Rui Mano - Papers

Journal Publications

Foreign Exchange Intervention: A Dataset of Public Data and Proxies (with G. Adler, K. S. Chang and Y. Shao), 2025, Journal of Money, Credit and Banking, Volume 57 (5), pp. 1241-1273 [Published Paper] [IMF working paper] [Data]

Abstract: A better understanding of foreign exchange intervention (FXI) is often hindered by the lack of data. This paper provides a new dataset of FXI covering a large number of countries over the period 2000-22 at monthly and quarterly frequencies. It includes published official data for about 40 countries as well as carefully constructed estimates for 122 countries. Estimates account for a wide range of central bank operations, including both spot and derivative transactions. These estimates improve upon traditional proxies based on changes in reserves, by adjusting for valuation changes, income flows, and changes in other foreign-currency balance sheet positions (both vis-à-vis residents and non-residents)—the first estimates to do the latter to our knowledge—thus providing a more accurate measure of operations that change the central bank’s foreign currency position. The dataset also provides a classification of FXI operations into sterilized or not sterilized, a key dimension for economic analysis. Finally, the paper discusses the merits of the new estimates relative to traditional proxies, and presents stylized facts.

Do FX Interventions Lead to Higher FX Debt? Evidence from Firm-Level Data (with Minsuk Kim and Mico Mrkaic), 2024, Journal of International Money and Finance, Volume 148, 103160 [Published Paper] [IMF working paper]

Abstract: Central banks often buy or sell reserves—so called FX interventions (FXIs)—to dampen sharp exchange rate movements caused by volatile capital flows. At the same time, these interventions may entail unintended side effects. In this paper, we investigate whether FXIs incentivize firms to take on more unhedged FX debt, thereby increasing medium-term corporate vulnerabilities. Using a novel dataset with close to 5,000 nonfinancial firms across 19 emerging markets covering 2002–2017, we find that the firm-level share of FX debt rises following intensive use of FXIs, particularly for non-exporting firms in shallow financial markets with no FX debt to begin with. The magnitude of this effect is economically significant, with one standard deviation increase in the intensity of FXI leading to an average 2 percentage points increase in the FX debt share. For reference, the median share of FX debt in the sample is zero.

The Wage Phillips Curve under Labor Market Power (with A. Burya, Y. Timmer and A. Weber), 2023, AEA Papers and Proceedings, Volume 113, pp. 110-13 [Published Paper]

Abstract: To shed light on potential linkages between labor market power and the trade-off between unemployment and wages, this paper uses a highly disaggregated dataset of 250 million online vacancy postings in the United States from Lightcast (formerly Burning Glass Technologies). Labor market power is measured by the Herfindahl-Hirschman index (HHI) of vacancies in a commuting zone and is found to be more prevalent in less densely populated rural areas, where average incomes tend to be lower and job seekers have fewer employers to choose from. We estimate the Phillips curve at the commuting zone level and exploit regional variation in the degree of labor market power. The relationship between unemployment and wage inflation is found to be very weak across regions with high labor market power. These empirical findings are consistent with a dynamic monopsony search-and-matching model where firms can increase hiring by either offering higher wages or posting more vacancies (Manning 2006). Hence, in regions where firms have a large degree of labor market power, they face less competition and can hire workers without having to raise wages as much, which weakens the relationship between employment and changes in wages and therefore leads to a flatter wage Phillips curve. Using these insights, we conclude by laying out potential implications, particularly on income polarization, of the ongoing monetary policy tightening of the Federal Reserve in light of the existing pattern of labor market power across US regions.

