Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between...

We study exchange rate determination in a 2-country model where domestic banks create each economy's supply of domestic and foreign currency. The model combines the UIP-based and monetary theories of exchange rate determination, but the latter with a focus on private rather than public money...

This paper sets out three models of central bank digital currency (CBDC) that differ in the sectors that have access to CBDC. It studies sectoral balance sheet dynamics at the point of an initial CBDC introduction, and of an attempted large-scale run out of bank deposits into CBDC. We find that...

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the...

We develop a New Keynesian model where all payments between agents require bank deposits, bank deposits are created through disbursement of bank loans, and banks face convex lending costs. At the zero lower bound on deposit rates (ZLBD), changes in policy rates affect activity through both real...

We estimate a Bayesian VAR analogue to the Bank of England's DSGE model (COMPASS) and assess their relative performance in forecasting GDP growth and CPI inflation in real time between 2000 and 2012. We find that the BVAR outperformed COMPASS when forecasting both GDP and its expenditure...

We characterise the probability distribution of capital flows for a panel of emerging market economies conditional on information contained in financial asset prices, with a focus on ‘tail' events. Our framework, based on the quantile regression methodology, allows for a separate role of push...

We document how the entire distribution of exchange rate returns responds to changes in global financial conditions. We measure global financial conditions as the common component of country-specific financial condition indices, computed consistently across a large panel of developed and...

Recent empirical evidence on the cross-country synchronization of credit spreads in response to US monetary policy shocks has led to the notion of an ‘international credit channel' of US monetary policy. This paper provides novel evidence on the existence of an international credit channel for...

In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing...