International finance

Gianluca Benigno, Nathan Converse, Luca Fornaro, 11 October 2015

In the aftermath of the Global Crisis, policymakers have adopted policies to limit, or at least manage, capital inflows. This column explores episodes of capital inflows coupled with weak productivity growth, in other words, the financial resource curse. The findings show that once access to foreign capital subsides, the initial boom gives way to a recession. Both investment and employment in the manufacturing sector drop, and the larger the decrease of labour in manufacturing, the sharper the following contraction.

Aida Caldera, Mikkel Hermansen, Oliver Röhn, 19 September 2015

The Global Crisis and its high costs have revived interest in early warning indicators of economic risks. This column presents a new set of indicators to detect vulnerabilities and assess country-specific risks of suffering a crisis. The empirical evidence confirms the usefulness of the vulnerability indicators in warning of severe recessions and crises in OECD countries. But indicators are no silver bullet and should be complemented with other monitoring tools, including expert judgement.

Nicola Borri, Pietro Reichlin, 08 September 2015

Some argue that the increasing wealth-to-income ratios observed in many advanced economies are determined by housing and capital gains. This column considers the growing wealth-to-income ratio in an economy where capital and labour are used in two sectors: construction and manufacturing. If productivity in manufacturing grows faster than in construction – a ‘housing cost disease’ – it has adverse effects on social welfare. Concretely, the higher the appreciation of the value of housing, the lower the welfare benefit of a rising labour efficiency in manufacturing.

Pierre-Olivier Gourinchas, Maurice Obstfeld, 21 July 2015

What explains the different effects of the crisis around the world? This column compares the 2007–09 crisis to earlier episodes of banking, currency, and sovereign debt distress and identifies domestic-credit booms and real currency appreciation as the most significant predictors of future crises, in both advanced and emerging economies. It argues these results could help policymakers determine the need for corrective action before crises hit.

Joshua Aizenman, Menzie D. Chinn, Hiro Ito, 09 July 2015

Monetary policies of financial centre countries could have large spillover effects on smaller economies. This column argues that the strength of the links with the centre economies has been the major factor affecting financial conditions in emerging and developing countries. Open macro policies such as the exchange rate regime and financial openness are also important. An economy that pursues greater exchange rate stability and financial openness has a stronger link with the centre economies.  

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