Pub Date : 2025-10-04DOI: 10.1016/j.jinteco.2025.104176
Paolo Varraso
I study the optimal design of fiscal policy, with and without commitment, in collateral-constraint models where the households’ borrowing capacity is linked to the economy’s real exchange rate. When the collateral constraint is binding, increasing public spending raises the real exchange rate and stabilizes private consumption. However, by making potential crises less costly, higher spending also makes borrowing more attractive. I show that the Ramsey-optimal policy entails a commitment to restrict fiscal stimulus during crisis periods, aimed at deterring excessive debt accumulation. In a quantitative application to Argentina, I show that, despite the potential for substantial ex-post gains from stabilizing the real exchange rate, significant fiscal expansions are not optimal because of the borrowing inefficiency.
{"title":"Fiscal policy design in collateral-constraint economies: The role of commitment","authors":"Paolo Varraso","doi":"10.1016/j.jinteco.2025.104176","DOIUrl":"10.1016/j.jinteco.2025.104176","url":null,"abstract":"<div><div>I study the optimal design of fiscal policy, with and without commitment, in collateral-constraint models where the households’ borrowing capacity is linked to the economy’s real exchange rate. When the collateral constraint is binding, increasing public spending raises the real exchange rate and stabilizes private consumption. However, by making potential crises less costly, higher spending also makes borrowing more attractive. I show that the Ramsey-optimal policy entails a commitment to restrict fiscal stimulus during crisis periods, aimed at deterring excessive debt accumulation. In a quantitative application to Argentina, I show that, despite the potential for substantial ex-post gains from stabilizing the real exchange rate, significant fiscal expansions are not optimal because of the borrowing inefficiency.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104176"},"PeriodicalIF":4.0,"publicationDate":"2025-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145268064","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-30DOI: 10.1016/j.jinteco.2025.104158
Naohisa Hirakata , Mitsuru Katagiri
This paper investigates the role of foreign direct investment (FDI) in accounting for the long-term trend of capital flows under demographic changes. For this purpose, we incorporate horizontal FDI under the proximity-concentration trade-off into a two-country DSGE model and conduct a quantitative analysis using long-term Japanese data for capital flows since the 1960s. The quantitative analysis finds that the transition dynamics solely driven by demographic changes well account for the long-term trend of capital flows and that multinational firms’ endogenous decision on FDI in response to population aging is key to explaining the long-term trend.
{"title":"Foreign direct investment as a long-term capital flow channel: Evidence from Japan","authors":"Naohisa Hirakata , Mitsuru Katagiri","doi":"10.1016/j.jinteco.2025.104158","DOIUrl":"10.1016/j.jinteco.2025.104158","url":null,"abstract":"<div><div>This paper investigates the role of foreign direct investment (FDI) in accounting for the long-term trend of capital flows under demographic changes. For this purpose, we incorporate horizontal FDI under the proximity-concentration trade-off into a two-country DSGE model and conduct a quantitative analysis using long-term Japanese data for capital flows since the 1960s. The quantitative analysis finds that the transition dynamics solely driven by demographic changes well account for the long-term trend of capital flows and that multinational firms’ endogenous decision on FDI in response to population aging is key to explaining the long-term trend.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104158"},"PeriodicalIF":4.0,"publicationDate":"2025-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145332941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-29DOI: 10.1016/j.jinteco.2025.104171
John Finlay , Trevor C. Williams
Skilled workers’ incomes have pulled away from those of unskilled workers in recent decades, reflecting increasing skill bias in production. How has this changed the spatial distribution of skill? We show nonhomothetic housing demand connects aggregate income inequality to spatial sorting. A household’s skill level determines its income, and therefore its housing expenditure share, sensitivity to housing costs, and location preferences. The result is spatial sorting by skill. Moreover, diverging incomes cause diverging location choices. Using consumption microdata, we estimate that housing is a necessity. Increasing total expenditure by 10% reduces housing expenditure shares by 2.5%. Skilled workers therefore sort into expensive cities, and by raising their relative incomes, increases in aggregate skill bias intensify sorting. Embedding our estimated preferences in a quantitative spatial model, we find that without rising aggregate skill bias, spatial sorting would have grown one quarter less since 1980.
