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Summary: Using data of households approaching retirement in the U.S., I find that the Whites' median saving rates are 9 percentage points larger than the Mexican Americans' rates (ethnic gap) and than the African Americans' rates (racial gap). Two-thirds of each gap correspond to changes in asset prices and a third to households' active decisions. Quantile decompositions show that differences in income and education explain most of the active saving gaps. This implies that wealth inequality is not attributable to differences in the distributions of active saving rates conditional on socio-economic characteristics. When retirement assets are included, the racial but not the ethnic gap in total savings disappears. The results suggest that reducing disparities in income, education and pension savings would help to reduce wealth inequality.
Author(s): Dal Borgo Mariela     

Summary: This article combines data on trade flows with a novel construction of the distribution of skill in the population, based on the results from the International Adult Literacy Survey of the OECD, to evaluate the empirical importance of the distribution of talent as a determinant of the sectoral pattern of trade. It is found that both the mean and standard deviation of the distribution of skills are significant determinants of the pattern of trade. According to the results, cross-country differences in the distribution of skills explain more of the sectoral pattern of trade than differences in capital stocks and differences in indicators of a country's institutional framework.
Author(s): Cebreros Zurita Carlos Alfonso     

Summary: This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives; (2) monetary policy leaning against the wind; and (3) a case of policy coordination between monetary and macroprudential instruments. We find that, under certain circumstances, having financial stability objectives as an additional macroeconomic policy increases the volatility of inflation. We identify cases in which the tradeoffs in terms of macroeconomic volatility between policy objectives create scope for improvement when monetary and macroprudential policies are coordinated. These improvements are generally larger when financial shocks are the main driver of macroeconomic fluctuations.
Author(s): Roldán-Peña Jessica; Torres-Ferro Mauricio; Torres García Alberto     

Summary: This paper gathers and systemizes self-reported information about exchange rate flexibility and FX regulation in Latin America and the Caribbean for a period of twenty years beginning in 1992. The results show that, in countries in which the use of limits, liquidity and reserve requirements on FX positions was more common, the frequency of use of these instruments was particularly high during the transition towards more flexible exchange rate regimes. The exception refers to economies with a long tradition of financial dollarization in which the prudential policies were more spread out over time, possibly due to countercyclical adjustments of the regulatory instruments. Along these lines, policymakers reported that the first goal in using the regulation was to reduce currency mismatches, but, in the flexible regimes that were adopted during the 2000s the instruments were also used to dampen volatility in the exchange rate.
Author(s): Tobal Martín     

Summary: This paper applies a novel approach to study the impact of different shocks on the price level. It uses a classical dichotomy model with monetary policy regime shifts at known dates. First, there was a regime dominated by money, afterwards a regime driven by the exchange rate and a third one with inflation targeting. The result is a CVAR with constant long-run parameters but regime-dependent adjustment coefficients. This overcomes the challenge of explaining, within a single theoretical framework, inflation dynamics in Mexico since the country abandoned the gold standard. The model encompasses known results, offers new insights and clarifies decades-old debates on key aspects of the inflationary process such as inertia, the role of money, the exchange rate pass-through and the impact profile of other variables. The model proposed here is very parsimonious, it does not require inflation lags nor dummy variables. It also displays a very good pseudo out-of-sample forecasting performance.
Author(s): Garcés Díaz Daniel     

Summary: In this paper we use manufacturing data on Colombian exports and bank financing to estimate the credit elasticity of exports. The data allows us to construct a supply side instrumental variable for the credit of manufacturers that we use to address a possible reverse causality problem. We find that access to credit produces a significant increase in the revenue of exporters, explained by the positive effect of credit on the trade margins. Likewise, we find that across manufacturers, the impact of credit on the margins varies by firm size. Medium-sized manufacturers use credit to increase their market reach, market penetration and product mix. The largest manufacturers use credit to increase their market reach, while the smallest manufacturers use it to expand their product mix.
Author(s): Roa Mónica; Molina Danielken     

Summary: In this paper we analyze the impact and persistence of shocks to global (push) and domestic (pull) factors on each component of the financial account for the Mexican Balance of Payments at the highest degree of disaggregation, including investment by foreign residents in Mexican public and private sector securities, as well as investment by domestic residents in foreign securities. To this end, we estimate impulse response functions from vector autoregressive models for the period 1995-2015. We find that an increase in the foreign interest rate leads to lower portfolio investment, particularly in Mexican public sector securities. An increase in global risk generates lower portfolio investment, particularly in private sector securities. Foreign investors respond to a higher extent to foreign interest rate and liquidity shocks compared to domestic investors.
Author(s): Ibarra-Ramírez Raúl; Téllez León Elizabeth     

Summary: This article evaluates the use of financial data sampled at high frequencies to improve short-term forecasts of quarterly GDP for Mexico. In particular, the mixed data sampling (MIDAS) regression model is employed to incorporate both quarterly and daily frequencies while remaining parsimonious. To preserve parsimony, factor analysis and forecast combination techniques are used to summarize the information contained in a dataset containing 392 daily financial series. Our findings suggest that the MIDAS model that incorporates daily financial data lead to improvements for quarterly forecasts of GDP growth over traditional models that either rely only on quarterly macroeconomic data or average daily financial data. Furthermore, we explore the ability of the MIDAS model to provide forecast updates for GDP growth (nowcasting).
Author(s): Gómez-Zamudio Luis M.; Ibarra-Ramírez Raúl     

Summary: This paper investigates the performance of early warning systems in real-time, using forecasts of indicators that were available at the moment predictions are to be made. The study analyzes currency crises in eight Latin American and Central and Eastern European countries, distinguishing an estimation period 1990-2009 and a prediction period 2010-2014. We apply two varieties of early warning systems: the signal approach and the logit models. For both methods we find that using forecasts of the indicators worsens the predictive ability of early warning systems compared to using the most recently available information (ex post).
Author(s): Boonman Tjeerd; Jan P.A.M. Jacobs; Kuper Gerard H.; Romero Alberto     

Summary: We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico matched with firm and bank data, and by exploiting foreign monetary policy shocks in a country with a large presence of European and U.S. banks. The robust results show that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock mainly affects supply via their respective banks, in turn implying strong real effects, with lower elasticities from QE. The impact of low foreign monetary policy rates and expansive QE is stronger on local borrowers with higher ex-ante loan rates -reach-for-yield- and with higher ex-post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest spillovers of core-countries´ monetary policies on emerging markets, both in the foreign monetary softening and tightening part.
Author(s): Morais Bernardo; Peydró José-Luis; Roldán-Peña Jessica; Ruiz Claudia