Search

We present a unified dynamic framework to study the interconnections between international trade and business cycle models. We prove an aggregate equivalence between a competitive, representative firm model that has aggregate production externalities and dynamic trade models that feature monopolistic competition, endogenous entry, and heterogeneous firms. The production externalities in the representative firm model have to be introduced in the intermediate and final good sectors so that the model is isomorphic to dynamic trade models that embody love-of-variety and selection effects. In a quantitative exercise with multiple shocks, we show that to improve the fit of the dynamic trade models with the data, the most important ingredient is negative capital externality in the intermediate good sector. We conclude that this presents a puzzle for the literature as standard dynamic trade models provide micro-foundations for positive capital externality.

We study the link between the global financial cycle and macroeconomic tail risks using quantile vector autoregressions. Contractionary shocks to financial conditions and monetary policy in the United States cause elevated downside risks to growth around the world. By tightening financial conditions globally, these shocks affect the left tail of the conditional output growth distribution more strongly than the center of the distribution. This effect is particularly pronounced for countries with less flexible exchange rate arrangements, higher foreign currency exposures, and higher levels of private sector leverage, suggesting that exchange rate policies and macroprudential policies can mitigate downside risks to growth.

What are the cross-border spillovers from major economies’ quantitative easing (QE) policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the zero lower bound period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. We then analyze transmission channels of foreign QE shocks to the domestic economy. Our results suggest that US QE shocks are expansionary for Canada despite a currency appreciation. This is because they spill over to domestic borrowing costs, lowering long-term rates as well as financial premiums, and increasing asset prices. We find evidence for both portfolio balance and risk channels., Quelles sont les répercussions transfrontalières des politiques d’assouplissement quantitatif des grandes économies sur leurs partenaires commerciaux? Nous en faisons la démonstration en examinant les effets des politiques d’assouplissement quantitatif américaines sur le Canada, lorsque ces outils étaient employés activement durant la période où les taux étaient à la borne du zéro. Nous identifions les chocs causés par l’assouplissement quantitatif aux États-Unis, et nous estimons leur impact sur un grand nombre de variables macroéconomiques et financières canadiennes. Nous analysons ensuite les canaux de transmission de ces chocs à l’économie nationale. Nos résultats donnent à penser que les chocs causés par l’assouplissement quantitatif aux États-Unis ont une action expansionniste au Canada malgré l’appréciation de la monnaie. Cette action est attribuable au fait que les chocs se répercutent sur les coûts d’emprunt sur le marché intérieur en faisant diminuer les taux à long terme et les primes de risque financier, ainsi qu’en augmentant les prix des actifs. Nos résultats sont cohérents avec à la fois le canal de rééquilibrage des portefeuilles et le canal de la prise de risque.

This paper examines the countercyclicality of remittance inflows to the countries in Asia and the Pacific. It also aims to identify major determinants of remittances using gravity models of bilateral remittances. We find that bilateral remittance inflows are countercyclical against the business cycle of a remittance-receiving country relative to a sending country. The degree to which remittances are countercyclical is found to vary significantly by subregion: Central Asia and Southeast Asia, including many remittance-dependent countries, show stronger countercyclicality than other subregions. The estimated models suggest that migrant stock is a top determinant of remittances, and that an increase in bilateral remittances is explained by a higher occurrence of disasters caused by natural hazards in receiving countries, appreciation of a receiving country's currency value against that of the sending country, lower interest rate differential (receiver-sender), greater capital account openness and higher political instability, and lower costs of remittances. This suggests that an altruistic motivation to remit prevails in the region. We also find that the countercyclicality of remittances rises when recipient countries experience more frequent disasters, a higher old-age dependence ratio, less stringent capital control, and stable political climate.

