Asset pledgeability and international transmission of financial shocks

Trani, Tommaso

doi:10.1016/j.jimonfin.2014.09.002

Cited by 5 publications

(9 citation statements)

References 32 publications

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“…We also report cross-country correlations of output and consumption. We compare our results to findings in Trani (2015), Coeurdacier et al (2010), and Backus et al (1992), as all of these papers used variants of the international real business cycle model. Overall, we find that simulated results predicted by our model are close to the data for some variables.…”

Section: International Business Cycle Momentsmentioning

confidence: 95%

“…The standard deviation of the shock is set to 0.00852 and the correlation between the two countries is equal to 0.258. As in Trani (2015), the coefficient of persistence for the borrowing capacity shocks ( 𝜌 𝛾 ) is equal to 0.865. The values of the standard deviation for the borrowing shock are equal to 0.819%.…”

Section: Parameter Valuesmentioning

confidence: 99%

“…For illustration purposes, the coefficient measuring the responsiveness of macroprudential policies, 𝜙 b , is equal to 0.5 in all countries. As in Trani (2015), the steady state of the LTV ratio and the capital adjustment cost parameters are equal to 0.75 and 0.3283, respectively. Following Benhabib et al (1991), we set the share of capital used by savers to produced domestic good 𝜔 at 0.08.…”

Section: Parameter Valuesmentioning

confidence: 99%

“…All variables are logged and detrended using a Hodrick-Prescott (HP) filter (the smoothing parameter is equal to 1600). The international correlations are from Trani (2015) in table 2 using cross-country correlation of G7 countries. The net foreign asset value is reported by Coeurdacier et al (2010) in table 3.…”

Section: Notementioning

confidence: 99%

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The impact of macroprudential policies on the transmission of shocks across financially integrated countries

Intungane

2022

Rev International Economics

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We study the implications of macroprudential policies across countries on the transmission of shocks when international investment activities are allowed. In a two‐country dynamic stochastic general equilibrium (DSGE) model in which international investors are borrowing constrained and pledge international assets, we introduce a time‐varying loan‐to‐value (LTV) ratio that adjusts to the variation of three different financial vulnerability indicators. We examine the effect of these policies on negative productivity and borrowing capacity shocks. Although time‐varying LTV ratios reduce the international propagation of the productivity shock, their response to the shock depends on the financial vulnerability indicator with which the LTV ratio changes. With a productivity shock, the adjustment of the LTV ratio to the deviation of credit or asset price helps to reverse the negative impact of the shock. With a financial shock, LTV ratios varying with a deviation of credit‐to‐GDP ratio or aggregate credit can mitigate the impact of a negative financial shock. Adjustment of the LTV ratios reduces the fluctuation of international investors' balance sheets, investment, and productivity. We find that countries improve their welfare when time‐varying LTV ratios are in place. The magnitude of the welfare gain differs with both the financial vulnerability indicator and the shock.

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Section: International Business Cycle Momentsmentioning

confidence: 95%

Section: Parameter Valuesmentioning

confidence: 99%

Section: Parameter Valuesmentioning

confidence: 99%

Section: Notementioning

confidence: 99%

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The impact of macroprudential policies on the transmission of shocks across financially integrated countries

Intungane

2022

Rev International Economics

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“…Throughout our experiments we assume that this relationship holds with equality. 27 Distinguishing assets of different countries in a setting with banks à laGertler and Karadi (2011) by their pledgeability, goes back toTrani (2015). In the closed economy context, Gertler…”

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confidence: 99%

US Trade Policy and the US Dollar

Khalil

Strobel

2021

SSRN Journal

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Research QuestionIn 2018 and 2019, the USA imposed additional import tariffs on Chinese goods. We investigate the extent to which the effect on US (post-tariff) import prices was offset by the concurrent appreciation of the US dollar. In addition, we ask whether US trade policy itself triggered the US dollar appreciation. ContributionWe show that the exchange rate response to a trade policy uncertainty shock is key to assessing the overall impact of trade policies. We identify trade policy uncertainty shocks as well as tariff rate shocks within a structural vector autoregressive (SVAR) model of the US economy. In this framework, we investigate the appreciation of the USD during the height of the trade conflict. We then build an open economy New Keynesian model featuring financial frictions in banks' asset holdings to trace out the channels underlying the link between uncertainty regarding future trade policy and the US dollar. Moreover, we assess the relevance of the induced USD appreciation in 2018 and 2019 for import prices of Chinese products in order to address the question of whether the effects of tariff hikes were (partly) offset. ResultsWe find that increases in trade policy uncertainty were the main driver in the USD appreciation in 2018/2019. The theoretical model rationalizes this finding with an increase in the relative demand for safe US assets by risk-averse investors in face of increased trade policy uncertainty. With regard to offsetting effects, we find that Chinese exporters react to a USD appreciation by markedly lowering their US dollar-denominated export prices. This holds in particular for intermediate goods exporters, who had been the main focus of new tariffs. Overall, our results suggests that the trade policy-induced share of the US dollar appreciation in 2018/2019 offset a sizable part of the tariff increase on post-tariff import prices.

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US trade policy and the US dollar

Khalil,

Strobel

2024

Journal of International Economics

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Asset pledgeability and international transmission of financial shocks

Cited by 5 publications

References 32 publications

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

US Trade Policy and the US Dollar

US trade policy and the US dollar

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