Mask Mandates Save Lives (with N-J. Hansen), 2023, Journal of Health Economics, Volume 88, 102721, [Published Paper] [IMF working paper] [VoxEU]

Abstract: We quantify the effect of mask mandates in the United States. Our regression discontinuity design exploits county-level variation in COVID-19 cases, hospital admissions, and deaths across the border between states with and without mandates. We find a significant and substantial effect—mask mandates reduced new weekly COVID-19 cases, hospital admissions, and deaths by 55, 11 and 0.7 per 100,000 inhabitants on average. Crucially, we find that the effect of mask mandates depends on the attitudes toward mask wearing at the county level, with larger effects in counties more positively inclined towards mask wearing. Our results imply that mandates saved 87,000 lives through December 19, 2020, while a nationwide mandate could have saved 58,000 additional lives. These large effects suggest that mask mandates are a crucial tool to counter pandemics, particularly if accepted widely by the population. Our results are thus also relevant for countries who will not be able to immunize large swaths of their population in the short term.

COVID-19 Vaccines: A Shot in Arm for the Economy (with N-J. Hansen), 2023, IMF Economic Review, Volume 71, pp. 148-169 [Published Paper] [IMF working paper] [VoxEU]

Abstract: We quantify the effect of vaccinations on economic activity in the United States using weekly county level data covering the period end-2020 to mid-2021. Causal effects are identified through instrumenting vaccination rates with county-level pharmacy density interacted with state-level vaccine allocations, and by including county and state-time fixed effects to control for unobserved factors. We find that vaccinations are a significant and substantial shot in the arm of the economy. Specifically, spending rises by 1.3 percentage points (relative to the average spending during January 2020) in response to a 1 percentage point increase in initiated vaccination rates. Initial unemployment decreases by 0.009 percentage points of the 2019 labor force over the same time horizon. Vaccinations also increase workplace mobility. Urban counties and counties with initially worse socioeconomic conditions and lower education levels exhibit larger effects of vaccinations.

The Cost of FX intervention: Concepts and Measurement (with Gustavo Adler), 2021, Journal of Macroeconomics, Volume 67, 103045. [Published Paper] [SSRN] [IMF working paper]

Abstract: The accumulation of large foreign asset positions by many central banks through sustained foreign exchange (FX) intervention has raised questions about its associated fiscal costs. This paper clarifies conceptual issues regarding how to measure these costs both from an ex-post and an ex-ante (relevant for decision making) perspective, and estimates both marginal and total costs for 73 countries over the period 2002-13. We find ex-ante marginal costs for the median emerging market economy (EME) in the inter-quartile range of 2-5.5 percent per year; while ex-ante total costs (of sustaining FX positions) in the range of 0.2-0.7 percent of GDP per year for light interveners and 0.3-1.2 percent of GDP per year for heavy interveners. These estimates indicate that fiscal costs of sustained FX intervention (via expanding central bank balance sheets) are not negligible.

Real Exchange Rate and External Balance: How Important Are Price Deflators? (with JaeBin Ahn and Jing Zhou), 2020, Journal of Money, Credit and Banking, Volume 52, Issue 8, pp. 2111-2130. [Published Paper] [SSRN] [IMF working paper]

Abstract: This paper contrasts real exchange rate (RER) measures based on different deflators (CPI, GDP deflator, and ULC) and discusses potential implications for the link—or lack thereof—between RER and external balance. We begin by documenting patterns in the evolution of different measures of RERs, and confirm that the choice of deflator plays a significant role in RER movements. A subsequent empirical investigation based on 35 developed and emerging market economies over 1995 to 2014 yields comprehensive and robust evidence that only the RER deflated by ULC exhibits contemporaneous patterns consistent with the expenditure-switching mechanism. We rationalize the empirical findings by introducing a simple model featuring nominal rigidity and trade in intermediate goods as the one in Obstfeld (2001) and Devereux and Engel (2007), which is shown to generate qualitatively identical patterns to empirical findings.

Unveiling the Effect of Foreign Exchange Intervention: A Panel Approach (with Gustavo Adler and Noemie Lisack), 2019, Emerging Markets Review, Volume 40, 100620. [Published Paper] [SSRN] [IMF working paper]

Abstract: The paper studies the effect of foreign exchange intervention on the level of the exchange rate relying on an instrumental-variable panel approach suited to assess the macroeconomic importance of such effect (i.e., beyond short-term effects found in the literature). We find robust evidence that intervention affects the exchange rate in a meaningful way from a macroeconomic perspective. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7–2.0] percent and [1.4–1.7] percent, respectively. The effects are found to be persistent and symmetric for FX purchases and sales.

