Cross-border Spillover Effects Research Articles

Cross-border sovereign risk transmission in BRICIT Nations: Unveiling asymmetries and the role of country risk premiums

This research highlights the asymmetric interdependence structure among the sovereign risks of Brazil, Russia, India, China, Indonesia, and Türkiye (BRICIT) nations, challenging the traditional view that bilateral trade is the main channel for cross-border spillover effects. Despite their dependence on Russian crude oil imports for energy, the BRICIT nations show no significant sovereign risk interdependence with Russia. The study finds that Indonesia's credit default swap (CDS) has the highest level of interdependence with other nations. Further exploration of alternative transmission channels necessitates an examination of the country risk premium, revealing Türkiye as the most vulnerable nation due to its negative association with the CDS of other countries, particularly India. By contrast, India is identified as a preferred investment destination, thanks to its lower uncertainty and strong GDP growth over the past decade. Additionally, the research underscores China's economic influence, demonstrated by its positive association with all other BRICIT nations. This suggests that despite the high sovereign risk associated with China, investors do not view other emerging markets as viable, lower-risk alternatives. The perceived risk related to China appears to extend beyond its borders, impacting the sovereign risk profiles of other emerging economies.

Measuring the cross-border spillover effects and telecoupling processes of ecosystem services in Western China

Ecosystem services provide the basic elements for global economic development. In the context of the deepening global integration process, countries and regions are increasingly connected, resulting in a series of cross-country, cross-regional, multi-scale socio-economic-environmental impacts, these new situations and changes require a multi-site, two-way, and cross-temporal and spatial scale comprehensive study of "the relationship between ecosystem services and humans". Based on this, we apply a telecoupling synthesis framework to explore the socio-economic and eco-environmental interactions of ecosystem service spillover effects. Results show that (1) the spillover effect of ecosystem services in western China is significant. More than 66% of ecosystem services spillover to eastern China provinces, and more than 40% of ecosystem services spillover to countries in Southeast Asia, South Asia, and Central Asia, resulting in a total of 679 million people benefiting from the spillover effect. (2) There are also multiple telecoupling processes between the ecosystem service spillovers in the ecologically fragile areas in western China and the rest of the world. In combination with the scenario simulation of the InVEST model, the services such as water supply, soil retention, flood mitigation, and food supply have significant impacts on sustainable development and human well-being in Asia and even the world. (3) The positive feedback effect of telecoupling is critical to the protection of the ecological environment as well as the improvement of people's livelihood and well-being in Western China's ecologically fragile areas. Therefore, we propose strengthening ecological compensation cooperation between local governments and implementing compensatory transfer payments between upstream and downstream. Simultaneously, international cooperation must be strengthened, and an ecological compensation transfer mechanism with beneficiary countries must be established, while the cross-regional flow of ecosystem services must be maintained. This study provides an example for the "ecosystem services and human relations" in multiple places, two directions and across time and space scales, and also practical reference significance for China implementation of projects such as the "the Belt and Road" initiative and transnational and cross regional resource allocation.

Examining the interaction of technology adoption-diffusion and sectoral emission intensity in developing and emerging countries

This study offers a new perspective on the drivers of environmental sustainability for sector level (manufacturing, mining, agriculture, business, trade, and transport) analysis. In this case, country-level sectoral dynamic index for technology adoption and emission intensity were constructed to study the environmental efficiency effect of technology adoption and technology diffusion across tradable and non-tradable sectors by using empirical illustration for 49 developing and emerging countries during 1990–2018 period. By correcting for potential bias arising from endogeneity and cross-border spillover effects via cross-section dependence, results reveal long-term effects of technological changes. Importantly, it is shown that the environmental efficiency effect of technology adoption holds in technology-intensive sectors (i.e manufacturing, mining, agriculture) only at lower capitalization levels, thus establishing a U-shaped nexus of technology adoption and carbon emission. Additionally, it is found that trade networks reduce emission intensities by improving technology diffusion across all the tradable sectors and in transport sector. Moreover, trade alone mitigates carbon intensity across all the sectors while income per capita spur carbon intensity in the tradable sectors. From policy insight, the study identifies the need for stricter policy directives to scale up energy and clean technologies adoption in all sector activities.