{"title":"Housing demand, inequality, and spatial sorting","authors":"John Finlay , Trevor C. Williams","doi":"10.1016/j.jinteco.2025.104171","DOIUrl":"10.1016/j.jinteco.2025.104171","url":null,"abstract":"<div><div>Skilled workers’ incomes have pulled away from those of unskilled workers in recent decades, reflecting increasing skill bias in production. How has this changed the spatial distribution of skill? We show nonhomothetic housing demand connects aggregate income inequality to spatial sorting. A household’s skill level determines its income, and therefore its housing expenditure share, sensitivity to housing costs, and location preferences. The result is spatial sorting by skill. Moreover, diverging incomes cause diverging location choices. Using consumption microdata, we estimate that housing is a necessity. Increasing total expenditure by 10% reduces housing expenditure shares by 2.5%. Skilled workers therefore sort into expensive cities, and by raising their relative incomes, increases in aggregate skill bias intensify sorting. Embedding our estimated preferences in a quantitative spatial model, we find that without rising aggregate skill bias, spatial sorting would have grown one quarter less since 1980.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104171"},"PeriodicalIF":4.0,"publicationDate":"2025-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145268068","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-27DOI: 10.1016/j.jinteco.2025.104172
Alessandro Sforza , Edoardo Maria Acabbi
We investigate how credit availability affects the organization of firms’ labor. We construct a firm-specific credit supply instrument derived from firm-bank credit linkages, and conduct an event study analyzing labor restructuring decisions within Portuguese firms. Our analysis uncovers a clear nexus between credit availability and labor adjustments. Specifically, firms that invest in machines and equipment are more sensitive to credit shortages. As a result, they tend to adjust their workforce by reducing the number of production and specialized workers closely associated with machine operations. These findings shed light on how credit dynamics shape labor decisions within firms, providing insights into aggregate responses to financial limitations.
{"title":"Credit and firms’ organization","authors":"Alessandro Sforza , Edoardo Maria Acabbi","doi":"10.1016/j.jinteco.2025.104172","DOIUrl":"10.1016/j.jinteco.2025.104172","url":null,"abstract":"<div><div>We investigate how credit availability affects the organization of firms’ labor. We construct a firm-specific credit supply instrument derived from firm-bank credit linkages, and conduct an event study analyzing labor restructuring decisions within Portuguese firms. Our analysis uncovers a clear nexus between credit availability and labor adjustments. Specifically, firms that invest in machines and equipment are more sensitive to credit shortages. As a result, they tend to adjust their workforce by reducing the number of production and specialized workers closely associated with machine operations. These findings shed light on how credit dynamics shape labor decisions within firms, providing insights into aggregate responses to financial limitations.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104172"},"PeriodicalIF":4.0,"publicationDate":"2025-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145268066","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-20DOI: 10.1016/j.jinteco.2025.104170
Federica Coelli
This paper analyzes the effect of resolving trade policy uncertainty on innovation in China from 1990 to 2007. Exploiting exogenous and heterogeneous exposure to the elimination of U.S. tariff uncertainty, together with detailed innovation data, the analysis shows that reducing tariff uncertainty generated economically and statistically significant increases in innovation. This increase represents actual innovation, and not just more patent filings. The timing of the response is heterogeneous: lower-quality innovations respond quickly, while higher-quality and higher-opportunity-cost innovations respond more gradually. Innovation increases along three margins: entry into new technologies, patents with broader technological scope, and innovation within firms’ existing technological portfolios. More exposed sectors experience larger increases in first-time patenting firms. Finally, the increase in innovation is at least in part driven by exports to the US.
{"title":"Trade policy uncertainty and innovation: Evidence from China","authors":"Federica Coelli","doi":"10.1016/j.jinteco.2025.104170","DOIUrl":"10.1016/j.jinteco.2025.104170","url":null,"abstract":"<div><div>This paper analyzes the effect of resolving trade policy uncertainty on innovation in China from 1990 to 2007. Exploiting exogenous and heterogeneous exposure to the elimination of U.S. tariff uncertainty, together with detailed innovation data, the analysis shows that reducing tariff uncertainty generated economically and statistically significant increases in innovation. This increase represents actual innovation, and not just more patent filings. The timing of the response is heterogeneous: lower-quality innovations respond quickly, while higher-quality and higher-opportunity-cost innovations respond more gradually. Innovation increases along three margins: entry into new technologies, patents with broader technological scope, and innovation within firms’ existing technological portfolios. More exposed sectors experience larger increases in first-time patenting firms. Finally, the increase in innovation is at least in part driven by exports to the US.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104170"},"PeriodicalIF":4.0,"publicationDate":"2025-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145268067","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that short-term liquidity can be a source of competitive advantage by enabling firms to invest in intangible assets. Our analysis leverages a French reform that capped payment delays in trade credit contracts, which generated quasi-experimental variation in corporate liquidity across manufacturing firms. Higher liquidity led to significantly greater investment in intangibles, which, in turn, raised markups and market shares. These results suggest a strategic role for liquidity in shaping firm performance, indicating that initial financial conditions can have lasting effects on productivity and market structure.