Forward and Spot Exchange Rates in a Multi-Currency World (with Tarek Hassan), 2019,The Quarterly Journal of Economics, Volume 134, Issue 1, Pages 397–450. [Published Paper] [VOX]

Abstract: Separate literatures study violations of uncovered interest parity (UIP) using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate regression-based and portfolio-based facts, and to estimate the joint restrictions they place on models of currency returns. Subject to standard assumptions on investors’ information sets, we find that the forward premium puzzle (FPP) and the “dollar trade” anomaly are intimately linked: both are driven almost exclusively by the cross-time component. By contrast, the “carry trade” anomaly is driven largely by cross-sectional violations of UIP. The simplest model that the data do not reject features a cross-sectional asymmetry that makes some currencies pay permanently higher expected returns than others, and larger time series variation in expected returns on the US dollar than on other currencies. Importantly, conventional estimates of the FPP are not directly informative about expected returns, because they do not correct for uncertainty about future mean interest rates. Once we correct for this uncertainty, we never reject the null that investors expect high-interest-rate currencies to depreciate, not appreciate.

Default Premium (with Luís Catão), 2017, Journal of International Economics, Volume 107, Pages 91–110, [Published Paper] [Data & Online Appendix] [SSRN] [IMF working paper] [VOX]

Abstract: The literature has found that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observable fundamentals. We re-assess this view using a metric of such a “default premium” (DP) that nests previous metrics and applying it to a much broader dataset. We find a sizeable and persistent DP: in 1870-1938, it averaged 250bps upon market re-entry, tapering to around 150bps five years out; in 1970-2014 the respective estimates are about 350 and 200bps. We also find that: (i) the DP accounts for between 30 to 60 percent of the sovereign spread within five years of market re-entry, and its contribution to the spread remains non-negligible thereafter; (ii) The DP is higher for countries that take longer to settle with creditors and is on average higher for serial defaulters; (iii) our estimates are robust to many controls including realized “haircuts”. These findings help reconnect theory and evidence on why sovereigns default only infrequently and, when they do, why earlier debt settlements are typically sought.

Working Papers

Long-Term Debt and Short-Term Rates: Fixed-Rate Mortgages and Monetary Transmission (with A. De Stefani) [IMF working paper]

Abstract: We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stock by type of rate-fixation and monetary policy shocks cleaned of information effects. Using instrumental-variablel local projections, we find both path- and state-dependency in monetary transmission. Monetary policy shapes mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank's ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to key macro-variables.

From Polluting to Green Jobs: A Seamless Transition in the U.S.? (with K. Bergant and I. Shibata) [IMF working paper] [IMFblog]

Abstract: What are the implications of the needed climate transition for the potential reallocation of the U.S. labor force? This paper dissects green and polluting jobs in the United States across local labor markets, industries and at the household-level. We find that geography alone is not a major impediment, but green jobs tend to be systematically different than those that are either neutral or in carbon-emitting industries. Transitioning out of pollution-intensive jobs into green jobs may thus pose some challenges. However, there is a wage premium for green-intensive jobs which should encourage such transitions. To gain further insights into the impending green transition, this paper also studies the impact of the Clean Air Act. We find that the imposition of the Act caused workers to shift from pollution-intensive to greener industries, but overall employment was not affected.

Monetary Policy Under Labor Market Power (with A. Burya, Y. Timmer and A. Weber) [IMF working paper] [IMFblog] [IMF Research Perspectives]

Abstract: Using the near universe of online vacancy postings in the U.S., we study the interaction between labor market power and monetary policy. We show empirically that labor market power amplifies the labor demand effects of monetary policy, while not disproportionately affecting wage growth. A search and matching model in which firms can attract workers by either offering higher wages or posting more vacancies can rationalize these findings. We also find that vacancy postings that do not require a college degree or technology skills are more responsive to monetary policy, especially when firms have labor market power. Our results help explain the “wageless” recovery after the 2008 financial crisis and the flattening of the wage Phillips curve, especially for the low-skilled, who saw stagnant wages but a robust decline in unemployment.