Shedding New Light on Multinational Corporations and Human Rights: Promises and Limits of “Blockchainizing” the Global Supply Chain

Over the last few decades, advances in transportation and production technology, in conjunction with economic globalization and the emergence of multinational corporations, have consolidated fragmented production processes into long and complex supply chains across jurisdictions. While there are benefits to such global supply chains (“GSCs”), the prevalence of human rights violations attributable to information asymmetry, as well as rule of law gaps between different jurisdictions, has been a constant challenge. Modern slavery, child abuse, harsh working conditions, low wages, and other problems have reoccurred in the factories of upstream suppliers in the global South and have been systemically ignored by buyers in the global North. As such, how to alleviate human rights abuses along GSCs is indeed a daunting problem. Today, various public, private, and hybrid approaches have been designed and implemented at different levels by different actors to address GSC human rights challenges, such as the United Nations’ Guiding Principles on Business and Human Rights (“UNGPs”), the Organization for Economic Co-operation and Development’s (“OECD”) Guidelines for Multinational Enterprises, the United Kingdom’s Modern Slavery Act, the United States’ Dodd-Frank Act, the Responsible Business Alliance Codes of Conduct, and the Social Accountability 8000 International Standard. However, these public, private, and hybrid governance mechanisms have grown more ineffective and inefficient due to—again—information asymmetry, and rule of law gaps. A stronger approach that is premised upon transparency and traceability in the GSC is urgently needed. To fill these gaps, the recent emergence of distributed ledger technologies (commonly referred to as blockchain) may offer a promising disintermediation step toward a “technological fix” to GSCs’ human rights challenges. To assess such a possibility from both a theoretical and a practical perspective, we first examine in Section II the characteristics, benefits, and cross-border spillover effects of GSCs, as well as human rights violations by multinational corporations and their power and responsibilities. Section III illuminates the ineffectiveness of existing governance models and regulatory measures, at both the international and national levels, and identifies information asymmetry and rule of law gaps as fundamental flaws. This finding leads us to examine the extent to which blockchain can serve as a governance tool along GSCs. Section IV discusses how the key features of blockchain—transparency, traceability, data consistency and security, authenticity, and completeness—can alleviate problems of information asymmetry, rule of law gaps, and corporate compliance along GSCs, further helping to ameliorate transnational human rights issues. Nevertheless, while “blockchainizing” GSCs seems to have the potential to overcome challenges of public and private governance, some normative and technical limits and risks remain to be addressed, such as adequate infrastructural support, scalability, cybersecurity, and the “garbage in, garbage out” conundrum.

Macroeconomic Effects of Covid-19 in a Commodity-Exporting Economy: Evidence from Mongolia

ABSTRACT This article examines macroeconomic effects and transmission mechanisms of Covid-19 in Mongolia, a developing and commodity-exporting economy, by estimating a Bayesian structural vector autoregression on quarterly data. We find strong cross-border spillover effects of Covid-19 passing through changes in commodity markets and the Chinese economy. Our estimates suggest that China’s GDP and copper price shocks respectively account for three-fifths and one-fifths of the drop in real GDP in 2020Q1. The recovery observed for 2020Q2-2021Q1 is primarily due to positive external shocks. However, disruptions in credit and labor markets have been sustained in the economy. Two-thirds of the fall in employment in 2021Q1 could be attributed to adverse labor demand shocks. We also reveal novel empirical evidence for the balance sheet channel of the exchange rate, the financial accelerator effects, and an indirect channel of wage shock to consumer price passing through bank credit.

