This paper models the interaction between international trade finance and monetary policy in open economies and shows that trade finance affects the propagation mechanism of all macroeconomic shocks that are identified to be drivers of business cycles in advanced economies. The model is...

Recurrent capital inflows pose important challenges for authorities in emerging market economies seeking to preserve financial stability. Raising interest rates to dampen imbalances that could arise from capital flows can also attract more capital inflows and accentuate appreciation pressures....

We study the optimal combination of interest rate policy and unconventional monetary policy in a model where agency costs generate a spread between deposit and lending rates. We show that credit policy can be a powerful substitute for interest rate policy. In the face of shocks that negatively...

The increase in the TARGET2 balance for the Bundesbank has led to a debate in Germany about the appropriate interpretation and policy response, if any. In this paper we review the evidence for the current account financing interpretation, and find it wanting in explaining the data in 2012. BIS...

An asset manager's rapid liquidation in the weeks around the end of September 2014 of a very large position in eurodollar futures, a huge derivatives market that allows traders to position on the future path of dollar money rates, raises two questions. What is the profile of asset managers in...

Global risk-off shocks can be highly destabilizing for financial markets and, absent an adequate policy response, may trigger severe recessions. Policy responses were more complex for developed economies with very low interest rates after the Global Financial Crisis (GFC). We document, however,...

We propose a "debt view" to explain the dominant international role of the dollar. We develop an international general equilibrium model in which firms optimally choose the currency composition of their nominal debt. Expansionary monetary policy in downturns prevents Fisherian debt deflation...

Has financial globalisation compromised central banks' ability to manage domestic financial conditions? This paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies. To gauge the extent to which external financial conditions...

We document empirically that the 2007-09 Global Financial Crisis exposed emerging market economies (EMEs) to an adverse feedback loop of capital outflows, depreciating exchange rates, deteriorating balance sheets, rising credit spreads and falling real economic activity. In order to account for...

We study the response of a three-sector commodity-exporter small open economy to a commodity price boom. When the economy has access to international borrowing and lending, a temporary commodity price boom brings about the standard wealth effect that stimulates demand and has long-run...