Should Inequality Factor into Central Banks' Decisions? (with Niels-Jakob H. Hansen and Alessandro Lin) [Banca D'Italia working paper] [IMF working paper] [IMF Blog] [IMF Research Perspectives] [SUERF Jun-23]

Abstract: Inequality is increasingly a concern. Fiscal and structural policies are well-understood mitigators. However, less is known about the potential role of monetary policy. This paper investigates how inequality matters for monetary policy within a tractable Two-Agent New Keynesian model that captures important dimensions of inequality. We find some support for making inequality an explicit target for monetary policy, particularly if central banks follow standard Taylor rules.

Policy Papers

Modeling the U.S. Climate Agenda: Macro-Climate Trade-offs and Considerations (with P. Barrett, K. Bergant and J. Chateau) [IMF working paper]

Abstract: The run up to the 26th Climate Change Conference has brought tackling climate change to the fore of global policy making. In this context, the U.S. administration has recently unveiled new climate targets. This paper elaborates on the administration’s plans and uses two models developed at the IMF to illustrate key macro-climate trade-offs. First, a model with endogenous fuel-specific technological change shows that subsidies cannot substitute for explicit carbon pricing and that even a moderate carbon tax can greatly economize on the overall fiscal cost of the package. Second, a rich sectoral model shows that there are only very marginal economic costs from front-loading the decarbonization of the power sector but there are large accompanying environmental benefits. Regulations can be effective in the power sector because they provide an appropriate shadow cost to carbon. However, a carbon tax would still be more efficient and easier to administer. Finally, as the economy transitions away from fossil-fueled power generation, there would be a significant reallocation of labor across sectors and locations that would need to be handled carefully to limit the social costs of the transition.

China’s Rebalancing: Opportunities and Challenges for LAC Exporters (with N. Aasaavari, F. Di Vittorio, A. Lariau, Y. Li, and P. Rodriguez) [IMF working paper] [IMFblog]

Abstract: Asia and Latin America and the Caribbean (LAC), two regions with large growth potential, have become increasingly connected over the last 20 years. China has emerged not only as a top trading partner, but also as an important competitor of LAC exports. China’s retreat from certain markets, due to the ongoing rebalancing process, could open new opportunities for LAC exporters but also entail some challenges. Our results show that China’s rebalancing will have an overall positive effect on LAC’s GDP and exports in the long run, but this effect is small and uneven across countries, leading to winners and losers. We also provide evidence that other countries, such as India, are currently trying to fill the gap left by China and could undermine LAC’s competitive advantage in some export markets. In this context, reduction of trade barriers and further integration within the region and/or with the rest of the world would lead to unequivocally positive outcomes for all LAC countries. The COVID-19 shock might exacerbate the effects identified in our analysis.

The Level REER model in the External Balance Assessment (EBA) Methodology (with Carolina Osorio-Buitron, Luca A. Ricci and Mauricio Vargas) [IMF working paper]

Abstract: This paper offers an empirical model of the drivers of the level of the Real Effective Exchange Rate (REER) that is now part of the IMF’s methodology for the assessment of external positions, including exchange rates. It constructs a measure of the level of the REER and it offers a panel regression that considers a large number of cross-sectional and time varying factors, guided by the extensive literature. Its main contribution is to enhance our understanding of the cross-sectional determinants of the level of the REER, while taking into account the time-series drivers. The framework accounts for the much larger cross-sectional variation of the level REER, and can better explain the time series variation of level REER when these are based on GDP-deflators rather than on consumer price indices. The latter suggest there may be merits to broadening the assessments to include such measures, although further analysis is required.

Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model (with Carlos Caceres and Diego Cerdeiro) [IMF working paper]

Abstract: This paper studies the potential long-term effects of three illustrative scenarios using a multi-sector computable general equilibrium (CGE) trade model calibrated to 165 countries. The first scenario estimates effects from potential U.S. auto tariffs. The second analyzes a ‘transactional deal’ between the U.S. and China to close their bilateral deficit. The third, in the absence of such a deal, considers a potential escalation in bilateral tariffs between the two countries. Some common features emerge across all three scenarios: the overall effects on GDP tend to be relatively small albeit negative in most cases, including for the U.S. However, sectoral disruptions and positive and negative spillovers to highly exposed ‘by-stander’ economies can be large. There is also heterogeneity at the subnational level in the U.S. -- richer states tend to benefit from certain scenarios. We discuss how estimated impacts depend on the extent to which the U.S. is able to re-shore production in protected sectors. These results can usefully complement estimates obtained through macroeconomic models that are better suited to capture dynamic effects, such as those stemming from trade policy uncertainty. More generally, our results both underscore the value of adhering to the existing levels of liberalization, and highlight the risks associated with a fragmentation or even a complete breakdown of the trading system.

China’s High Savings: Drivers, Prospects, and Policies (with Longmei Zhang, Ray Brooks, Ding Ding, Haiyan Ding, and Jing Lu) [IMF working paper] [VOX China] [NYT Paul Krugman]

Abstract: China’s high national savings rate—one of the highest in the world—is at the heart of its external/internal imbalances. High savings finance elevated investment when held domestically, or lead to large external imbalances when they flow abroad. Today, high savings mostly emanate from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occurred during the transition from planned to market economy. Housing reform and rising income inequality also contribute to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.

China’s Rebalancing: Recent Progress, Prospects and Policies (with Jiayi Zhang) [IMF working paper] [VOX China]

Abstract: While China’s growth gathered momentum in 2017, rebalancing was uneven and decelerated along many dimensions reflecting the temporary factors behind the growth pickup. Going forward, rebalancing is expected to proceed as these temporary factors recede, but elevated income inequality and leverage will remain a challenge. The authorities are already pursuing several pro-rebalancing policies which could be expanded to support each dimension of rebalancing while reducing trade-offs between them.

China's Capacity Reduction Reform and Its Impact on Producer Prices (with Linxi Chen and Ding Ding) [IMF working paper] [VOX China]

Abstract: In late 2015, the Chinese authorities launched a policy to reduce capacity in the coal and steel industries under the wider effort of Supply-Side Structural Reforms. Around the same time, producer price inflation in China started to pick up strongly after being trapped in negative territory for more than fifty consecutive months. So what is behind this strong reflation—capacity cuts in coal and steel, or a strengthening of aggregate demand? Our empirical analyses indicate that a pickup in aggregate demand, possibly due to the government’s stimulus package in 2015-16, was the more important driver. Capacity cuts played a role in propping up coal and steel prices, explaining at most 40 percent of their price increase.

Inequality in China – Trends, Drivers and Policy Remedies (with Sonali Jain-Chandra, Niny Khor, Johanna Schauer, Philippe Wingender and Juzhong Zhuang) [IMF working paper]

Abstract: China has experienced rapid economic growth over the past two decades and is on the brink of eradicating poverty. However, income inequality increased sharply from the early 1980s and rendered China among the most unequal countries in the world. This trend has started to reverse as China has experienced a modest decline in inequality since 2008. This paper identifies various drivers behind these trends – including structural changes such as urbanization and aging and, more recently, policy initiatives to combat it. It finds that policies will need to play an important role in curbing inequality in the future, as projected structural trends will put further strain on equity considerations. In particular, fiscal policy reforms have the potential to enhance inclusiveness and equity, both on the tax and expenditure side.

Reassessing the Perimeter of Government Accounts in China (with Phil Stokoe) [IMF working paper]

Abstract: China’s official general government accounts do not include off-budget quasi-fiscal spending unlike the IMF’s augmented government accounts. This paper argues that the broader concept of augmented government remains relevant despite recent positive measures to separate off-budget units from the government. In fact, new avenues to finance public infrastructure, such as Special Construction Funds and Government Guided Funds, have emerged and this paper re-defines the perimeter of augmented government to include them. Finally, concrete steps for improving China’s fiscal accounts are put forward. If these steps are taken, the perimeter of general government would expand relative to official statistics but would likely be narrower than where augmented aggregates place it.

