Nicolas E. Magud

International Monetary Fund · Western Hemisphere Department

The 2015 Paris Agreement requires all nations to combat climate change and to adapt to its effects. Countries promise to reduce their greenhouse gas (GHG) emissions through their Nationally Determined Contributions. Pledges to reduce emissions, however, have implications for economic growth. We estimate the link between economic growth and CO 2 pol...

We analyze the long-run impact of sovereign yields on corporate yields of the same country, finding that, for emerging markets, the average pass-through is around one. The pass-through is larger in countries with greater sovereign risk and where sovereign bonds are more liquid. The pass-through is also greater for corporate bonds with lower ratings...

We study the impact of exogenous terms‐of‐trade shocks in a large sample of small open economies. Using a panel vector autoregression, we estimate the response of domestic variables including the exchange rate, output, exports, imports, and domestic demand, allowing impulse responses to vary according to the de facto exchange rate regime. We find s...

We examine how cross‐firm and cross‐country heterogeneity shapes the responses of corporate investment in emerging markets to changes in U.S. monetary policy and financial‐market volatility, the latter proxying for uncertainty. We find that in response to increases in U.S monetary policy rates or financial‐market volatility, financially weaker firm...

The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what const...

We document a negative relation between the strength of the U.S. dollar and emerging markets' growth: when the dollar is strong, emerging markets' real GDP growth decreases-and vice versa. The main transmission channel is through (i) an income effect owing to the impact of the dollar on global commodity prices, and (ii) capital/production-inputs im...

We examine how firm-level and country-specific macroeconomic variables determine corporate investment in emerging markets. In particular, we investigate how investment decisions are affected by changes in country-specific commodity export prices, using firmlevel data from 38 emerging markets for the period 1990–2013. We show that in addition to the...

We use an overlapping generations model of a small open economy with perfect capital mobility to evaluate the long-term effects of pension reforms on output and net foreign assets. We compare reforms that achieve similar fiscal targets and show the existence of a tradeoff. Reforms that increase the retirement age have an expansionary effect on outp...

We study the process of external adjustment to large terms-of-trade level shifts—identified with a Markov-switching approach—for a large set of countries during the period 1960–2015. We find that adjustment to these shocks is relatively fast. Current accounts experience, on average, a contemporaneous variation of only about ½ of the magnitude of th...

We return to the traditional theme of the distributive consequences of international prices and trade policies, focusing on economies relatively abundant in natural resources with a large non-tradable-goods sector. Changes in international prices create an aggregate demand effect which impacts on the earnings of factors employed in the non-traded g...

Latin America’s central banks have made substantial progress towards delivering an environment of price stability that is supportive of sustainable economic growth. We review these achievements, and discuss remaining challenges facing central banking in the region. Where inflation remains high and volatile, achieving durable price stability will...

We document that, historically, although stronger growth in the U.S. increases growth in emerging markets, U.S. dollar appreciation (depreciation) cycles—which are highly persistent—mitigate (amplify) the impact on real GDP growth in emerging markets. We argue that the main transmission channel of the latter is through an income effect: as the doll...

We document that (i) although private investment growth in emerging markets has decelerated in recent years, it came down from cyclical highs and remains close to pre-crisis trends; and (ii) investment-to-output ratios generally remain close to or above historical averages. We show that investment is positively related to expect future profitabilit...

We examine how firm and country heterogeneity shape the response of corporate investment in emerging markets to changes in global interest rates and volatility. We test for the presence of (i) a financing channel originating from changes in the costs of external borrowing and (ii) a real options channel—reflecting firms’ option values to delay...

The prospects of expansionary monetary policies in the advanced countries for the foreseeable future have renewed the debate over policy options to cope with large capital inflows that are, at least partly, driven by low interest rates in the financial centers. Historically, capital flow bonanzas have often fueled sharp credit expansions in advance...

We document the behavior of macro and credit variables during episodes of capital inflows reversals in economies with different degrees of exchange rate flexibility. We find that exchange rate flexibility is associated with milder credit growth during the boom but, even though smaller than in more rigid regimes, it cannot shield the economy from a...

We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade s...

We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output,...

This paper estimates neutral real interest rate (NRIR) ranges for 10 Latin American countries that either have full-fledged inflation targeting regimes in place or have recently adopted them, using an array of methodologies commonly used in the literature. We find that NRIRs have declined in the last decade, with more economically and financially d...

In this note we summarize our recent paper, where we delved into the details of this apple-to-oranges problem with the aim of defining a minimum common ground. We begin our analysis by explicitly documenting the kinds of measures that are construed as capital controls. Along the way, we describe the more drastic differences across countries/episode...

We introduce non-tradable goods to the Heckscher-Ohlin-Samuelson (HOS) model to study the distributive effects of terms of trade shocks. We show that the employment of resources in activities producing exclusively for the local market induces a crucial association between domestic spending and factor demand and prices, which is absent in the usual...

This paper estimates the potential output (and the output gap) in Chile using several different methodologies. After a structural brake in 1998, the average growth rate of potential output in Chile declined from over 7 percent to 3-4 percent in the aggregate economy, but to less than 2 percent in the natural resource sector. The contributions to ag...

We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate m...

Using Chilean data, we document that for resource-rich small open economies the effects of terms of trade shocks on the wage gap (between skilled and unskilled workers) depend on factor intensities in the non-tradable sector, following the model in Galiani, Heymann, and Magud (2010). For a skilled-intensive non-tradable sector we show that improvem...

We introduce non-tradable goods to the Heckscher-Ohlin-Samuelson (HOS) model to study the distributive effects of terms of trade shocks. We show that the employment of resources in activities producing exclusively for the local market induces a crucial association between domestic spending and factor demand and prices, which is absent in the usual...

The paper analyzes the choice of an exchange rate regime for a small open economy indebted in foreign-currency, incorporating the financial accelerator. Conventional wisdom suggests that floating regimes should insulate the economy from real shocks. I show that this result depends on the degree of openness of the economy and foreign-currency indebt...

An investment model with informational frictions and uncertainty is developed to capture the asymmetric dynamics of business cycles. When hit by a negative shock, the economy responds differently, in both size and recovery length, than when hit by a positive shock. In the model, the role for fiscal policy in smoothing the effects of business cycles...

The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what const...

In choosing an exchange rate regime for a small open economy, the common wisdom (Friedman (1953), Meade (1950)) calls for a °oating regime to outperform a peg because of the ability of the former to cope with relative price changes without major output effects. With balance sheet effects in mind, doubts have been raised about it, though. I test fo...

The paper shows the following non-monotonic relation: export volatility explains output volatility for relatively more open economies, whereas investment volatility does it for the relatively more closed ones. Also, financial development cum trade openness reduce the volatility of output. Investment volatility plays a more important role for high i...