Lockdowns imposed to fight the Covid-19 pandemic have cross-border effects. In this paper, we estimate the empirical magnitude of lockdown spillovers in a set of panel local projections. We use daily indicators of economic activity such as stock returns, effective exchange rates, NO2 emissions, mobility and maritime container trade. Lockdown shocks originating in the most important trading partners have a strong and significant adverse effect on economic activity in the home economy. For stock prices and exports, the spillovers can even be larger than the effect of domestic lockdown shocks. The results are robust with respect to alternative country weights used to construct foreign shocks, i.e. weights based on foreign direct investment or the connectedness through value chains. We find that lockdown spillovers have been par-ticularly strong during the first wave of the pandemic. Countries with a higher export share are particularly exposed to lockdown spillovers.

Identifying exogenous variation in monetary policy is crucial for investigating central bank policy transmission. Using newly-collected archival real-time data utilized by the Central Bank Council of the German Bundesbank, we identify unexpected changes in German monetary policy from 580 policy meetings between 1974 and 1998. German monetary policy shocks produce conventional effects on the German domestic economy: activity, prices, and credit decline significantly following a monetary contraction. But given Germany's central role in the European Monetary System (EMS), we can also shed light on debates about the international transmission of monetary policy and the relative importance of the U.S. Federal Reserve for the global cycle during these years. We find that Bundesbank policy spillovers were much stronger in major EMS economies with Deutschmark pegs than in non-EMS economies with floating exchange rates. Furthermore, compared to monetary spillovers from the U.S., German spillovers were comparable or even larger in magnitude for both pegs and floats.

We construct a new indicator of de facto financial integration in the EU. The resulting indicator is pro-cyclical as it evolves along the cyclical pattern of economic activity in the European Union. It is then appended to a set of relevant financial and macroeconomic variables, within a FAVAR framework, to allow us to separate the impact of cyclical boom-bust shocks from structural integration shocks. Increasing structural financial integration tends to improve risk absorption and reduce income disparities among European countries. However, our analysis suggests that most of the movements in the indicator reflect business cycle dynamics, not proper integration. Given the estimated beneficial effects of stronger structural financial integration, these results highlight the need to develop further policies to foster it in the EU.

I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have longrun effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.

I study the role of industries' position in supply chains in shaping the transmission of final demand shocks. First, I use a shift-share design based on destination-specific final demand shocks and destination shares to show that shocks amplify upstream. Quantitatively, upstream industries respond to final demand shocks up to three times as much as final goods producers. To organize the reduced form results, I develop a tractable production network model with inventories and study how the properties of the network and the cyclicality of inventories interact to determine whether final demand shocks amplify or dissipate upstream. I test the mechanism by directly estimating the model-implied relationship between output growth and demand shocks, mediated by network position and inventories. I find evidence of the role of inventories in explaining heterogeneous output elasticities. Finally, I use the model to quantitatively study how inventories and network properties shape the volatility of the economy.

We consider a new dataset that provides a description of the population of financial equity flows between developed countries from 2001 to 2018. We follow the standard practice of controlling for pull and push factors as well as gravity-style variables, while also accounting for the business cycle, public debt and sovereign ratings. Our key findings are as follows: (i) equity flows are more intense between countries at the same stage of the business cycle (ii) increased equity flows to countries with a relatively lower public debt deficit as a ratio of GDP (iii) financial and macroeconomic variables are important for big equity flows, while institutional variables are important for the small flows. Overall, this new dataset provides novel evidence on the importance of the business cycle, government debt and sovereign ratings scores. info:eu-repo/semantics/publishedVersion

We investigate an impact of oil-price shocks on GDP and exchange rate dynamics in resource-heterogeneous economies. We employ a Markov regime-switching version of a vector autoregressive (VAR) model to allow for regime shifts, non-linear effects and timevarying parameters of the VAR process. Empirically we use quarterly data series in oil exporting, metal-exporting, and less-resource-intensive economies. On average, real GDP in oil-exporting economies exhibits substantial contraction, while for metal exporters there is a significant real GDP expansion suggesting an offsetting effect of metal exports on oil imports. We find that currency appreciation state is more persistent in oil- and metal exporting economies while less-resource-intensive economies remain longer in a currency depreciation state. Further evidence suggests existence of the counteracting forces such as foreign exchange interventions by authorities in oil-exporting economies. It also emerges that currency appreciation in oil-exporting economies is driven largely by economic performance rather than oil price movement.

