If sectoral trade flows obey structural gravity, countries' bilateral trade imbalances are the result of macro trade imbalances, “triangular trade”, or pairwise asymmetric trade barriers. Using data for 40 major economies and the Rest of the World, we show that large and pervasive...

There is an ongoing debate in the literature on whether global trade flows have become disconnected from the large real effective exchange rate movements in the wake of the global financial crisis. The question has important policy implications for the role of exchange rates in supporting growth...

After the decline in oil prices, many oil exporters face the need to improve their externalbalances. Special characteristics of oil exporters make the exchange rate an ineffectiveinstrument for this purpose and give fiscal policy a sizeable role. These conclusions aresupported by regression...

This paper focuses on two core tax design issues that arise in addressing current fiscal challenges. It first explores the idea, prominent in troubled Eurozone countries, of a "fiscal devaluation": shifting from social contributions to the VAT as a way to mimic a nominal devaluation. Empirical...

This paper develops and estimates a model of the trade balance of Bosnia and Herzegovina. Credit flows and the fiscal stance are found to play a significant role in determining the trade balance. On this basis the paper discusses the trade-offs between monetary and fiscal policy settings needed...

Based on an empirical gravity model of sectoral bilateral trade, we uncover three features of bilateral trade balances. First, the difficulty of gravity models in fitting the observed level of bilateral balances is likely due to the presence of unobservable bilateral trade costs. Second, the...

The strong US policy response to the 2008-09 financial crisis raised concerns about its impact(spillovers) on other countries, with great focus on the monetary stimulus but little attention to fiscal policy, despite their combined deployment. Using a sign-restricted structural VAR approach, we...

In terms of size, the net income balance (IB) is comparable to the trade balance (TB) for many countries. Yet the role of the IB in mitigating external vulnerabilities or complicating external adjustment remains underexplored. This paper studies the role of the IB in stabilizing or destabilizing...

This paper provides new evidence on the existence and magnitude of the 'twin deficits' in developing economies. It finds that a one percent of GDP unanticipated increase in the government budget balance improves, on average, the current account balance by 0.8 percentage point of GDP. This effect...

Is over-optimism about a country's future growth perspective good for an economy, or doesover-optimism also come with costs? In this paper we provide evidence that recessions, fiscalproblems, as well as Balance of Payment-difficulties are more likely to arise in countrieswhere past growth...