Menzie D. Chinn

• Ph.D., U.C., Berkeley
• Professor at University of Wisconsin–Madison

We nowcast world trade using machine learning, distinguishing between tree-based methods (random forest, gradient boosting) and their regression-based counterparts (macroeconomic random forest, gradient linear boosting). While much less used in the literature, the latter are found to outperform not only the tree-based techniques, but also more “tra...

We nowcast world trade using machine learning, distinguishing between tree-based methods (random forest, gradient boosting) and their regression-based counterparts (macroeconomic random forest, gradient linear boosting). While much less used in the literature, the latter are found to outperform not only the tree-based techniques, but also more “tra...

We nowcast world trade using machine learning, distinguishing between tree-based methods (random forest, gradient boosting) and their regression-based counterparts (macroeconomic random forest, linear gradient boosting). While much less used in the literature, the latter are found to outperform not only the tree-based techniques, but also more “tra...

Over the years, policymakers have explored various combinations of varying degrees of monetary policy independence, exchange rate stability, and financial openness while recognizing that not all three policies can be achieved to the fullest extent – the “monetary trilemma” hypothesis. In recent years, holding international reserves (IR) has become...

We examine the effect of uncertainty on foreign direct investment inflows for advanced, emerging market and developing countries over a 25‐year long (pre‐Covid) sample. Using a push‐pull framework, and controlling for both global and local factors, we find policy uncertainty has discernable and significant effects on inflows, varying in strength an...

We re-examine the historically common finding that ex post depreciation and the forward premium are negatively correlated, usually termed the forward premium puzzle. When covered interest differentials are zero, this finding is equivalent to the rejection of the joint hypothesis of uncovered interest parity (UIP) and full information rational expec...

Do central banks rebalance their currency shares? The answer matters because the dollar’s predominant role in large official reserve holdings means that widespread rebalancing requires central banks to buy (sell) a depreciating (appreciating) dollar, stabilising its value against other major currencies. We hypothesise that larger reserve holdings h...

Global current account imbalances have reappeared, although the extent and distribution of these imbalances are noticeably different from those experienced in the middle of the last decade. What does that recurrence mean for our understanding of the origin and nature of such imbalances? Will imbalances persist over time? Informed by empirical estim...

We estimate the impact of the extensity of macroprudential policies on the correlation of the policy interest rates between the center economies (CEs, i.e., the U.S., Japan, and the Euro area), and the peripheral economies (PHs). We find a more extensive implementation of macroprudential policies would lead PHs to (re)gain monetary independence fro...

Previous assessments of nominal exchange rate determination, following Meese and Rogoff (1983) have focused upon a narrow set of models. Cheung et al. (2005) augmented the usual suspects with productivity based models, and “behavioral equilibrium exchange rate” models, and assessed performance at horizons of up to 5 years. In this paper, we further...

Relying upon a standard New Keynesian DSGE, we propose an explanation for two empirical findings in the international finance literature. First, the unbiasedness hypothesis — the proposition that expost exchange rate depreciation matches interest differentials — is rejected much more strongly at short horizons than at long. Second, even at long hor...

We investigate the robustness of the Penn effect—the finding that the price level is higher in countries with a higher per capita income—over different samples, measures, and specifications. Testing for the Penn effect has been hampered by the imprecision of the price measures, so that use of different versions of the data set can lead to substanti...

Uncertainty shocks originating in emerging markets or stemming from specific policies in advanced economies can have major repercussions for the global economy. It is important to invest in studying the issues of uncertainty in an open economy, as certain key variables of the global economy (such as capital flows and exchange rates) appear especial...

We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investiga...

Throughout their long history, the primary concern of central banks has oscillated between price stability in normal times and financial stability in extraordinary times. In the wake of the recent global financial crisis, central banks have been given additional responsibilities to ensure financial stability, which has sparked intense debate over t...

We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of countries' financial variables to the center economies [policy...

The authors examine Chinese-US trade flows over the 1994–2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while imports respond positively. Further, the combined price effects on exports and imports imply an increase in the real value of...

Based on a dataset of 112 emerging economies and developing countries, this paper addresses the question whether the accumulation of international reserves has effectively protected countries during the 2008–09 financial crisis. More specifically, the paper investigates the relation between international reserves and the existence of capital contro...