Asean-5 Cluster Report : Evolution of Monetary Policy Frameworks (with Jay Peiris, Ding Ding, Jaime Guajardo, Vladimir Klyuev, Rui Mano, Dan Nyberg, Sherillyn Raga, Niamh Sheridan, and Edda Zoli) [Policy Paper]

Abstract: This paper examines the evolution of monetary policy frameworks of the Association of Southeast Asian Nations (ASEAN)-5 economies, with particular focus on changes since the Asian financial crisis and the more recent period of unconventional monetary policies in advanced economies. Monetary policy frameworks of the ASEAN-5 economies have on the whole performed well since the crisis, delivering both price and financial stability during a period of significant domestic and regional transformation and global macroeconomic and financial turmoil. Not surprisingly, therefore, successful outcomes in most cases entailed significant changes to operating frameworks and refinement of policy objectives.

Quantifying the Spillovers from China Rebalancing Using a Multi-Sector Ricardian Trade Model [SSRN] [IMF working paper]

Abstract: This paper assesses the spillovers from different facets of China rebalancing using a calibrated Ricardian trade model that includes 41 economies, each consisting of 34 sectors. We find that China's move up the value chain in particular has the potential for significant spillovers - on the one hand, adversely affecting industrialized economies heavily involved in the Asia value chain, while at the same time generating positive spillovers to lower and middle income countries. The model's strength lies in endogenously capturing production value chains and international trade of goods across sectors.

Spillovers from China’s Growth Slowdown and Rebalancing to the ASEAN-5 Economies (with Allan Dizioli, Jaime Guajardo, Vladimir Klyuev, and Mehdi Raissi) [SSRN] [IMF working paper]

Abstract: After many years of rapid expansion, China’s growth is slowing to more sustainable levels and is rebalancing, with consumption becoming the main growth driver. This transition is likely to have negative effects on its trading partners in the near term. This paper studies the potential spillovers to the ASEAN-5 economies through trade, commodity prices, and financial markets. It finds that countries with closer trade linkages with China (Malaysia, Singapore, and Thailand) and net commodity exporters (Indonesia and Malaysia) would suffer the largest impact, with growth falling between 0.2 and 0.5 percentage points in response to a decline in China’s growth by 1 percentage point depending on the model used and the nature of the shock. The impact could be larger if China’s slowdown and rebalancing coincides with bouts of global financial volatility. There are also opportunities from China’s rebalancing, both in merchandise and services trade, and there is preliminary evidence that some ASEAN-5 economies are already benefiting from these trends.

The Level of Productivity in the Traded and Non-Traded Sectors for a Large Panel of Countries (with Marola Castillo) [SSRN] [IMF working paper] [Data]

Abstract: This paper explains in detail the construction of series for productivity in the traded and nontraded sectors for a panel of 56 countries spanning 1989–2012. The level of productivity in each sector is defined as real value added per worker in constant 2005 Purchasing Power Parity (PPP) U.S. dollars. To construct these series, we collect industry-level data from several sources, and classify individual industries as traded/non-traded using their ratio of exports to value added. Finally, we aggregate the industry data up to a traded sector and a non-traded sector, accordingly. This new dataset has two main advantages relative to existing datasets: (i) it defines more finely the traded/non-traded sectors, by drawing on much more disaggregated industry source data; and (ii) it allows for meaningful comparisons of the level of productivity across countries/sectors because sectoral productivity is adjusted by its own price level.

Exchange Rates Upon Sovereign Default [Paper]

Abstract: This paper estimates the expected impact of sovereign default on the local currency by using credit default swaps denominated in both local currency and US dollar for each sovereign. I find that currencies are generally expected to nominally depreciate. I also show that the Euro is expected to depreciate more against the US dollar upon some defaults (Germany, France) than others (Greece, Ireland). Additionally, using historical data, I find that currencies have depreciated in nominal and real terms upon default. I examine the ability of two widely used models to generate depreciation upon default. Contrary to historical data, the standard complete markets model predicts real appreciation upon default. However, a segmented markets model can generate real and nominal depreciation upon default if inflation and default occur simultaneously.