We propose a new and time-varying optimum currency area (OCA) index for the euro area in assessing the evolution of the OCA properties of the monetary union from an international business cycle perspective. It is derived from the relative importance of symmetric vs. asymmetric shocks that result from a sign and zero restricted open-economy structural vector autoregression (VAR) model. We argue that the euro area is more appropriate through the lens of empirical OCA properties when the relative importance of common symmetric shocks is high, but, at the same time, is not overly dispersed across euro area member countries. We find that symmetric shocks have been the dominant drivers of business cycles across euro area countries. Our OCA index, nevertheless, shows that cyclical convergence among euro area members is not a steady process as it tends to be disrupted by crises, especially those not primarily triggered by common external shocks. In the aftermath of a crisis the OCA index embarks on a recovery trajectory catching up with its pre-crisis level. Our OCA index is slow-moving and a good reflection of changing underlying economic structures across the euro area and, therefore, informative about the ability of monetary policy to stabilise the euro area economy in the medium run.

In this paper, we estimated the standard (macro-economic) import equation over the period 1995-2021Q2, using an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-output tables at country level, and compared the results with regressions using GDP. Initially introduced by Bussière (2013), this "synthetic" concept of IAD was perfected, inter alia, by the IMF (2016) and by us (2017), with a view to explaining the "missing" trade flows unpredicted by GDP-based import models during the trade collapse of 2009 and subsequent recovery from it. At the time, it appeared that the integration of IAD helped predict over three-quarters of the changes in global imports, a better performance than if using GDP (two-thirds) or any other measure of aggregate demand. We had found much value to this method, as a complement to existing analytical tools, enabling to measure the relative importance of each component of demand in the variations of country/global imports, over entire economy cycles (a phase of trade expansion, a sudden collapse and a recovery). Moreover, by weighting each aggregate demand component by its direct and indirect traded inputs, import-adjusted integrated a supply-side dimension to such macro-economic modelling. By extending our estimates to cover global trade during the (on-going) Covid-19 pandemic (1995-2021 Q2), we found the IAD-based model to continue performing well, predicting 79% of changes in global imports during the period 1995-2021Q2 (10 percentage points more than when using GDP). We also found that, on average, 97% of the difference in global import growth between the pre-pandemic (2012-2019) and the pandemic period (2020), was attributable to IAD. Most of the variations in imports can be explained by changes in the growth of investment and exports, the two-most trade-intensive elements of demand, by 29% and 45%. The variations of consumption also accounted for a significant share of global import variations during this period (25%).

This paper quantifies the pass-through of a US dollar appreciation on trade variables and domestic financial conditions in a panel of 34 countries. Pass-through coefficients are highly shock-dependent: if the appreciation is driven by a US expansionary shock, the positive effects of stronger global demand - the "real" channel-dominate the negative effects of a stronger dollar - the "exchange rate" channel. As a result, a positive US demand (supply)-drive appreciation expands global trade and stock valuations up to 2.2 (2.5) and 8% (15%) respectively, while if the appreciation is driven by a monetary policy shock the sign is opposite, leading to a contraction in the order of 2.5% (3%) depending on the country. The coefficients also exhibit a large degree of cross-country heterogeneity, we find that financial and trade exposure to the US, trade openness and USD invoicing shares explain up to 60% of the USD pass-through after demand and supply shocks. Crosscountry differences, instead, are not explained by dollar invoicing if monetary policy or risk shocks determine USD movements. We explain this finding with the endogenous policy reaction of monetary authorities in emerging markets that stabilizes the exchange rate against the dollar and weakens the invoicing channel of dollar shocks.

