International Economic Review最新文献

Credit expansions stimulate the economy. We quantify the contribution of households versus firms for this stimulus. Using causal evidence from the quasi-natural experiment of bank deregulation across US states, we estimate a small open-economy heterogeneous-agent New Keynesian model. Deregulation generated lower borrowing costs. Firms' responses to such shocks account for most of the long-run rise in output and employment. For short-run dynamics, firms and households are equally important. Firms' large role is identified by an empirical observation: output and employment expanded gradually following deregulation. In the model, lower interest rates generate increasing capital stocks which in turn increases economic activity gradually.

After 2000, ratios of tax collections to GDP and government expenditures to GDP have departed from 19th and 20th century US patterns. Before 2000, wartime government expenditure/GDP surges were accompanied by permanent rises in expenditure/GDP and tax collection/GDP ratios. Part of the War on COVID expenditure/GDP surge has persisted, but so far tax collections have not risen relative to GDP. If that discrepancy persists, the consolidated federal government budget constraint portends permanently higher US inflation and higher nominal interest rates on US government interest-bearing bonds.

This discussion evaluates Fang, Wang, and Wu's study on collateral-based monetary policy in China, which exploits the 2018 expansion of eligible collateral under the Medium-Term Lending Facility. The paper develops a theoretical model-linking collateral eligibility to bond pricing, employs a novel triple-difference strategy using dual-listed bonds, and finds that policy reduces bond spreads in both secondary and primary markets. The discussion highlights the paper's methodological contributions, situates its findings within China's structural monetary policy framework, and raises future research questions on credit allocation, systemic risks, and the effectiveness of structural versus conventional monetary tools.

This paper integrates theory and transaction-level data from China's interbank over-the-counter (OTC) FX market to examine how search frictions affect prices, asset distributions, and welfare. We document that: (1) larger banks face lower transaction costs, decreasing with trade size; (2) easing search frictions increases dispersion in asset holdings; and (3) search frictions distort counterparty selection. These patterns follow naturally from an OTC model with heterogeneous investor search abilities and dealer fixed costs. We calibrate the model to quantify heterogeneous effects of search frictions across investors and perform counterfactual analysis to assess the impact of policies designed to decrease search frictions.

China's increasing use of structural monetary policy raises questions about its optimal role. This study investigates when and how SMP should be deployed using a multisector DSGE model incorporating distinct financing conditions and intermediary constraints for SOEs and POEs. We find that credit tightening disproportionately raises POE credit spreads, which conventional policy struggles to correct. Credit shocks significantly amplify resource misallocation and necessitate active SMP to address these specific distortions, stabilize the economy, and mitigate associated welfare losses. Our findings indicate that the justification for SMP is strongest when credit shocks significantly interact with underlying financial asymmetries between sectors.