It is most likely that the current reserve currencies will retain their status in the near future, given the persistence in the composition of reserve holdings. However, since we do not have complete data on the switchovers in lead reserve currencies, a great deal of uncertainty attends any forecasts. Hence, it is possible that new reserve currenci...

Based on a dataset of 112 emerging economies and developing countries, this paper addresses two key questions regarding the accumulation of international reserves: first, has the accumulation of reserves effectively protected countries during the 2008-09 financial crisis? And second, what explains the pattern of reserve accumulation observed during...

We investigate the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Based o...

This study investigates the determinants of currency choice for trade invoicing in a cross-country context while focusing on the link between capital account liberalization and its impact on the use of the renminbi (RMB). The authors find that while countries with more developed financial markets tend to invoice less in the US dollar, countries wit...

The special challenges faced by central banks in emerging market economies in conducting monetary policy are examined. In addition to sharing the same problems confronted by their counterparts in advanced economies – including most profoundly time inconsistency and model uncertainty – they encounter more shocks emanating from the external environme...

It is most likely that the current reserve currencies will retain their status in the near future, given the persistence in the composition of reserve holdings. However, since we do not have complete data on the switchovers in lead reserve currencies, a great deal of uncertainty attends any forecasts. Hence, it is possible that new reserve currenci...

Global imbalances are defined. Several explanations for the development of large current account deficits and surpluses in key economies during the period after 1997 are discussed, including the saving–investment approach, the intertemporal approach, mercantilism and the Bretton Woods II hypothesis, and the global saving glut view. A discussion of...

This paper aims at investigating the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear Okun’s law based on a smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run inst...

The concept of fiscal multipliers is examined, in the context of the major theoretical approaches. Differing methods of calculating multipliers are then recounted (structural equations, VAR, simulation). The sensitivity of estimates to conditioning on the state of the economy (slack, financial system) and policy regimes (exchange rate system, monet...

The concept of fiscal multipliers is examined in the context of the major theoretical approaches. Differing methods of calculating multipliers are then recounted (structural equations, VAR, simulation). The sensitivity of estimates to conditioning on the state of the economy (slack, financial system) and policy regimes (exchange rate system, moneta...

This chapter reviews a number of models of exchange rate developed during the post-Bretton Woods era with special attention to two major strands of models that dominated the literature: the monetary and portfolio balance approaches. The approaches are broken down into categories of nominal and real exchange-rate models, with particular reference to...

We review the evidence for both short and long horizon uncovered interest parity (UIP) and rational expectations over the period up to 2011, extending the sample examined in Chinn and Meredith (2004) by nearly a decade. We find that the joint hypothesis of UIP and rational expectations (known as the unbiasedness hypothesis) holds better at long hor...

We find that Chinese trade flows respond to economic activity and relative prices - as represented by a trade weighted exchange rate - but the relationships are not always precisely or robustly estimated. Chinese exports are generally well-behaved, rising with foreign GDP and decreasing as the Chinese renminbi (RMB) appreciates. However, the estima...

We find that Chinese trade flows respond to economic activity and relative prices - as represented by a trade weighted exchange rate - but the relationships are not always precisely or robustly estimated. Chinese exports are generally well-behaved, rising with foreign GDP and decreasing as the Chinese renminbi (RMB) appreciates. However, the estima...

With the outlook for continued US budget deficits and growing debt – and the uncertainties regarding their financing – we examine the role of foreign official holdings of US Treasury securities in determining Treasury security interest rates, and the resulting implications for international portfolio allocations, net international income flows and...

We propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the Evans-Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on interdealer order flow on dollar/euro and dollar/yen. The augmented macroeco...

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The behavior of the South African rand is modeled using a monetary model of the exchange rate. The assumptions underlying the monetary approach are discussed in the context of the conditions prevailing in the South African economy. A cointegrating relationship involving the exchange rate, money stocks, industrial production and inflation rates is i...

This paper presents a model of international trade in which heterogeneous firms can expand through capital acquisitions. I show that demand elasticities are a crucial element in predicting which firms invest, in what location, and for what reason. High productivity firms, who tend to sell goods at a low elasticity, invest for market access (tariff...

No abstract available.