{"title":"Liquidity as competitive advantage: The role of intangibles","authors":"Carlo Altomonte , Monica Morlacco , Tommaso Sonno , Domenico Favoino","doi":"10.1016/j.jinteco.2025.104168","DOIUrl":"10.1016/j.jinteco.2025.104168","url":null,"abstract":"<div><div>We show that short-term liquidity can be a source of competitive advantage by enabling firms to invest in intangible assets. Our analysis leverages a French reform that capped payment delays in trade credit contracts, which generated quasi-experimental variation in corporate liquidity across manufacturing firms. Higher liquidity led to significantly greater investment in intangibles, which, in turn, raised markups and market shares. These results suggest a strategic role for liquidity in shaping firm performance, indicating that initial financial conditions can have lasting effects on productivity and market structure.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104168"},"PeriodicalIF":4.0,"publicationDate":"2025-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145119629","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-13DOI: 10.1016/j.jinteco.2025.104169
Georgios Georgiadis, Marek Jarociński
We estimate international spillovers from both conventional and unconventional US monetary policy. We use novel measures of exogenous variation in conventional policy, forward guidance and large-scale asset purchases (LSAPs), based on high-frequency asset price surprises around a broad set of Federal Reserve communications. The identification relies on relatively weak assumptions and accounts for potential endogenous policy components – including central bank information effects – in these asset price surprises. We find that: (i) conventional policy, forward guidance and LSAPs all generate large and comparable spillovers; (ii) these spillovers transmit through trade and financial channels to a similar extent; (iii) LSAPs trigger immediate international portfolio rebalancing between US and foreign bonds that are relatively close substitutes, but they produce only limited spillovers in term premia; (iv) all Fed policy measures create trade-offs for emerging market monetary policy between stabilizing output and prices vs. ensuring financial stability, particularly with regard to capital inflows.
{"title":"Global spillovers from multi-dimensional US monetary policy","authors":"Georgios Georgiadis, Marek Jarociński","doi":"10.1016/j.jinteco.2025.104169","DOIUrl":"10.1016/j.jinteco.2025.104169","url":null,"abstract":"<div><div>We estimate international spillovers from both conventional and unconventional US monetary policy. We use novel measures of exogenous variation in conventional policy, forward guidance and large-scale asset purchases (LSAPs), based on high-frequency asset price surprises around a broad set of Federal Reserve communications. The identification relies on relatively weak assumptions and accounts for potential endogenous policy components – including central bank information effects – in these asset price surprises. We find that: (i) conventional policy, forward guidance and LSAPs all generate large and comparable spillovers; (ii) these spillovers transmit through trade and financial channels to a similar extent; (iii) LSAPs trigger immediate international portfolio rebalancing between US and foreign bonds that are relatively close substitutes, but they produce only limited spillovers in term premia; (iv) all Fed policy measures create trade-offs for emerging market monetary policy between stabilizing output and prices vs. ensuring financial stability, particularly with regard to capital inflows.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104169"},"PeriodicalIF":4.0,"publicationDate":"2025-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145107354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-03DOI: 10.1016/j.jinteco.2025.104157
Piergiorgio Alessandri , Haroon Mumtaz
We study the impact of temperature risk on economic growth exploiting a novel panel VAR model and data on 160 countries since the 1960s. We show that the conditional volatility of annual temperatures – a measure of ex ante temperature risk – varied significantly over time, with important implications for growth. Controlling for concomitant changes in temperature levels, an exogenous +1 °C increase in temperature risk causes on average a 0.4 per cent decline in GDP growth and a one per cent increase in the volatility of GDP.
