{"title":"Should Developed Economies Manage International Capital Flows? An Empirical and Welfare Analysis*","authors":"Dennis Bonam, Gavin Goy, Emmanuel de Veirman","doi":"10.1111/obes.12628","DOIUrl":null,"url":null,"abstract":"<p>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.</p>","PeriodicalId":54654,"journal":{"name":"Oxford Bulletin of Economics and Statistics","volume":"86 6","pages":"1511-1538"},"PeriodicalIF":1.5000,"publicationDate":"2024-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/obes.12628","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Oxford Bulletin of Economics and Statistics","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/obes.12628","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
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.
期刊介绍:
Whilst the Oxford Bulletin of Economics and Statistics publishes papers in all areas of applied economics, emphasis is placed on the practical importance, theoretical interest and policy-relevance of their substantive results, as well as on the methodology and technical competence of the research.
Contributions on the topical issues of economic policy and the testing of currently controversial economic theories are encouraged, as well as more empirical research on both developed and developing countries.