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Christian Saborowski

9 December 2009
The paper shows that monetary policy shocks exert a substantial effect on the size and composition of capital flows and the trade balance for the United States, with a 100 basis point easing raising net capital inflows and lowering the trade balance by 1% of GDP, and explaining about 20-25% of their time variation. Monetary policy easing causes positive returns to both equities and bonds. Yet such a monetary policy easing shock also induces a shift in portfolio composition out of equities and into bonds, implying a negative conditional correlation between flows in equities and bonds. Moreover, such shocks induce a negative conditional correlation between equity flows and equity returns, but a positive conditional correlation between bond flows and bond returns. The findings thus provide evidence for the presence of a portfolio rebalancing motive behind investment decisions in equities, but the dominance of what is akin to a return chasing motive for bonds, conditional on monetary policy shocks. The results also shed light on the puzzle of the strongly time-varying equity-bond return correlations found in the literature.
JEL Code
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G1 : Financial Economics→General Financial Markets
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
12 November 2012
This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export concentration measures, we present strong evidence pointing to an important role for export diversification in conditioning the effect of trade openness on growth volatility. Indeed, the effect of openness on volatility is shown to be negative for a significant proportion of countries with relatively diversified export baskets.
JEL Code
F15 : International Economics→Trade→Economic Integration
F43 : International Economics→Macroeconomic Aspects of International Trade and Finance→Economic Growth of Open Economies
O24 : Economic Development, Technological Change, and Growth→Development Planning and Policy→Trade Policy, Factor Movement Policy, Foreign Exchange Policy