What are the long-run effects of permanent changes to the economy? We characterize long-run comparative statics for a broad class of models in terms of expenditure shares, substitution elasticities, and capital supply elasticities. Our key insight is that long-run analysis can be performed using...

This paper proposes a concept of a global currency and introduces a "global currency pricing" specification into a standard N-country open economy macroeconomic model. A global currency is defined as a virtual unit of account that is exclusively used for international trade invoicing and is...

This short note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their...

This paper studies the interaction between foreign exchange reserves and the currency composition of sovereign debt in emerging countries. Focusing on inflation targeting countries, we find that holdings of foreign reserves are associated with higher local currency sovereign debt, an exchange...

This paper describes the challenges of globalization in terms of the logic underpinning four distinct policy constraints or "trilemmas" and their interrelationship; in particular the disturbances that arise from capital flows and the difficulties of adjusting monetary policies to a global...

We develop a theory to account for changes in gross and net capital flows over the global financial cycle (GFC). The theory relies critically on portfolio heterogeneity among investors within and across countries, related to risky portfolio shares and portfolio shares allocated to foreign...

Monetary rules may have a large effect on the outcome of trade wars if central banks target the CPI inflation rate or more generally changes in the relative price of traded goods. We lay out a two-country open-economy model with sticky prices where countries engage in trade wars. In the presence...

We develop a general policy analysis framework for an open economy that features nominal rigidities and financial frictions giving rise to endogenous PPP and UIP deviations. The efficient allocation can be implemented with monetary policy closing the output gap and FX interventions eliminating...

This paper shows that the outcome of trade wars for tariffs and welfare will be affected by the monetary policy regime. The key message is that trade policy interacts with monetary policy in a way that magnifies the welfare costs of discretionary monetary policy in an international setting. If...

Global liquidity refers to the volumes of financial flows - largely intermediated through global banks and non-bank financial institutions - that can move at relatively high frequencies across borders. The amplitude of responses to global conditions like risk sentiment, discussed in the context...