December 2024
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8 Reads
Journal of Development Economics
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December 2024
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8 Reads
Journal of Development Economics
November 2024
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1 Read
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1 Citation
Margin The Journal of Applied Economic Research
We assess India’s inflation-targeting regime at the eight-year mark. The Reserve Bank of India continues to be a flexible inflation targeter: it responds to both the output gap and inflation when setting policy rates. It has become neither more hawkish nor more reactive with the transition to inflation-targeting. Evidence points to improved outcomes: inflation is lower and less volatile, inflation expectations are better anchored and the transmission of monetary policy is more effective. Given this record, radical changes such as broadening the RBI’s monetary mandate, abandoning the target in favour of a more discretionary regime, targeting core instead of headline inflation or altering the target and tolerance band would be risky and counterproductive. One obvious area for improvement entails updating the weight of food prices in the CPI basket. We estimate the correct weight of food at today’s per capita income to be closer to 40 per cent instead of the current 45.8 per cent. This would likely fall further to around 30 per cent in a decade from now due to the projected increase in per capita incomes. This correction should ameliorate concerns about the design and practice of the current inflation targeting regime. JEL Codes: E5, E52
July 2024
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15 Reads
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15 Citations
International Finance
It is widely assumed that the renminbi (RMB) cannot acquire a meaningful place in central bank reserve portfolios without full liberalization of China's capital account. We argue that the RMB can in fact develop into an international reserve currency in the absence of capital‐account convertibility. Trade and investment links can drive use despite limited access to Chinese financial markets. But this route to currency internationalization requires policy support. China must provide access to RMB through loans and the People's Bank of China (PBoC) currency swaps. It must ensure the convertibility of RMB into US dollars in offshore markets. It must provide RMB services at a stable and predictable price. Currency internationalization without full capital‐account liberalization thus requires the RMB to be backed by dollar reserves, which the PBoC consequently will continue to hold and use. Hence, we do not foresee RMB internationalization as supplanting dollar dominance.
April 2024
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34 Reads
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6 Citations
Economic Modelling
March 2024
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2 Reads
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1 Citation
Brookings Papers on Economic Activity
Reducing high public debt is key for countries seeking to restore fiscal capacity and resilience in the wake of recent crises. But large debt reductions are rare. Jamaica stands out for reducing its debt from 144 percent of GDP to 72 percent over the last decade, a record achieved by running large, persistent primary budget surpluses. Well-designed fiscal rules combined with social partnership agreements making for fiscal ownership are at the root of its achievement.
January 2024
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1 Read
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2 Citations
SSRN Electronic Journal
January 2024
SSRN Electronic Journal
December 2023
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5 Reads
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1 Citation
Margin
Emerging markets and developing economies are currently facing major challenges from global shocks, including a slowdown in global growth; food and energy price increases; decline in risk appetite of international investors; unsustainable debts in low-income countries; and ongoing climate risks. National policies have not sufficed to meet these challenges. Efforts at the national level must be complemented by changes in the global economic and financial architecture designed to make the world a safer place. In this article, we focus on the financial aspects of such reforms. The financial agenda as we see it has seven key elements: (i) reform of central bank swap lines, (ii) reform of IMF-contingent credit lines, (iii) SDR reallocation, (iv) reform of credit rating agencies, (v) creation of currency hedging instruments, (vi) inclusion of climate-resilient debt clauses in new debt instruments and (vii) steps to streamline the debt restructuring process. We detail this agenda and urge the G20 members to implement the recommended measures. JEL Codes: E44, E58, E61, F34, F36, F38
December 2023
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10 Reads
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12 Citations
The Economic Journal
Epidemic exposure in an individual's “impressionable years” (ages 18 to 25) has a persistent negative effect on confidence in political institutions and leaders. This loss of trust is associated with epidemic-induced economic difficulties, such as lower income and unemployment later in life. It is observed for political institutions and leaders only and does not carry over to other institutions and individuals. A key exception is a strong negative effect on confidence in public health systems. This suggests that the distrust in political institutions and leaders is associated with the (in)effectiveness of a government's healthcare-related response to epidemics. We show that the loss of political trust is largest for individuals who experienced epidemics under weak governments with low policymaking capacity, and confirm that weak governments in fact took longer to introduce policy interventions in response to COVID-19. We report evidence that the epidemic-induced loss of political trust discourages electoral participation in the long term.
November 2023
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36 Reads
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11 Citations
Economic Policy
We test the predictions of recent theoretical studies of the impact of sanctions on the exchange rate. We build a database of exchange rates and sanctions spanning 1914–45 – an era when both large and small economies were targeted by multilateral sanction packages, facilitating comparisons with today’s Russian war episode. We estimate the dynamic response of the exchange rate in a panel of sanction episodes at weekly frequency using local projections, conditioning on the type of sanctions taken. We tease out mechanisms through which sanctions affect the exchange rate by estimating their effects on macroeconomic variables plausibly acting as transmission channels. Our estimates suggest that import restrictions, export restrictions, asset freezes and trade embargoes lead to exchange rate effects consistent with theory, though the precision of the measured effects varies across sanction type. These findings suggest that recent models of the effects of sanctions on the exchange rate do not just match developments in today’s specific Russia episode but have broader applicability. It follows that the direction of exchange rate movements is not an adequate metric of the success or failure of sanctions but a reflection of the type and scale of the measures taken.