{"title":"The macroeconomic cost of temperature risk","authors":"Piergiorgio Alessandri , Haroon Mumtaz","doi":"10.1016/j.jinteco.2025.104157","DOIUrl":"10.1016/j.jinteco.2025.104157","url":null,"abstract":"<div><div>We study the impact of temperature risk on economic growth exploiting a novel panel VAR model and data on 160 countries since the 1960s. We show that the conditional volatility of annual temperatures – a measure of <em>ex ante</em> temperature risk – varied significantly over time, with important implications for growth. Controlling for concomitant changes in temperature levels, an exogenous +1 °C increase in temperature risk causes on average a 0.4 per cent decline in GDP growth and a one per cent increase in the volatility of GDP.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104157"},"PeriodicalIF":4.0,"publicationDate":"2025-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145027848","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01DOI: 10.1016/j.jinteco.2025.104156
Isabella Mueller , Eleonora Sfrappini
We analyze how firms’ climate change-related regulatory risks affect banks’ lending. Exploiting the Paris Agreement in a difference-in-differences setting, we find that effects depend on how borrowers will be affected by regulation as well as the stringency of the existing regulatory environment where firms are located. Firms that benefit from regulation receive more credit only if located in more stringent regulatory environments. Conversely, firms hurt by regulation receive more credit if located in less stringent environments or if linked to banks with a portfolio tilted towards lending to negatively impacted firms.
{"title":"Climate change-related regulatory risks and bank lending","authors":"Isabella Mueller , Eleonora Sfrappini","doi":"10.1016/j.jinteco.2025.104156","DOIUrl":"10.1016/j.jinteco.2025.104156","url":null,"abstract":"<div><div>We analyze how firms’ climate change-related regulatory risks affect banks’ lending. Exploiting the Paris Agreement in a difference-in-differences setting, we find that effects depend on how borrowers will be affected by regulation as well as the stringency of the existing regulatory environment where firms are located. Firms that benefit from regulation receive more credit only if located in more stringent regulatory environments. Conversely, firms hurt by regulation receive more credit if located in less stringent environments or if linked to banks with a portfolio tilted towards lending to negatively impacted firms.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104156"},"PeriodicalIF":4.0,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145027783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01DOI: 10.1016/j.jinteco.2025.104101
Martin Baumgärtner , Johannes Zahner
Dictionary-based methods represent the most commonly used approach for quantifying the qualitative information from (central bank) communication. In this paper, we propose machine learning models that generates embeddings from words and documents. Embeddings are multidimensional numerical text representations that capture the underlying semantic relationships within text. Using a novel corpus of 22,000 documents from 128 central banks, we generate the first domain-specific embeddings for central bank communication that outperform dictionaries and existing embeddings on tasks such as predicting monetary policy shocks. We further demonstrate the efficacy of our embeddings by constructing an index that tracks the extent to which Federal Reserve communications align with an inflation-targeting stance. Our empirical results indicate that deviations from inflation-targeting language substantially affect market-based expectations and influence monetary policy decisions, significantly reducing the inflation response parameter in an estimated Taylor rule.
{"title":"Whatever it takes to understand a central banker — Embedding their words using neural networks","authors":"Martin Baumgärtner , Johannes Zahner","doi":"10.1016/j.jinteco.2025.104101","DOIUrl":"10.1016/j.jinteco.2025.104101","url":null,"abstract":"<div><div>Dictionary-based methods represent the most commonly used approach for quantifying the qualitative information from (central bank) communication. In this paper, we propose machine learning models that generates embeddings from words and documents. Embeddings are multidimensional numerical text representations that capture the underlying semantic relationships within text. Using a novel corpus of 22,000 documents from 128 central banks, we generate the first domain-specific embeddings for central bank communication that outperform dictionaries and existing embeddings on tasks such as predicting monetary policy shocks. We further demonstrate the efficacy of our embeddings by constructing an index that tracks the extent to which Federal Reserve communications align with an inflation-targeting stance. Our empirical results indicate that deviations from inflation-targeting language substantially affect market-based expectations and influence monetary policy decisions, significantly reducing the inflation response parameter in an estimated Taylor rule.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"157 ","pages":"Article 104101"},"PeriodicalIF":4.0,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145010045","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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