This paper constructs and uses the global input–output (GIO) table with 35 industries, 29 endogenous countries and 59 exogenous countries, and develops new indices to measure the degree of shock transmission in terms of intermediate goods and value-added embodied in production induced by negative global demand shock to finished goods. After the Global Financial Crisis (GFC) in 2008, China did not experience a large decline in economic growth, even though China’s gross exports fell most severely among Asian countries. In contrast, a sharp decrease in Japanese GDP in 2009 is a consequence of a substantial decline in finished goods exports, especially in the transport equipment industry. In Japan, the shock effect tends to be absorbed in its domestic sector and is not transmitted to other foreign countries. An asymmetric pattern of shock transmission between Japan and other Asian countries can explain why Japan was more affected by GFC than other Asian countries.

This thesis aims to analyze cross-country differences in earnings management practices, discussing about the role of country- and firm-specific economic and institutional factors. In order to achieve such broad objective, three studies were developed. The first study analyzes the effect of macroeconomic instability on earnings management and the moderating role of country-level institutions, explicitly examining how this phenomenon compares between developed and emerging market countries. The results shows that when facing greater macroeconomic instability, firms from developed (emerging market) countries decrease (increase) the level of accruals-based earnings management, and in both types of countries decrease the level of real earnings management. The empirical findings also evidence that the association between macroeconomic instability and accruals-based earnings management is lower in countries with stronger institutions, in both developed and emerging market countries. The second study examines the association between financial distress and accruals-based earnings management in emerging markets, and the role that auditors (Big 4 versus non-Big 4, and differences across Big 4 audit firms) play in such association. The results suggest that firms from emerging markets facing higher levels of financial distress engage in income-increasing accruals-based earnings management, and that such engagement is lower in firms audited by Big 4 compared to those audited by non-Big 4 auditors. Furthermore, the results also demonstrate a significant difference across Big 4 audit firms in their role of constraining income-increasing earnings management strategies in firms with high levels of financial distress. Finally, the third study analyzes the association between country-level ethical judgment and earnings management. It is also investigated the role that firm-level enforcement and the quality of accounting standards play in this association. The empirical results suggest that firms from countries where ethically suspect behaviors are less acceptable (i.e. higher ethical judgment) are associated with lower levels of accruals-based earnings management. Moreover, the results also provide evidence that firm-level enforcement and the quality of accounting standards play an important moderating role in the effect of national ethical judgment on earnings management, in order to dampen it. Taken together, our results contribute to the debate concerning the effect of economic and institutional factors on the accounting quality in an international context. Investors and regulators may be interested in such evidence. When it is known that economic and institutional factors are associated to firm-level earnings management, actions can be taken to build stronger and fairer societies, given that the quality of the financial reporting is inextricably linked to how well the economy works and how income and wealth are distributed. Esta tese tem como objetivo analisar as diferenças entre os países no que diz respeito às práticas de gestão de resultados, discutindo sobre o papel dos fatores económicos e institucionais específicos dos países e das empresas. Para atingir esse objetivo amplo, três estudos foram desenvolvidos. O primeiro estudo analisa o efeito da instabilidade macroeconómica sobre a gestão de resultados e o papel moderador das instituições ao nível do país, examinando explicitamente como esse fenómeno se compara entre países desenvolvidos e emergentes. Os resultados sugerem que, ao enfrentar uma maior instabilidade macroeconómica, as empresas de países desenvolvidos (mercados emergentes) diminuem (aumentam) o nível de gestão de resultados por accruals e em ambos os tipos de países diminuem o nível de gestão de resultados por decisões operacionais. Também encontrámos evidências de que a associação entre instabilidade macroeconómica e gestão de resultados com base em accruals é menor nos países com instituições mais fortes, tanto em países desenvolvidos quanto em mercados emergentes. O segundo estudo examina a associação entre dificuldades financeiras e gestão de resultados por accruals em mercados emergentes e o papel que os auditores (Big 4 "versus" non-Big 4, e diferenças entre as grandes empresas de auditoria) desempenham em tal associação. Os resultados apontam que as empresas dos países emergentes que enfrentam níveis mais elevados de dificuldades financeiras envolvem-se em estratégias de gestão de resultados por accruals que aumentam o lucro e que tal envolvimento é menor em empresas auditadas por Big 4, quando comparado com empresas não auditadas por Big 4. Além disso, também encontramos diferenças significativas entre as quatro grandes empresas de auditoria no seu papel de restringir as estratégias de gestão de resultados que aumentam o lucro em empresas com altos níveis de dificuldades financeiras. Finalmente, o terceiro estudo analisa a associação entre o julgamento ético ao nível do país e a gestão de resultados. Também é investigado o papel que o enforcement ao nível da empresa e a qualidade das normas contabilísticas desempenham nesta associação. Os resultados empíricos sugerem que as empresas de países onde comportamentos eticamente suspeitos são menos aceitáveis (i.e. maior julgamento ético) estão associadas a níveis menores de gestão de resultados por accruals. Além disso, fornecemos evidências de que o enforcement no nível da empresa e a qualidade das normas contabilísticas desempenham um papel moderador importante no efeito do julgamento ético nacional sobre a gestão de resultados, a fim de atenuá-lo. Em conjunto, os nossos resultados contribuem para o debate a respeito do efeito de fatores económicos e institucionais sobre a qualidade da informação contabilística num contexto internacional. Quando se sabe que fatores económicos e institucionais estão associados à gestão de resultados ao nível da empresa, podem ser tomadas ações para construir sociedades mais fortes e justas, uma vez que a qualidade dos relatórios financeiros está intrinsecamente ligada ao funcionamento da economia e à forma como a riqueza é distribuída.