... Fiscal consolidation is needed to reduce fiscal-monetary tensions, although its implementation may be limited by political economy constraints. As discussed by several authors (for example, Alesina, et al., 1998;Price, 2010;and Arslanalp et al., 2024), political economy considerations could play an important role in affecting countries' debt dynamics. Arslanalp et al.'s case study of Jamaica's sustained debt reduction could be relevant to the current period given Jamaica's then high inherited debt and unfavorable interest-growth dynamics. ...
March 2024
Brookings Papers on Economic Activity
... In order for foreign holders to have motivation and security to hold financial assets denominated in yuan, the offshore market for RMB and the swap lines of the PBoC are of crucial importance (the swap lines create confidence that liquidity in yuan can always come from the PBoC, while the offshore market assures reserve managers of central banks and other investors to be able to convert the RMB holdings into dollars at predictable rates if needed). Thus, with the help of import financing, debt payments, payment infrastructure, currency exchange lines and offshore markets, the RMB could play a more significant global role (Naef et al., 2022). ...
Reference:
Is De-Dollarization Inevitable?
July 2024
International Finance
... When these rules are reinforced by strong institutions, and paired with fiscal councils and sovereign wealth funds, they can enhance resilience to external shocks, increase fiscal space for growthenhancing policies, boost fiscal discipline, and reduce debt (IMF 2019). The reforms needed to establish such frameworks, rules, and institutions are likely to require buy-in and support from stakeholders, which are potentially more achievable in small states (Arslanalp, Eichengreen, and Henry 2024). Fiscal rules, along with welldesigned macroeconomic policies, can also boost growth of GDP per capita, particularly in commodity-exporting countries, by reducing the volatility of fiscal policy (World Bank 2024b). ...
January 2024
SSRN Electronic Journal
... Thus, fiscal stability is essential for the government's ability to respond to economic shocks without compromising long-term fiscal health (Rao et al., 2023). The effectiveness of fiscal policy in enhancing economic resilience varies across countries and is influenced by factors, such as trade openness, financial development, and government size (Afonso and Carvalho, 2022;Eichengreen et al., 2024). ...
Reference:
Macroeconomic Stability Modelling
April 2024
Economic Modelling
... In the absence of a major environmental shock (in the sense of the technological, institutional, geopolitical and governance variables), Dollar dominance in the IMS core is likely to be assured (Ilzetzki et al. 2022(Ilzetzki et al. , 2019Ito and McCauley 2019). This does not rule out a place for regional currencies, notably the Euro in the IMS core, with a truly multipolar system remaining unlikely (Eichengreen et al. 2022). As regards IMS distances, digital currency(ies) likely based on the Dollar could reduce transaction costs in currencies by improving interoperability (Brunnermeier et al. 2019). ...
November 2023
Economic Policy
... Divergent findings have emerged from this area of academic inquiry. Our findings, which show a decrease in trust, are consistent with the few studies that examine the impact of similar shocks, such as a pandemic on trust (Bottasso et al., 2022;Li et al., 2021), the negative effects of the Spanish flu on social trust (Aassve et al., 2021), and the negative impact of prior exposure to epidemics on individual confidence in government (Eichengreen et al., 2024). In contrast, studies have shown that COVID-19 lockdown measures positively affect government trust (Bol et al., 2021). ...
December 2023
The Economic Journal
... These sanctions have encouraged a shift away from the US dollar, with gold emerging as a preferred alternative. Arslanalp et al. (2023) analyse data from 144 countries using a Tobit model and found that sanctions imposed by the US, EU, UK, or Japan are associated with a two-percentage-point increase in gold reserve shares. ...
September 2023
Journal of International Economics
... China and the US are locked in what can only be called a new Cold Waran intense security competition that touches on every dimension of their relationship (Eichengreen 2023). This rivalry will test US policymakers more than the original Cold War did, as China is a more powerful competitor than the Soviet Union was in its prime because of its economic strength (Mearsheimer 2021). ...
September 2023
The Economists' Voice
... Buterin et al. (2024) proposed an automated privacyenhancing protocol to prove that the users' assets were received from lawful sources. Additionally, Eichengreen, Nguyen, and Viswanath-Natraj (2023) suggest that real-time audits could effectively mitigate the threat of stablecoin devaluation. ...
January 2023
SSRN Electronic Journal
... Геополитические риски, включая международную политическую нестабильность и конфликты, оказывают сильное влияние на стратегии управления ресурсами стран. После падения золотые запасы центральных банков развитых стран выросли в несколько раз [3]. В третьем квартале 2022 г. мировые центральные банки добавили золото на 20 млрд долл. ...
January 2023
IMF Working Paper