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Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency. This paper documents that this syndrome has been witnessed by many emerging markets and developing economies (EMDEs) as a result of surges in capital inflows driven by accommodative U. S. monetary policy. In a sample of 25 EMDEs from 2000-17, U. S. monetary policy shocks coincided with episodes of currency appreciation and a contraction in tradable output in these economies. The paper also shows empirically that the use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks. Against this background, the paper presents a two sector small open economy augmented with a learning-by-doing (LBD) mechanism in the tradable sector to rationalize these empirical findings. A welfare analysis provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality of costly resource misallocation as a result of greater capital inflows. However, the adequate calibration of CFMs and the quantification of the LBD externality represent important implementation challenges.

United States --- Macroeconomics --- Economics: General --- Economic Theory --- Exports and Imports --- Foreign Exchange --- Monetary Policy --- Open Economy Macroeconomics --- Resource Booms --- International Lending and Debt Problems --- International Investment --- Long-term Capital Movements --- Economic & financial crises & disasters --- Economics of specific sectors --- Economic theory & philosophy --- International economics --- Currency --- Foreign exchange --- Dutch disease --- Economic theory --- External debt --- Capital inflows --- Balance of payments --- Exchange rates --- Exchange rate arrangements --- Currency crises --- Informal sector --- Economics --- Economic forecasting --- Debts, External --- Capital movements

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Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques. In our study, the methods are given the right fundamentals and the right models and are evaluated on how closely the estimated predictions match the objectively correct predictions. We find that all methods do reasonably well when fundamentals are explosive and all do badly when fundamentals are merely highly volatile.

Banks and Banking --- Foreign Exchange --- Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Monetary Policy --- Economic & financial crises & disasters --- Currency --- Foreign exchange --- Banking --- Currency crises --- Exchange rates --- Conventional peg --- Exchange rate adjustments --- International reserves --- Financial crises --- Central banks --- Foreign exchange reserves --- Mexico

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This paper studies whether bank ownership influenced lending behavior during the COVID-19 shock. It finds that, similar to previous episodes of financial distress, foreign banks appear to have played a shock-transmitting role, as there was a sharp slowdown in lending by foreign banks’ affiliates relative to domestic banks. However, given the uniqueness of the COVID-19 shock and the impact of lockdowns on economic activity, foreign banks were found to lend at a higher rate than domestic banks once the stringency of mobility restrictions is accounted for, with their lending portfolio concentrated more in the corporate sector. Results also suggest that the difference in lending rates between foreign and domestic banks could be explained by the heterogeneous effects of policy measures in response to the pandemic. In jurisdictions with more stringent mobility restrictions, policy interventions actually encouraged higher lending by foreign banks. These findings suggest that foreign bank presence may have acted as a shock absorber in jurisdictions where economic activity was most affected by the pandemic.

Macroeconomics --- Economics: General --- Banks and Banking --- Money and Monetary Policy --- Diseases: Contagious --- Financial Markets and the Macroeconomy --- Studies of Particular Policy Episodes --- Information and Market Efficiency --- Event Studies --- Financial Institutions and Services: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Health Behavior --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Monetary economics --- Infectious & contagious diseases --- Foreign banks --- Financial institutions --- COVID-19 --- Health --- Bank credit --- Money --- Credit --- Credit ratings --- Currency crises --- Informal sector --- Economics --- Banks and banking, Foreign --- Communicable diseases

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This paper studies whether bank ownership influenced lending behavior during the COVID-19 shock. It finds that, similar to previous episodes of financial distress, foreign banks appear to have played a shock-transmitting role, as there was a sharp slowdown in lending by foreign banks’ affiliates relative to domestic banks. However, given the uniqueness of the COVID-19 shock and the impact of lockdowns on economic activity, foreign banks were found to lend at a higher rate than domestic banks once the stringency of mobility restrictions is accounted for, with their lending portfolio concentrated more in the corporate sector. Results also suggest that the difference in lending rates between foreign and domestic banks could be explained by the heterogeneous effects of policy measures in response to the pandemic. In jurisdictions with more stringent mobility restrictions, policy interventions actually encouraged higher lending by foreign banks. These findings suggest that foreign bank presence may have acted as a shock absorber in jurisdictions where economic activity was most affected by the pandemic.

Macroeconomics --- Economics: General --- Banks and Banking --- Money and Monetary Policy --- Diseases: Contagious --- Financial Markets and the Macroeconomy --- Studies of Particular Policy Episodes --- Information and Market Efficiency --- Event Studies --- Financial Institutions and Services: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Health Behavior --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Monetary economics --- Infectious & contagious diseases --- Foreign banks --- Financial institutions --- COVID-19 --- Health --- Bank credit --- Money --- Credit --- Credit ratings --- Currency crises --- Informal sector --- Economics --- Banks and banking, Foreign --- Communicable diseases --- Covid-19

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This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net capital outflows. We find that such tightening is effective if it is supported by strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive. When none of these three conditions is fulfilled, a tightening of restrictions fails to reduce net outflows as it provokes a sizeable decline in gross inflows, mainly driven by foreign investors.

Capital movements --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Econometric models. --- Econometrics --- Exports and Imports --- Industries: General --- Globalization: Finance --- International Investment --- Long-term Capital Movements --- Macroeconomics: Production --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- International economics --- Econometrics & economic statistics --- Capital outflows --- Industrial production --- Capital controls --- Vector autoregression --- Production --- Econometric analysis --- Industries --- Malaysia