China’s currency, the renminbi (RMB), has occupied a central role in the debate over the sources of global imbalances. As policymakers around the globe seek to establish the foundation for a sustained recovery from the world’s most serious financial crisis in over 70 years, the pressure on the Chinese currency regime continues to mount. Nevertheles...

This chapter examines how trilemma choices affect macroeconomic performance with focus on the Asian economies, and finds that these choices matter for output volatility and medium-term inflation, but do not matter for economic growth. Greater monetary independence is associated with lower output volatility while greater exchange rate stability impl...

We propose an exchange rate model which is a hybrid of the conventional specification with monetary fundamentals and the Evans-Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on inter-dealer order flow on dollar/euro and dollar/yen. The augmented macroe...

In contrast to industrialized countries, emerging market economies are characterized by pro-or acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy -namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of...

We re-examine the determinants of current account balances applying updated data to the framework based on Chinn and Ito (2007). The main purpose of this study is to examine whether the determinants of global current account balances changed during the period preceding the global crisis of 2008-09 while inquiring into the prospects for the global i...

The author defines global imbalances and discusses explanations for the development of large current account deficits and surpluses in key economies after 1997. He includes the saving-investment approach, the intertemporal approach, mercantilism and the Bretton Woods II hypothesis, and the global saving glut view. A discussion of the literature lin...

This paper looks into the relationship between financial globalization and China's economic development. The authors suggest that China may need to reform its financial institutions and systems to accommodate more market mechanisms in the allocation of capital.

The value of China’s currency, the renminbi (RMB), and the conduct of China’s exchange rate policy have generated intense debate in academic and international policy circles. Despite the accumulation of empirical evidence regarding the degree of RMB misalignment over the past few years, the debate continues unabated. In this study, we highlight the...

This paper examines the potential role for foreign official holdings of U.S. Treasury securities and the associated implications for Treasury security interest rates, international portfolio allocations, net international income flows, and the U.S. net international debt position, using a baseline outlook of current and projected U.S. budget defici...

This paper investigates how the trilemma policy mix affects economic performance in developing countries. We find that greater monetary independence can dampen output volatility, while greater exchange rate stability is associated with greater output volatility, which can be mitigated by reserve accumulation; greater monetary autonomy is associated...

This paper extends our previous paper (Aizenman, Chinn, and Ito 2008) and explores some of the unexplored questions. First, we examine the channels through which the trilemma policy configurations affect output volatility. Secondly, we investigate how trilemma policy configurations affect the output performance of the economies under severe crisis...

Using the "trilemma indexes" developed by Aizenman et al. (2010) that measure the extent of achievement in each of the three policy goals in the trilemma--monetary independence, exchange rate stability, and financial openness--we examine how policy configurations affect macroeconomic performances, with focus on the Asian economies. We find that the...

This paper examines the relationship between spot and futures prices for a broad range of commodities, including energy, precious and base metals, and agricultural commodities. In particular, we examine whether futures prices are (1) an unbiased and/or (2) accurate predictor of subsequent spot prices. While energy futures prices are generally unbia...

Using panel data for 161 countries, we explore the determinants of cross-country disparities in personal computer and Internet penetration. We find evidence indicating that income, human capital, the youth dependency ratio, telephone density, legal quality, and banking sector development are associated with technology penetration rates. Estimates f...

In recent years, there has been renewed interest in the yield curve (or alternatively, the term premium) as a predictor of future economic activity. In this article, we re-examine the evidence for this predictor for both the United States and other advanced economies. We examine the sensitivity of the results to the selection of countries, and to t...

The authors re-orient the discussion of currency misalignment back toward theory and empirics. They set forth a typology of modeling approaches to assess misalignment to highlight the difficulties in theoretically defining the "real" exchange rate and in quantifying the extent of deviations from equilibrium in practice. They also recap recent estim...

Using the “trilemma indexes” developed by Aizenman et al. (2008) that measure the extent of achievement in each of the three policy goals in the trilemma—monetary independence, exchange rate stability, and financial openness—this paper examines how policy configurations affect macroeconomic performances with focus on the Asian economies. We find th...

This paper examines the relationship between spot and futures prices for commodities, including those for energy (crude oil, gasoline, heating oil markets and natural gas), precious and base metals (gold, silver, aluminum, copper, lead, nickel and tin), and agricultural commodities (corn, soybean and wheat). In particular, we examine whether future...