Essays in International Macroeconomics

Camara, Santiago

doi:https://doi.org/10.21985/n2-08re-et82

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Essays in International Macroeconomics

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This dissertation focuses on two topics in international macroeconomics: the identification of the international spillovers of US interest rate shocks, and the study of its main transmission channels. In Chapter 1, I present the Spillover Puzzle of US Monetary Policy - the fact that in response to a US interest rate hike, Emerging Market economies exhibit a drop in industrial production which is between 2 and 3 times larger than the one experienced within the US economy - and propose a solution that depends on heterogeneous borrowing constraints across countries. In Chapter 2, I show that disregarding the information effects around FOMC meetings leads to a systematic bias in the identification of the international spillovers of US interest rate shocks. Finally, Chapter 3 shows that US interest rates primarily affect Emerging Markets by tightening agents' borrowing constraints. Borrowing constraints play a crucial role in structural macroeconomic models. This is particularly the case for international macroeconomics. The benchmark assumption are collateral constraints, which introduces a debt limit which depends the liquidation value of a firms' assets. The first chapter of this dissertation explores the borrowing constraints implied by firms' bank debt contracts. First, using credit registry data from Argentina for the period 1998-2020 I show that collateral constraints only explain between 15\% and 30\% of firms' debt. Second, I show that the most common type of borrowing constraint that firms face is defined in terms of the ratio of a firms' interest payments to their cash flows. I test the quantitative and policy implications of this alternative borrowing constraints through the lens of a DSGE model. I show that the greater prevalence of interest sensitive borrowing constraints in Emerging Markets provides a solution to the Spillover Puzzle of US Monetary Policy. In the second chapter, I show that ignoring the disclosure of information by the FOMC biases the impact of a US monetary policy tightening. I use the identification strategy introduced by Jarocinski (2020) to identify two FOMC shocks: a pure US monetary policy and an information disclosure shock. I show that these two FOMC shocks have intuitive and very different international spillovers and taking into account the information effect may explain recent atypical findings. In the third chapter, I use firm balance sheet data from Chile to disentangle the different transmission channels of US interest rate shocks. I find that in response to a US interest rate shock, relatively more indebted firms are more responsive in both their investment and leverage than relatively less indebted firms. This empirical finding suggest that the main transmission channel of US interest rate shocks is a tightening of firms' borrowing constraints. This is in sharp contrast with the evidence suggesting that the main transmission channel within US firms is the cost of capital.

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