Effects of linking national carbon markets on international macroeconomics: An open-economy E-DSGE model

Linking carbon markets in different economies has become an important form of international climate cooperation. However, the complex socioeconomic effects of linking carbon markets need to be fully assessed. This article develops an open-economy environmental dynamic stochastic general equilibrium (E-DSGE) model that incorporates international trade, asymmetric economies, and heterogeneous production sectors. Based on the example of the linkage between EU and China carbon markets, we analyze the international macroeconomic effects of linking standalone national carbon markets. The main findings are as follows: 1) The linked carbon market improved total social welfare of China and the EU, but led to an uneven distribution of social welfare across regions. 2) China and the EU had better economic performances under a linked carbon market than under two separate carbon markets; moreover, the linked carbon market amplified expansionary effects and mitigated negative cross-border spillover effects. 3) Both separate and linked carbon markets functioned as automatic stabilizers of the economy; the linked carbon markets reduced economic fluctuations in the face of supply-side shocks, while the separate carbon markets reduced economic fluctuations in the face of demand-side shocks.

Policy responses to cross-border central bank digital currencies—assessing the transborder effects of digital yuan

Central bank digital currencies (CBDCs) have been gaining traction for the past few years, due to innovations in payment methods, the rise of crypto-assets and the COVID-19 pandemic. The issuance of CBDCs has impacts on a sovereign state’s monetary environment and financial markets, and calls for the rethinking of the roles of modern states and central banks. The current literature focuses mainly on two dimensions of the CBDC: first, the implications of the CBDC issuance for sovereign states’ monetary and macroprudential policies;1 and secondly, on the institutional infrastructure, the legal mandates, and the technical designs through which the CBDC can be issued and distributed.2 Yet the launch of CBDCs also introduces some little-discussed spillover effects that range from privacy infringement to impacts on sovereign states’ monetary autonomy. Therefore, this article will discuss the cross-border spillover effects of the domestic CBDC, focusing on the foreign sovereign state’s monetary...

Bank lending, collateral, and credit traps in a monetary union

This paper studies the transmission of non-standard monetary policy to firms’ investment in a monetary union where financial frictions limit the access to external finance. The model incorporates a sovereign-banking nexus where the occurrence of sovereign default severely hits the balance sheet of domestic banks. This feature impairs monetary transmission, generating responses of lending that diverge across countries, as well as the risk of cross-border spillover effects. Specifically, I show that the liquidity injected into the stressed country’s banks can result in financing the sovereign rather than boosting lending. Moreover, sovereign risk in one country can reduce asset values and, via the collateral channel, depress lending throughout the monetary union. The model sheds light on the troubled transmission of the ECB’s policy measures to the economy of stressed countries during the European sovereign debt crisis.

The Economics of Fiscal Rules and Debt Sustainability

Because they exert cross-border spillover effects, fiscal policies of individual EU member states are a common concern for the entire EU.

Spillover Effects of Sovereign Bond Purchases in the Euro Area

This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.

Policy Responses to Cross-border Central Bank Digital Currencies – Assessing the Transborder Effects of Digital Yuan

Current literature on central bank digital currencies (CBDCs) generally focuses on regulatory issues in the domestic context. This paper discusses the challenges when a CBDC circulates across national borders. It addresses three cross-border spillover effects of the CBDC: the crowding out effect on local currency; challenges to capital control for regulators; and infringement of user privacy. The paper posits the Digital Yuan as the sample on which spillover effects can be assessed as it is circulated beyond its borders. It is estimated that the major fund receivers of the Belt and Road Initiative (BRI), and China’s neighbors, are most likely to be affected by the Digital Yuan. These countries will benefit from convenient, efficient, and secure transactions as the Digital Yuan circulates. But they may face problems when the Digital Yuan becomes widely used in local markets. They will find it difficult to control or monitor the flow of the Digital Yuan, and will have to take measures to protect the privacy of their domestic users. The authors therefore propose unilateral, bilateral, and multilateral strategies to cope with the corresponding spillover effects. The paper’s analysis suggests that the adverse effects of the cross-border uses of CBDCs can be addressed and mitigated by adequate institutional design, and by multilateral coordination efforts.

