Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Jumpstarting an International Currency

Ricardo REIS, Saleem BAHAJ
While the USD dominates cross-border transactions today, a few other currencies are also used internationally. This paper shows that central bank policies that reduce the volatility of borrowing costs for foreign firms in domestic currency can trigger a jump-start of the currency’s international s...
Keywords: Currency Choice, RMB internationalization, Liquidity Lines, Invoicing Currency
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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

Rashad AHMED, Alessandro REBUCCI
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, Sining LIU, Yang 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

Michael B. DEVEREUX, Charles ENGEL, 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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