Other Publications

Recent trade policy actions: Insights from multiple models (with Diego A. Cerdeiro, Dirk Muir , Rafael Portillo, Diego Rodriguez-Guzman , Lorenzo Rotunno, Michele Ruta, Elizabeth Van Heuvelen, and Philippe Wingender [WEO Box 1.2] [VoxEU]

Inflation and Bank Profits: Monetary Policy Trade-offs (with Katharina Bergant, Mai Hakamada, and Divya Kirti [Staff Discussion Note] [SUERF]

One Shock, Many Policy Responses (with Silvia Sgherri) Chapter 2 in Shocks and Capital Flows, October 2023 [Book]

Foreign Exchange Intervention: A Data Set of Public Data and Proxies (with Gustavo Adler and Kyun Suk Chang) Chapter 13 in Shocks and Capital Flows, October 2023 [Book]

Do Foreign Exchange Interventions Lead to Higher Foreign Exchange Debt? Evidence from Firm-Level Data (with Minsuk Kim, and Mico Mrkaic) Chapter 15 in Shocks and Capital Flows, October 2023 [Book]

Sizing Up the Effects of Technological Decoupling (with D. Cerdeiro, J. Eugster, D. Muir and J. Peiris) Chapter 7 in Geoeconomic Fragmentation The Economic Risks from a Fractured World Economy, CEPR, 2023 [Published Paper] [IMF working paper] [FT Martin Wolf]

Abstract: This paper proposes channels through which technological decoupling can affect global growth, and embeds these different layers in a global dynamic macroeconomic model. Multiple scenarios are considered that differ along two dimensions: (i) the coalition of countries (hubs) that initiate the decoupling, and (ii) whether non-hub countries are also forced to decouple via ‘preferential attachment’ – i.e. by aligning themselves with the hub they trade most with. All global technology hubs lose across scenarios, and losses are largest under preferential attachment. Smaller countries with relations that straddle multiple hubs generally lose, whereas those whose trade is heavily concentrated with one hub may gain due to reduced competition under some scenarios. Technological fragmentation can lead to losses in the order of 5 percent of GDP for many economies.

One Shock, Many Policy Responses (with Silvia Sgherri), 2023, Open Economies Review, [Published Paper] [IMF working paper]

Abstract: Policymakers have relied on a wide range of policy tools to cope with capital flow shocks. And yet, the effects and interaction of these policies remain under debate, as does the motivation for using them. In this paper, quantile local projections are used to estimate the entire distribution of future policy responses to portfolio flow shocks for 20 emerging markets and understand the variety of policy choices across the sample. To assuage endogeneity concerns, estimates rely on the fact that global capital flows are exogenous from the viewpoint of any one of these countries. The paper finds that: (i) policy responses to capital flow shocks are heterogeneous across countries, fat-tailed—“extreme” responses tend to be more elastic than “typical” responses—and asymmetric—“extreme” responses tend to be more elastic with respect to outflows than to inflows; (ii) country characteristics are linked to policy choices—with cross-country differences in forex intervention relating to the size of balance sheet vulnerabilities and the depth of the forex market; (iii) the use of targeted macroprudential policy and capital flows management measures can help “free the hands” of monetary policy by allowing it to focus more squarely on domestic cyclical developments.