Denmark is often termed a "flexicurity" country with lax employment protection legislation, generous unemployment insurance, and active labor market policies. This model is not a safeguard against business cycles, but has coped with the Great Recession and the Covid-19 pandemic, avoiding large increases in long-term and structural unemployment. The pandemic has had severe effects due to restrictions and lockdowns, but the recovery and re-openings in late 2020 and spring 2021 have been strong, indicating that the labor market effects are mainly temporary. Recent reforms have boosted labor supply and employment. Real wage growth has been positive and responded—with some lag—to the developments in unemployment.

Debt in emerging market and developing economies (EMDEs) is at its highest level in half a century. In about nine out of 10 EMDEs, debt is higher now than it was in 2010 and, in half of the EMDEs, debt is more than 30 percentage points of gross domestic product higher. Historically, elevated debt levels increased the incidence of debt distress, particularly in EMDEs and particularly when financial market conditions turned less benign. This paper reviews an encompassing menu of options that have, in the past, helped lower debt burdens. Specifically, it examines orthodox options (enhancing growth, fiscal consolidation, privatization, and wealth taxation) and heterodox options (inflation, financial repression, debt default and restructuring). The mix of feasible options depends on country characteristics and the type of debt. However, none of these options comes without political, economic, and social costs. Some options may ultimately be ineffective unless vigorously implemented. Policy reversals in difficult times have been common. The challenges associated with debt reduction raise questions of global governance, including to what extent advanced economies can cast their net wider to cushion prospective shocks to EMDEs.

