159 posts on "International Economics"
October 7, 2025
Dutch Treat: The Netherlands’ Exorbitant Privilege in the Eighteenth Century
The term “exorbitant privilege” emerged in the 1960s to describe the advantages derived by the U.S. economy from the dollar’s status as the de facto global reserve currency. In this post, we examine the exorbitant privilege that accrued to the Netherlands in the eighteenth century, when the Dutch guilder enjoyed global reserve currency status. We show how the private actions of financial institutions created and maintained this privilege, even in the absence of a central bank. While privilege benefited the Dutch financial system in many ways, it also laid the seeds of later financial crisis.
Posted at 7:00 am in Economic History, International Economics, Nonbank (NBFI) | Permalink | Comments (0)
October 6, 2025
A Country‑Specific View of Tariffs
U.S. trade policy remains in flux. Nevertheless, important elements of the new policy regime are apparent in data through July. What stands out are the large differences in realized tariff rates by trading partner, ranging from less than 5 percent for Canada and Mexico to 15 percent for Japan and to 40 percent for China. This post shows that the bulk of cross-country differences in tariff rates is explained by two factors: the U.S.-Canada-Mexico free trade agreement and differing sales shares in tariff-exempt categories.
September 22, 2025
Financial Intermediaries and Pressures on International Capital Flows
Global factors, like monetary policy rates from advanced economies and risk conditions, drive fluctuations in volumes of international capital flows and put pressure on exchange rates. The components of international capital flows that are described as global liquidity—consisting of cross-border bank lending and financing of issuance of international debt securities—have sensitivities to risk conditions that have evolved considerably over time. This risk sensitivity has been driven, in part, by the composition and business models of the financial institutions involved in funding. In this post, we ask whether these same features have led to changes in the pressures on currency values as risk conditions evolve. Using the Goldberg and Krogstrup (2023) Exchange Market Pressure (EMP) country indices, we show that the features of financial institutions in the source countries for international capital do influence how destination countries experience currency pressures when risk conditions change. Better shock-absorbing capacity in financial institutions moderates the pressures toward depreciation of currencies during adverse global risk events.
Posted at 7:00 am in Bank Capital, Exchange Rates, Financial Institutions, International Economics, Systemic Risk | Permalink
June 26, 2025
Financial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows
Global risk conditions, along with monetary policy in major advanced economies, have historically been major drivers of cross-border capital flows and the global financial cycle. So what happens to these flows when risk sentiment changes? In this post, we examine how the sensitivity to risk of global financial flows changed following the global financial crisis (GFC). We find that while the risk sensitivity of cross-border bank loans (CBL) was lower following the GFC, that of international debt securities (IDS) remained the same as before the GFC. Moreover, the changes in risk sensitivities of these flows were related to balance sheet constraints of financial institutions that were intermediating these flows.
May 20, 2025
Why Does the U.S. Always Run a Trade Deficit?
The obvious answer to the question of why the United States runs a trade deficit is that its export sales have not kept up with its demand for imports. A less obvious answer is that the imbalance reflects a macroeconomic phenomenon. Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. Reducing the trade imbalance therefore requires both more exports relative to imports and a narrowing of the gap between saving and investment spending.
Posted at 7:00 am in International Economics | Permalink
April 24, 2025
Gauging the Strength of China’s Economy in Uncertain Times
Amid increasing pressure on the Chinese economy from China’s trade conflict with the U.S., assessing the strength of the Chinese economy will be an important watch point. In this post, we provide an update on China’s recent economic performance and policy changes. While China is likely to counter growth headwinds from the escalating trade tensions with additional policy stimulus, the country’s complex fiscal dynamics and the varying interpretations of the strength of its economic growth made judgments of the efficacy of China’s policy response challenging even in a more predictable environment. In this respect, we argue that aggregate credit is a simple and effective measure to gauge policy stimulus in China. At present, China’s “credit impulse”—the change in the flow of new aggregate credit to the economy relative to GDP—appears likely sufficient to allow it to muddle through with steady but not strong growth over the next year despite the intensifying trade conflict.
April 14, 2025
Will Peak Demand Roil Global Oil Markets?
“Peak oil”—the notion that the depletion of accessible petroleum deposits would soon lead to declining global oil output and an upward trend in prices—was widely debated in the late 1990s and early 2000s. Proponents of the peak supply thesis turned out to be wrong, given the introduction of fracking and other new extraction methods. Now the notion of peak oil is back, but in reverse form, with global demand set to flatten and then fade amid growing use of EVs and other low-carbon technologies. The arrival of “peak demand” would turn global oil markets into a zero-sum game: Supply growth in one region or field would simply push down prices, driving out higher-cost producers elsewhere. A key question is how U.S. producers would adapt to the new market environment.
Posted at 7:00 am in International Economics | Permalink
April 7, 2025
Monetary Policy Spillovers and the Role of the Dollar
In the literature on monetary policy spillovers considered in the two previous posts, countries that would otherwise operate independently are connected to one another through bilateral trade relationships, and it is assumed that there are no frictions in currency, financial, and asset markets. But what if we introduce a number of real-world complexities, such as a dominant global currency and tight linkages across international capital markets? Given these additional factors, is it still possible to draw generalized conclusions about international policy spillovers—and can we still think of them as a fundamentally bilateral phenomenon? In our third and final post, we explore these questions by focusing on two key elements in the determination of international policy spillovers: the U.S. dollar and the Global Financial Cycle.
Posted at 7:02 am in International Economics | Permalink
How Household Saving Affects Monetary Policy Spillovers
As covered in the first post in this series, the international transmission of monetary policy shocks features positive output spillovers when the so-called expenditure-switching effect is sufficiently large. Departing from textbook analysis, this post zooms in on the implications of differences across market participants with respect to their consumption preferences and ability to insure against income risk. The key message is that these features can, at least theoretically, change the impact of spillovers from positive to negative as well as alter their overall magnitude. These aspects of the international transmission mechanism are especially relevant when addressing spillovers from advanced to emerging economies.
Posted at 7:01 am in International Economics | Permalink
Monetary Policy Spillovers in the Global Economy
Understanding cross-border interdependencies and inspecting the international transmission mechanism of policy shocks is the raison d’être of open-economy macroeconomics as an intellectual discipline. The relevance for the policy debate is pervasive: over and over in the history of the international monetary system national policymakers have pointed at—and voiced concerns about—the effects of policy actions undertaken in foreign countries on the outlook and financial conditions in their own domestic economies. The most recent example involves the spillovers of tighter monetary policies aimed at addressing the inflationary spikes associated with the COVID-19 pandemic. In this three-part series, we provide a non-technical introduction to the multifaceted literature on global spillovers, building in particular on our own research. This post introduces the subject and offers an overview of the classic transmission channels.
Posted at 7:00 am in International Economics | Permalink
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