Asia and the Growing Risk of Geoeconomic Fragmentation in Asia Pacific Regional Economic Outlook, October 2022 [Full Background Paper]

Distributional Effects of Monetary Policy (with V. Bonifacio, L. Brandao-Marques, N. T. Budina, B. Csonto, C. Fratto, P. Engler, D. Furceri, D. O. Igan, M. Narita, M. Omoev, G. Pasricha and H. Ward) [Book] [IMF working paper]

Abstract: As central banks across the globe have responded to the COVID-19 shock by rounds of extensive monetary loosening, concerns about their inequality impact have grown. But rising inequality has multiple causes and its relationship with monetary policy is complex. This paper highlights the channels through which monetary policy easing affect income and wealth distribution, and presents some quantitative findings about their importance. Key takeaways are: (i) central banks should remain focused on macro stability while continuing to improve public communications about distributional effects of monetary policy, and (ii) supportive fiscal policies and structural reforms can improve macroeconomic and distributional outcomes. in Economic Challenges for Europe After the Pandemic

Navigating Waves of New Variants: Pandemic Resurgence Slows the Recovery in Asia Pacific Regional Economic Outlook, October 2021 [Full Background Paper]

Technological Decoupling in the Post-COVID-19 Era? Implications for Asia and Beyond (with Diego Cerdeiro, Johannes Eugster, Dirk Muir, and Jay Peiris) in Policy Advice to Asia in the COVID-19 Era , March 2021 [Book]

Monetary and Exchange Rate Policy Responses (with Hoe Ee Khor, Shanaka J. Peiris, Mia Agcaoili, Ding Ding and Jaime Guajardo) in The Asean Way: Sustaining Growth and Stability, October 2018 [Book]

The Evolving Role of Trade in Asia: Opening a New Chapter in Asia Pacific Regional Economic Outlook, October 2018 [Chapter Summary] [Full Background Paper]

China’s Evolving Trade with Advanced Upstream Economies and Commodity Exporters (with Thomas Helbling, Koshy Mathai, Michael Dalesio, Geoff Gottlieb, Gee Hee Hong, Adil Mohommad, and Dulani Seneviratne) in Asia Pacific Regional Economic Outlook, April 2016 [Chapter]

To Pay the Piper (with Luís Catão) Finance and Development, Volume 52, No. 4, December 2015 [Published Paper]

External Sector Report (with several authors), 2015 [Report]

The US Current Account Deficit: Smoothly Along the Adjustment Path, Bank I Kredyt, Volume 37, November-December 2007, Pages 47-59.

Notes

Beyond the Penn Effect: Supply Side Determinants of the Level of RER [Paper]

Abstract: Different theories of real exchange rate (RER) determination attribute a key role to supply-side factors, like productivity differentials between traded and nontraded sectors (Balassa-Samuelson) and endowment differences (Kravis-Lipsey-Bhagwati). Empirically, economists have interpreted the Penn Effect -- the positive relationship between overall RER and per capita income -- as suggestive of the importance of these supply-side determinants. The goal of this paper is to improve the mapping from theory to empirics by going beyond the Penn Effect in two ways. Firstly, we use newly-constructed series for relative RER between traded and non-traded sectors in addition to the overall RER based on both price and unit labor costs (ULC) for a large panel of countries. Secondly, we assess the relative importance of competing determinants in a multivariate cross-section. We find that: (1) Balassa-Samuelson effect helps explain relative nontraded-to-traded prices, but not price differences across traded sectors, consistent with theory; (2) economy-wide capital-labor and TFP seem important for both relative nontraded to traded prices and price differences across traded sectors; (3) demand factors may play an additional role, particularly for the nontraded sector; (4) some of the above findings are not applicable to ULC-based RERs.

Measuring The Impact of Sovereign Default on the Euro Using CDS Denominated in Different Currencies (early basis for "Exchange Rates Upon Sovereign Default")

Abstract: The same dealer quotes Credit Default Swaps (CDS) in both US Dollars and Euros for each particular sovereign. This means an investor can buy protection against a specific european sovereign default where premium and payment conditional on default are both in either US Dollars or both in Euros. By constructing a strategy that buys protection in USD and sells in Euro, we can uncover risk-neutral expected Euro movements against the US Dollar conditional on a default. Following this simple idea, we show that a default of a small peripheral country like Greece or Portugal has a much smaller impact on the Euro when compared to a default of other countries like Germany, Italy or Spain. These results hold across estimation specifications and thus seem to be a robust pattern of the data. Some suggestive implications for the time series of this measure are also uncovered but require further study.