Work

Should Developed Economies Manage International Capital Flows? An Empirical and Welfare Analysis*

Year: 2024

Type: article

Abstract: The literature on the effects of country risk premium shocks has largely focused on emerging market economies. We empirically show that in developed economies, risk premium shocks explain a non‐trivial share of aggregate fluctuations and are key drivers of real activity during crises. Our empirical results and results from a two‐country New Keynesian model indicate that an increase in the risk premium leads to a reduction in aggregate output under monetary union, but not so in countries with flexible exchange rates and independent monetary policy. Model simulations suggest that managing international capital flows enhances welfare in countries under monetary union.

Source: Oxford Bulletin of Economics and Statistics

DOI: 10.1111/obes.12628

Authors: Dennis Bonam, Gavin Goy, Emmanuel de Veirman

Institutions: Vrije Universiteit Amsterdam, De Nederlandsche Bank, University of Amsterdam

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,730

OpenAlex ID: W4399549161

FWCI:

Cites: 47

Cited by:

Related to: 10