Annual Conference

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International Macroeconomics, Money & Banking, Senior Fellows/Fellows

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May 2023

Dollar Reserves and U.S. Yields: Identifying the Price Impact of Official Flows

Alessandro REBUCCI , Rashad AHMED
This paper shows that the price impact of foreign official (FO) purchases or sales of U.S. Treasuries (USTs) is about twice as large as previously reported in the literature once critical sources of endogeneity are addressed. We also show that prevailing estimates of this price impact suffer from om...
Keywords: Foreign official flows, Global savings glut, Identification via heteroskedasticity, Interest rates conundrum, International reserves, U.S. Dollar, VARs
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Currency Risk Under Capital Controls

Xiang FANG, Yang LIU, Sining LIU
Currencies of emerging markets with stricter capital controls have lower average returns. These return spreads cannot be explained by traditional currency risk factors. The effect of capital controls is concentrated in debtor countries and is not present in currencies of advanced economies. The high...
Keywords: Capital control, Currency risk, Risk premia, Sudden stop, Emerging markets
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Foreign Reserves and Capital Controls: Role of Financial Development

Chang MA , Hidehiko MATSUMOTO
This paper develops a small-open-economy model to study optimal capital controls and foreign reserve policy. Private agents hold reserves to prepare for a liquidity shock that requires them to repay a part of outstanding foreign debt before new borrowing. A firesale externality associated with asset...
Keywords: capital controls, Foreign Reserves, Sudden Stops, Liquidity Crisis
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Collateral Advantage: Exchange Rates, Capital Flows, and Global Cycles

Charles ENGEL, Michael B. DEVEREUX, Steve Pak Yeung WU
This paper explores the effect of global shocks in a two-country New Keynesian model in which US government debt has an advantage as a superior collateral asset in the balance sheets of banks. We show that the model can account for the observed response of the US dollar and US bond returns to a glob...
Keywords: Exchange rates, financial frictions, liquidity, convenience yield, dollar specialness
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Fiscal Deficits and Inflation Risks: The Role of Fiscal and Monetary Regimes

Fabrizio ZAMPOLLI, Valerie BOCTOR, Aaron MEHROTRA, Ryan BANERJEE
Using data from a panel of advanced economies over four decades, we show that the inflationary effect of fiscal deficits crucially depends on the prevailing fiscal-monetary policy regime. Under fiscal dominance, defined as a regime in which the government does not adjust the primary balance to stabi...
Keywords: Fiscal deficit, inflation, fiscal policy regime, monetary policy regime, monetary policy independenc
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