Research

WORKING PAPERS:

• The Welfare and Distributional Consequences of Corporate Tax Cuts in Open Economies (with  Mamoon Kader, Hashmat Khan, and Minjoon Lee).  Resubmitted to the Journal of Money, Credit and Banking 

We develop an open-economy heterogeneous household model with incomplete markets to quantitatively evaluate the welfare and distributional effects—both within and across countries—of the recent corporate tax cut (Tax Cuts and Jobs Act, TCJA) in the U.S. The model allows for examining outcomes under various possibilities including the tax cut in the U.S. being permanent versus temporary and potential fiscal responses of other countries to the TCJA. We find that the TCJA is regressive in the U.S. and has relatively more regressive outcomes in other countries. Whether the wealth-poor in the U.S. benefit from the TCJA or not depends on the persistence of the tax cut. Finally, when a small country reduces its corporate tax in response to the TCJA, it has a progressive distributional result in its own economy.

• The Duration of Intermediate Exchange Rate Regimes and Capital Controls.

We perform a survival analysis of the policy composed of an intermediate exchange rate regime and a closed financial account. The analysis   is novel because it deals with the potential endogeneity between the two policies by analyzing the duration of the policy mix, estimate a multiple destinations model and control for unobserved heterogeneity. Financial development, inflation, per capita income, reserves, relative size, trade openness, election cycles, and the global acceptance of intermediate regimes and capital controls affect the duration of the policy mix. The evidence shows that a single destination model hides interesting factors affecting the duration of the policy mix.

• Investors' Strategic Behavior:  What Peg Should They Attack First (with Carlos Lopez).

The main objective of the paper is to shed light on two issues: i) where initial speculative attacks  are likely to be located; and ii) how  the viability of a peg is affected by  the strength of the fundamentals of other countries fixing their currency? To answer these questions we develop a model of speculative currency attacks  where two countries fix their currency to the U.S.  dollar and investors face noise in their signals about the relative strength of fundamentals across countries.  The model suggests that the country with the weakest fundamentals is more likely to come  first under a speculative attack. Moreover,  the model predicts that for some parameterizations  the probability of collapse of a peg raises when the fundamentals in the foreign economy strengthen so the vulnerability of the regime  depends not only on the underlying domestic fundamentals but also on the   foreign economic fundamentals. We also show that when private information is precise, investors react more  strongly to differences in the level of fundamentals.

• International Reserves in Emerging Markets: Is There Any Neighbor Effect?

 The amounts of international reserves held by emerging market economies rose in the 1990s and have resumed their growth after a decline during the most recent economic crisis. The increase in reserves has been attributed to a desire by these countries to "self-insure" themselves against financial shocks, such as those which occurred in East Asia in 1997. The rise in reserves may also be due to concerns of these countries about the size of their reserves relative to other similar countries. In this paper, we investigate the impact of the "neighbors'" stock of reserves on reserve holdings for a panel of countries during the period of 1980-2013. The hypothesis we test is whether the demand of stock of reserves of country i-th is affected by the stock of foreign reserves of similar countries.

• On the (In)Stability of Exchange Rate Regimes

The last twenty five year have seen far-reaching changes in the structure of the international monetary system. Emerging markets passed through a series of crises, leading some to adopt regimes of greater exchange rate flexibility and others to rethink the pace of capital account liberalization. Europe moved from the European Monetary System to the euro. In this paper a  rolling discrete choice analysis is proposed to understand how the proclivity to implement more or less flexible exchange rate arrangements has evolved since the collapse of the Bretton Woods System.

• Foreign Fundamentals and the Probability of a Domestic Financial Crisis

• Exchange Rate Regimes: Words vs deeds revisited

PUBLICATIONS:

•  Lopez-Suarez, Carlos F. and Razo-Garcia, Raul (2017) “Speculative Attacks in a Two-Peg Model,” Journal of International Money and Finance, Vol 70, pp. 234-256, February.

• Eichengreen, Barry J. and Razo-Garcia, Raul (2013) “How Reliable are De Facto Exchange Rate Regime Classifications?” International Journal of Finance and Economics,  18: 216–239 (also NBER Working Paper. No. 17318).  Click here for  link to published article.

• Joyce, Joseph and Razo-Garcia, Raul (2011) “Reserves, Quotas and the Demand for International Liquidity.”  The Review of International Organizations, Vol. 6, No. 3-4, pp. 393-413,                        September. Click here for link to published article.

• Razo-Garcia, Raul (2010). “Estimating the Effect of Exchange Rate Flexibility on the Financial Account Openness.”, in W. Greene (editor), Advances in Econometrics: Maximum Simulated Likelihood Methods and Applications, 26.

•  Eichengreen, Barry J. and Razo-Garcia, Raul (2006) "The international monetary system in the last and next 20 years" . Economic Policy, Vol. 21, Issue 47, pp. 393-442, July. Click here for link to published article.

•  Esquivel, Gerardo and  Razo-Garcia, Raul (2003). “Sources of Inflation in Mexico: A Multicausal Error Correction Model Approach ”, Estudios Economicos, Jul-Dic 2003. Click here for link to published article (in Spanish).