How do currency mismatches in corporate balance sheets affect international prices? We address this question using a unique dataset that links firm-level foreign currency debt with international trade flows for Colombia. We find that foreign firms raise markups following an exchange rate depreciation in industries with high foreign-currency indebtedness, inducing an exchange rate pass-through greater than one. By contrast, Colombian exporters reduce margins regardless of their debt levels, consistent with incomplete pass-through. To rationalize these findings, we propose a theoretical mechanism in which pricing complementarities interact with borrowing constraints on foreign currency debt, generating asymmetric pass-through responses. Our framework bridges two strands of literature by integrating key elements from models featuring Dominant Currency Pricing and sudden stops in small open economies. Our findings show that pricing complementarities ultimately determine the exchange rate pass-through, even when firms set prices in a vehicle currency such as the US dollar. They also uncover a novel link between the trade and financial channels of exchange rates and international prices.

Why did the US dollar depreciate during the height of the COVID-19 pandemic despite its safe haven status? Utilizing rich spatial and temporal variation in a daily-frequency panel dataset, we uncover a causal relationship between variation in COVID-19 cases and US dollar bilateral exchange rates. We find that a one-standard-deviation increase in US COVID-19 cases led to a 1.23 percent depreciation of the US dollar after one month. We explain this finding by introducing COVID-19 as a mixture of supply and demand shocks in a two-country, multi-sector open-economy model with incomplete markets, portfolio adjustment costs, and imperfect labor substitutability. Our model quantitatively matches our empirical findings when calibrated to global COVID-19 data, demonstrating that the asymmetric economic impact of the pandemic played a key role in driving the US dollar's depreciation.

We revisit the effect of government spending on corporate investment. Employing a narrative approach to identify exogenous variation in government expenditures (Ramey, 2011; Ramey and Zubairy, 2018), we find that a one-percentage-point increase in military spending news, as a share of GDP, raises capital expenditures of publicly listed US firms by more than one percent over five years. The investment response is not driven by contractors with the Department of Defense, financial constraints, unconventional monetary policy, or geopolitical and economic uncertainty. Instead, we show that news about military spending lowers long-term nominal and ex-ante real interest rates on impact, with effects persisting for up to five years after the shock. Lower interest rates critically translate into a decline in the firm-level cost of capital, particularly the cost of debt. Consistent with the decline in the cost of capital, firms expand debt holdings and investment.

We use firm-level data to estimate markup responses to uncertainty shocks. We measure markups using a production function approach in a quarterly-frequency dataset of US publicly listed firms. We recover structural shocks from macroeconomic data using a Bayesian VAR with stochastic volatility. We find that markups are procyclical in response to uncertainty shocks: a one-standard-deviation increase in macroeconomic uncertainty lowers markups by about 0.30 percentage points. The effect is long-lived, lasting up to three years. Using a workhorse New Keynesian general equilibrium model with nominal price and wage stickiness, we quantitatively match the estimated empirical response under a calibration that matches the average duration of prices and wages. Because wages are stickier than prices, the real wage and marginal cost rise in response to uncertainty, leading to a decline in markups.

We study how fiscal rules affect fiscal multipliers. While the empirical literature has focused solely on the effects that fiscal rules have exerted on local governments budgetary discipline, our results show that both the presence and the type of fiscal rule in place are important factors determining the effectiveness of government spending increases, as measured by the fiscal multiplier. Importantly, these empirical findings are not driven by correlated measures of fiscal fragility, such as the level of development or the level of debt across countries. Additionally, the paper also investigates whether the presence of fiscal rules affects the dynamics of long-term government bond yields (10-year maturity). The results indicate that the presence of fiscal rules attenuate bond-yields increase in response to the fiscal shocks. We interpret both findings as stemming from different expectations regarding fiscal discipline in the near future. Since any fiscal rule targeting directly the level of debt or the budget balance affects expectations regarding the discounted flow of future real primary results, the presence of fiscal rules determines the resulting state-dependent fiscal multipliers.

In this paper, we introduce in an otherwise standard neoclassical growth model the required time lag for public investment to be turned into public capital (time-to-build process) and distortionary taxes responding to the level of public debt. Our goal is to quantitatively isolate the macroeconomic effects of the increase in public investment observed in the Brazilian government investment package "Growth Acceleration Program" (PAC in the Portuguese acronym). Depending on the implementation delays associated with the time-to-build of public capital and the stringency of fiscal adjustment, the PAC could have led to a GDP decline between 0.2% and 0.4% for up to four years.

Applying the methodology proposed by Auerbach and Gorodnichenko (2012) to monthly GDP data and recurrent central government revenues and expenditures, fiscal multiplier estimates are virtually zero in situations of fiscal fragility, regardless of the indicator used to measure the soundness of public accounts. If we use the total general government deficit—our preferred measure, the cumulative multiplier for the one-year period is negative at -0.1. In periods of fiscal soundness, however, the output responses to government spending can be substantial, as the estimated fiscal multiplier reaches 2.5 for the same period, while, in the linear model, the estimates are 0.4 at impact and 0.7 at the peak of the trajectory.

In this paper, we document estimates of the Brazilian fiscal multiplier, finding hump-shaped responses and point estimates of 0.6 on impact with a peak of 0.9 in the quarter following the shock. On the other hand, the tax multiplier is negative and reaches -0.2 and -0.6 for the same periods. Moreover, while the transfer multiplier is 0.7 at its peak, the government investment multiplier is substantially higher, reaching 2.2 under the same metric. However, we take the latter estimate with caution due to anticipation effects associated with the time-to-build lags of public capital. Finally, in contrast to the conventional predictions in the neoclassical and new Keynesian literature, we also document that household consumption and private investment crowd-in in response to government spending shocks with corresponding fiscal multipliers of 0.6 and 1.8, respectively. Overall, the results indicate that the Brazilian fiscal multiplier is relatively large for an emerging economy but still lower than comparable estimates in advanced countries. One potential explanation for our results is Brazil's relatively closed economy.