find that determinants associated with horizontal FDI appear to be dominant for explaining FDI in developed countries while for the group of developing countries covariates associated with vertical FDI motives play a larger role. Within Europe, while the majority of FDI is horizontally driven in “core” countries, in the “periphery” vertical motivations seem to prevail. Moreover, our results are compatible with more complex FDI models where vertical determinants and institutional variables are gaining prominence as does the leading role currently played by Germany in global value chains (GVC). Our results may provide hints for policymakers’ strategies to attract German investment.