We examine the relationship between domestic saving and the current account in developing countries. Our three main findings are that domestic saving has: (i) a small effect on the current account; (ii) a significant positive and quantitatively sizable effect on the trade balance; (iii) a significant negative effect on net-current transfers. We use countries in the sub-Saharan African region as a laboratory for an instrumental variables approach. The IV approach enables to obtain estimates of causal effects. Underlying the IV approach is the significant positive first-stage response of domestic saving to plausibly exogenous annual rainfall: an unanticipated, transitory supply-side shock. We construct a small open-economy DSGE model with debt adjustment frictions and endogenous net-current transfers to match the empirical findings. The model enables to examine how other types of shocks - such as changes in interest rates or trend TFP for which it is hard to get exogenous variation in the data - affect the relationship between domestic saving and the current account. An important implication of our findings is that, for developing countries, estimates of the relationship between domestic saving and domestic investment are not informative for answering the question how domestic saving affects a country's accumulation of net foreign assets.

The last twenty years have brought a bulk of inconsistent results on the determinants of business cycle synchronization (BCS). Researchers have usually focused their attention on a limited set of possible determinants, not accounting for model uncertainty. For these reasons, Bayesian Model Averaging has been applied in this paper to the dataset with 43 potential determinants of BCS for the EU. There is strong evidence to claim that migration, exchange rate variability, similarity of production structures, TFP shocks, similarity in exchange rate policy, intra-industry trade, risk sharing, and capital mobility are robust determinants of BCS. Some well-established determinants such as bilateral trade, monetary policy similarity, gravity variables, and participation in a monetary union and free trade area have turned out to be fragile. The structure of trade is more important for BCS than its magnitude, as intra-industry trade and structural similarity are taking explanatory power away from the bilateral trade.

This paper proposes a multi-level dynamic factor model to identify common components in output gap estimates. We pool multiple output gap estimates for 157 countries and decompose them into one global, eight regional, and 157 country-specific cycles.Our approach easily deals with mixed frequencies, ragged edges, and discontinuities in the underlying output gap estimates. To restrict the parameter space in the Bayesian state space model, we apply a stochastic search variable selection approach and base the prior inclusion probabilities on spatial information. Our results suggest that the global and the regional cycles explain a substantial proportion of the output gaps. On average, 18% of a country’s output gap is attributable to the global cycle, 24% to the regional cycle, and 58% to the local cycle., KOF Working Papers, 497

We assess to which degree an international transfer mechanism can enhance consumption risk sharing as well as allocative efficiency and apply our results to a potential European unemployment benefit scheme (EUBS). Specifically, we first develop a simple model with nominal rigidities to build intuition by deriving analytical results. We then use a rich DSGE model, calibrated to the Core and the Periphery of the euro area, to quantitatively analyze the changing dynamics that a EUBS brings about. We find that a EUBS can provide risk sharing by stabilizing relative consumption as well as unemployment. Following supply shocks, however, the cross-country transfer embodied in the unemployment benefits is spent to a large degree on relatively inefficiently produced goods in the receiving countries. This renders the allocation even more inefficient by opening country-specific labor wedges further, also after government-spending shocks. Yet, since this trade-off between allocative efficiency and consumption risk sharing does not exist after certain demand shocks, the welfare effects of a EUBS depend on the cause for international unemployment differentials. A EUBS that is only active after specific shocks would therefore maximize overall welfare. Even without this feature, a EUBS would raise welfare in the Core, leaving the Periphery's welfare almost unchanged.

