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This paper assesses the role of climate policies as a catalyst of low carbon technologies deployment through foreign direct investment (FDI). Leveraging detailed cross-border project-level information, it identifies “green” FDI and finds that a higher number of active climate policies is associated with higher levels of green FDI inflows. Importantly, climate policies do not appear to be linked to lower levels of non-green projects, suggesting relatively small overall costs from the green transition. The paper also finds heterogeneity across sectors and policy instruments. The association between climate policies and green projects is particularly strong in energy and manufacturing, and when the composition of the recipient's climate portfolio is tilted towards binding policies (e.g., taxes and regulation) and expenditure measures. Finally, results point to policy spillovers, whereby larger climate policy portfolios in the source country are linked to higher green FDI outflows, but green subsidies can discourage them. This, in turn, implies that subsidies could hamper efforts to deploy low-carbon technologies across countries.

Balance of payments --- Climate change --- Climate policy --- Climate --- Climatic changes --- Currency crises --- Economic & financial crises & disasters --- Economics of specific sectors --- Economics --- Economics: General --- Environment and Development --- Environment and Trade --- Environment --- Environmental Accounts and Accounting --- Environmental Conservation and Protection --- Environmental Economics --- Environmental Economics: Government Policy --- Environmental Equity --- Environmental policy & protocols --- Environmental Policy --- Environmental policy --- Exports and Imports --- Finance --- Foreign direct investment --- Global Warming --- Greenhouse gas emissions --- Greenhouse gases --- Informal sector --- International Investment --- International Trade Organizations --- Investments, Foreign --- Long-term Capital Movements --- Macroeconomics --- Natural Disasters and Their Management --- Population Growth --- Public finance & taxation --- Sustainability --- Tariff --- Tariffs --- Taxation --- Taxes --- Trade Policy

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We study the link between central bank independence and inflation by providing narrative and empiricial evidence based on Latin America’s experience over the past 100 years. We present a novel historical dataset of central bank independence for 17 Latin American countries and recount the rocky journey traveled by Latin America to achieve central bank independence and price stability. After their creation as independent institutions, central bank independence was eroded in the 1930s at the time of the Great Depression and following the abandonement of the gold exchange standard. Then, by the 1940s, central banks turned into de facto development banks under the aegis of governments, sawing the seeds for high inflation. It took the high inflation episodes of the 1970s and 1980s and the associated major decline in real income, and growing social discontent, to grant central banks political and operational independence to focus on fighting inflation starting in the 1990s. The empirical evidence confirms the strong negative association between central bank independence and inflation and finds that improvements in independence result in a steady decline in inflation. It also shows that high levels of central bank independence are associated with reductions in the likelihood of high inflation episodes, especially when accompanied by reductions in central bank financing to the central government.

Macroeconomics --- Economics: General --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Central Banks and Their Policies --- Economic History: Macroeconomics --- Growth and Fluctuations: Latin America --- Caribbean --- Price Level --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Monetary economics --- Central bank autonomy --- Central banks --- Prices --- Central bank legislation --- Bank credit --- Money --- Central bank organization --- Currency crises --- Informal sector --- Economics --- Credit --- Argentina

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We use panel quantile regressions to study extreme (rather than average) movements in the distribution of the real effective exchange rate (REER) of small open economies. We document that global uncertainty (VIX) and global financial conditions (U.S. monetary policy) shocks have a strong impact on the distribution of the REER changes, with larger impacts in the tails of the distribution, and especially in economies with shallower FX markets, lower central bank credibility, and higher credit risk (i.e., weaker macro fundamentals). Foreign exchange intervention (FXI) partially offsets the impact of these shocks, especially in the left tail (large depreciations) and particularly in economies with weaker fundamentals but, more importantly, when FXI is used sporadically. Thus, our results highlight the importance of deepening FX markets, improving central bank credibility, and strengthening macro fundamentals against the potential dynamic trade-offs of overreliance on a policy that would exacerbate the previously mentioned frictions. While our results point to low effectiveness of capital flow management in preventing large REER movements, they seem to enable more impactful foreign exchange intervention in the immediate aftermath of shocks.

Macroeconomics --- Economics: General --- Foreign Exchange --- Finance: General --- Investments: General --- Open Economy Macroeconomics --- International Financial Markets --- Investment --- Capital --- Intangible Capital --- Capacity --- Economic & financial crises & disasters --- Economics of specific sectors --- Currency --- Foreign exchange --- Finance --- Real effective exchange rates --- Real exchange rates --- Foreign exchange intervention --- Currency markets --- Financial markets --- Depreciation --- National accounts --- Currency crises --- Informal sector --- Economics --- Foreign exchange market --- Saving and investment

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How does geographic distance affect the impact of trade agreements on bilateral exports, and through what channels? This paper examines this questions in a gravity model context for different types of goods for 185 countries over the period 1965-2010. Three stylized facts emerge. First, although economic integration agreements have a positive impact on trade flows, geographic distance significantly decreases their effect. Second, this phenomenon is in large part explained by the impact of economic integration agreements on distance-sensitive goods, in particular intermediates. These results hold when controlling for trade agreement depth, measured by the type of agreement and content of provisions, and economic similarity among trading partners. Third, this paper finds either no significant effect or a positive interaction between distance and economic integration agreements for final goods, suggesting that trade agreements among countries located far from each other help consumption patterns shift toward the most efficient producers.

Economic Distance --- Geography --- Integration Agreements --- International Economics & Trade --- Trade Agreements

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We study the response of corporate investment in Emerging Markets to unexpected fiscal shocks. We find that, although firm-level investment decreases on impact following unexpected public expenditure adjustments (classical Keynesian multiplier effect), it quickly rises above pre-shock levels. The rebound in investment is facilitated by fiscal space, flexible exchange rates, and more predictable fiscal policy. We also show that the composition of fiscal adjustments matters for investment’s response—compared to public investment adjustments, reductions in public consumption lead to larger private investment contractions on impact, but drive private investment to above pre-shock levels. Finally, we exploit firm-level heterogeneity in several dimensions, including to show that corporate investment’s recovery is stronger in firms in the tradable sector and in larger and less indebted firms, and to show that the long-run benefits to economic activity of the fiscal shock appear to outweigh its short-run costs.

Macroeconomics --- Economics: General --- Public Finance --- Investments: General --- Banks and Banking --- Finance: General --- Fiscal Policies and Behavior of Economic Agents: Firm --- National Government Expenditures and Related Policies: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Fiscal Policy --- Macroeconomic Aspects of International Trade and Finance: General --- Firm Behavior: Empirical Analysis --- Corporate Finance and Governance: General --- Debt --- Debt Management --- Sovereign Debt --- Financial Institutions and Services: Government Policy and Regulation --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Corporate finance --- Financial services law & regulation --- Finance --- Expenditure --- Fiscal consolidation --- Fiscal policy --- Corporate investment --- National accounts --- Public debt --- Capital adequacy requirements --- Financial regulation and supervision --- Currency crises --- Informal sector --- Economics --- Expenditures, Public --- Saving and investment --- Debts, Public --- Asset requirements