Category Archives: IFDP Paper

IFDP 2018-1222: Measuring Geopolitical Risk

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Dario Caldara and Matteo Iacoviello | We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes …

IFDP 2018-1221: Does Smooth Ambiguity Matter for Asset Pricing?

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A. Ronald Gallant, Mohammad R. Jahan-Parvar, and Hening Liu | We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric…

IFDP 2018-1220: Estimating Unequal Gains across U.S. Consumers with Supplier Trade Data

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Colin J. Hottman and Ryan Monarch | Using supplier-level trade data, we estimate the effect on consumer welfare from changes in U.S. imports both in the aggregate and for different household income groups from 1998 to 2014. To do this, we use consumer …

IFDP 2017-1219: A Macroeconomic Model with Financial Panics

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Mark Gertler, Nobuhiro Kiyotaki, and Andrea Prestipino | This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly …

IFDP 2017-1218: Learning and the Value of Trade Relationships

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Ryan Monarch and Tim Schmidt-Eisenlohr | This paper quantifies the value of importer-exporter relationships. We show that almost 80 percent of U.S. imports take place in pre-existing relationships, with sizable heterogeneity across countries, and show …

IFDP 2017-1217: Innovation, Productivity, and Monetary Policy

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Patrick Moran and Albert Queralto | To what extent can monetary policy impact business innovation and productivity growth? We use a New Keynesian model with endogenous total factor productivity (TFP) to quantify the TFP losses due to the constraints on…

IFDP 2017-1216: Taxonomy of Global Risk, Uncertainty, and Volatility Measures

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Deepa Datta, Juan M. Londono, Bo Sun, Daniel Beltran, Thiago Ferreira, Matteo Iacoviello, Mohammad R. Jahan-Parvar, Canlin Li, Marius Rodriguez, and John Rogers | A large number of measures for monitoring risk and uncertainty surrounding macroeconomic …

IFDP 2017-1215: Monetary Policy Uncertainty

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Lucas Husted, John Rogers, and Bo Sun | We construct new measures of uncertainty about Federal Reserve policy actions and their consequences — monetary policy uncertainty (MPU) indexes. We show that, under a variety of VAR identification schemes, posi…

IFDP 2017-1214: International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the UK

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Li Liu, Tim Schmidt-Eisenlohr, and Dongxian Guo | This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinatio…

IFDP 2017-1213: Managing Capital Flows in the Presence of External Risks

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Ricardo Reyes-Heroles and Gabriel Tenorio | We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small open economy model subject to the risk of sudden stops–large recessions together with abrupt reversals in capital inflows–and characterize optimal macroprudential policy in response to these shocks. In the model, collateral constraints create a pecuniary externality that leads to “overborrowing” and sudden stops that arise when the constraints bind. The typical sudden stop generated by the model replicates existing empirical evidence for emerging market economies: Low and stable external interest rates reinforce “overborrowing” and lead to greater exposure to crises typically accompanied by abrupt increases in interest rates and a persistent rise in their volatility. We solve for the optimal policy and argue that the size of a tax on international borrowing that implements the policy depends on two factors, the incidence and the severity of potential future crises. We show quantitatively that these taxes respond to both the level and volatility of interest rates even though optimal decisions in the competitive equilibrium do not respond substantially to changes in volatility, and that the size of the optimal tax is non-monotonic with respect to external shocks.