When the United States changes personal or corporate income tax rates, the economic effects are not just contained to that country. They spill over to other countries. However, the size and positive or negative effects of these spillovers are not clear. We measure the impact of changes to personal and corporate income tax rates in the United States on its trading partners. We follow the methodology introduced by Mertens and Ravn (2013) to first identify unanticipated changes to US tax rates. We then estimate the spillover effects of these changes to Canada and other US trading partners. We find that US corporate income tax cuts generally have negative cross-border spillover effects, though these effects are usually small. In Canada, these spillover effects turn positive over the long run. US personal income tax cuts generally have positive and sizable spillover effects that are most pronounced in emerging-market economies without fully flexible exchange rate regimes., Quand les taux d’imposition sur le revenu des particuliers ou des entreprises changent aux États-Unis, les effets économiques qui s’en suivent se répercutent aussi sur d’autres pays. Cela dit, l’ampleur de ces répercussions transfrontières et leurs incidences positives ou négatives ne sont pas claires. Nous mesurons les effets des changements de taux d’imposition des particuliers et des entreprises aux États-Unis sur les partenaires commerciaux de ce pays. Suivant la méthodologie de Mertens et Ravn (2013), nous recensons tout d’abord les changements imprévus ayant visé les taux d’imposition américains. Nous en estimons ensuite les répercussions sur le Canada et d’autres partenaires commerciaux des États-Unis. Nous constatons que les baisses de taux d’imposition des entreprises américaines ont, en général, des répercussions transfrontières négatives, mais habituellement modérées. Au Canada, ces répercussions deviennent positives à long terme. Les baisses de taux d’imposition des particuliers américains, quant à elles, ont généralement des répercussions extérieures positives et assez importantes qui sont plus marquées dans les pays émergents dépourvus d’un régime de changes entièrement flottants.

We build a new empirical model to estimate the global impact of an increase in the volatility of US monetary policy shocks. Specifically, we admit time-varying variances of local structural shocks from a stochastic volatility specification. By allowing for rich dynamic interaction between the endogenous variables and time-varying volatility in the global setting, we find that US interest rate uncertainty not only drives local output and in ation volatility, but also causes declines in output, in ation, and the interest rate. Moreover, we document strong global impacts, making the world move in a very synchronous way. Crucially, spillback effects are found to be significant even for the US economy.

This study examines business cycle fluctuations in selected Sub-Saharan African (SSA) countries. The study measures the impact of selected real shocks, namely: terms of trade shocks, commodity price shocks, and government spending shocks, on macroeconomic fluctuations in SSA. The impact of the selected shocks was measured by the Bayesian Panel Vector Autoregression (BPVAR) technique. It was ascertained from the results that real (i.e. productivity) shocks drive business cycles (macroeconomic fluctuations) in SSA countries which support theoretical inclination. Furthermore, from the empirical analysis, terms of trade shocks possess the highest positive impact on business cycles. At the same time, government expenditure has the highest negative impact on business cycle among the three selected real shocks across the SSA region. Thus, the study recommends that government institutions in SSA should embark on sound fiscal policy plan along with monetary policy to stabilise the economy during recessions and expansions. The study highlights the need for diversification of the export base of SSA countries to mitigate terms of trade losses usually occasioned by unfavourable commodity price shocks.

We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases, which raises bank profitability and the market-to-book value of bank capital. Hence, banks build up larger capital buffers which (i) lowers the public losses in case of a systemic crisis and (ii) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our model’s dynamic implications in a panel VAR estimation, which suggests that bank lending has even increased in the long-run after the implementation of Basel III capital regulation.

The US dollar plays a dominant role in the invoicing of international trade, albeit not an exclusive one as more than half of global trade is invoiced in other currencies. Of particular interest are the euro, with a large role, and the renminbi, with a rising role. These two currencies are well suited to contrast the roles of economic fundamentals and policies, as European policy makers have taken a neutral stance in contrast to the promotion of the international role of the renminbi by the Chinese authorities. We assess the drivers of in- voicing using the most recent and comprehensive data set for 115 countries over 1999-2019. We find that standard mechanisms that foster use of a large economy's currency predicted by theory - i.e. strategic complementarities in price setting and integration in cross-border value chains - underpin use of the dollar and the euro for trade with the United States and the euro area. These mechanisms also support the role of the dollar, but not the euro, in trade between non-US and non-euro area countries, making the dollar the globally dominant invoicing currency. Fundamentals and policies have played a contrasted role for the use of the renminbi. We find that China's integration into global trade has further strengthened the dominant status of the dollar at the expense of the euro. At the same time, the establishment of currency swap lines by the People's Bank of China has been associated with increases in renminbi invoicing, with an adverse effect on dollar use that is larger than for the euro.