FORMAT: Each presenter will have 40 minutes. Each discussant will have 15 minutes. There will be 5 minutes for the presenter to respond to the discussion.
Friday, October 13
The High Frequency Effects of Dollar Swap Lines
We study the role of firm heterogeneity for economic transmission in open economies. Using firm-level data from a panel of emerging markets, we document that increases in the global price of risk are followed by heterogeneous investment dynamics, with contractions for risky firms and expansions for risk-free firms. By developing a quantitative heterogeneous-firm open economy model, we show that these cross-sectional empirical patterns can be explained by the presence of indirect channels that mitigate the negative response to external shocks. We use the model to assess macroeconomic transmission during external crises and sudden stops. Our findings indicate that allowing the exchange rate to depreciate during downturns plays a stabilizing role, by reducing risk exposure and facilitating the reallocation of economic activity across firms through larger relative price adjustments.
Information Frictions and News Media in Global Value Chains
The Geography of Capital Allocation in the Euro Area
We use historical data and a calibrated model of the world economy to study how a synchronous tightening of monetary policy can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.
This paper examines the economic impact of the U.S. financial sanctions against Russian companies in the aftermath of Russia’s 2014 annexation of Crimea. It shows that this sanctions program, which primarily cut off sanctioned firms’ access to international financial markets, produced the unintended consequence of strengthening the sanctions targets relative to their unsanctioned peers. Specifically, while the policy successfully halted new international borrowings by sanctioned companies, the spillover impact of the policy resulted in these targets shrinking in size by less than unsanctioned Russian firms. To explain these results, I argue that sanctions led to a reallocation of domestic resources in favor of sanctioned firms. I present a heterogeneous firm model with segmented capital markets and a borrowing constraint in which sanctions against international borrowers led to capital crowding out and credit rationing among domestic borrowers. This research highlights the limitation of targeted sanctions, identifies factors for policymakers to consider in calibrating future programs, and analyzes policy alternatives. It also offers insights for the 2022 sanctions and sheds light more broadly on the impact of international financial integration and capital flows on firm size dynamics.