Cross-Border Spillover Effects of State Increases in Minimum Wages

Many studies that estimate employment effects of state increases in minimum wages do so by comparing employment developments between states where minimum wages increased and states where minimum wages did not change. Simple economic theories, however, indicate that employment developments in the latter “control” states might be “contaminated” by spillovers from neighboring “treatment” states. This is of particular interest in specifications that otherwise lead to estimates of substantial disemployment effects. In such cases, it is important to consider whether the results might be an artifact of spillover bias. This paper studies the spillover issue with county-level restaurant employment data from the Quarterly Census of Employment and Wages between 1990 and 2014. I find that the spillover effects are modest, and that accounting for them has little impact on estimated disemployment effects. While many other methodological issues remain to be resolved in the minimum wage literature, bias from spillover effects need not be one of them.

Küresel kamusal bir mal olarak salgın hastalık krizleriyle mücadele küresel salgınların ekonomik etkileri

Public goods which have the features of nonrivalry in consumption and nonexcludability have positive externalaties spreading the large masses, and also cover negative externalaties (public bads) not to damage the environment, health and so on. Cross-border spillover effects of externalaties actually make the public goods convert to global public goods. In this sense, struggling the pandemics is a most crucial global public good which does not only impact human life but also prevents the collapse of national economies. Pandemics slow the pace of economic growth as well as increasing the loss of workforce. Governments employ a balance between the increase in spread of disease and mortality, and economic stability. This paper attempts to explain the whole story of the pandemics and their economic implications by giving examples from literature. Main finding resulted from the papers written on this issue is that pandemics exacerbate the national economies through different channels. Developed and developing countries should take the pandemics into account as a regressive power or obstacle in front of economic growth and stability of state budgets, strongly collaborate against pandemic as a naturel disaster, support their healthcare systems and be ready for these kinds of disasters.

Fiscal Federalism in a Monetary Union: The No-Cooperation Pitfall

The relative merits in a monetary union of a fiscal federalism scheme and intergovernmental fiscal cooperation without a federal authority are assessed using a standard macroeconomic model commonly used for policy analysis. We show that it is impossible to conclude that one solution is always preferable to the other. The benefits from an extra instrument and a policymaker with union-wide objectives may not compensate the adding of a non-cooperative player to the policy game. This result is sustained when an active monetary policy is introduced in the model or when shocks affect the functioning of the economy. The welfare ranking of these two options depends on the cross-border spillover effects, the objectives of policymakers and the variances of shocks.

Cross-Border Spillover Effects of Macroprudential Policies: A Conceptual Framework

Due to the international dimension of the financial sector within the EU and beyond, domestically oriented macroprudential policies have the potential to create material cross-border spillover effects. This occasional paper provides a detailed overview of the academic and empirical literature on cross-border effects of macroprudential policies. It also summarises a stocktaking exercise, conducted by a task force of the ESCB’s Financial Stability Committee (FSC), on existing national approaches within the EU for assessing and monitoring such cross-border spillover effects. The paper accompanies an FSC report presenting a framework to be used by macroprudential authorities when assessing cross-border spillover effects induced by enacted or planned policy measures.

Climate Policies Under Dynamic International Economic Cycles: A Heterogeneous Countries DSGE Model

In light of increased economic integration and global warming, addressing critical issues such as the role of multilateral climate policies and the strategic interaction of countries in climate negotiations becomes paramount. We thus established for this paper an open economy environmental dynamic stochastic general equilibrium model with heterogeneous production sectors, bilateral climate policies, asymmetric economies, and asymmetric stochastic shocks, using China and the EU as case studies in order to analyze the interaction and linking of international carbon markets under dynamic international economic cycles. This led us to some major conclusions. First, with various methods we verified that, due to deadweight loss, the efficiency of the separate carbon market is lower than that of the joint carbon market. Second, the intensity of the spillover effects depends partly on different climate policies. This means that, in terms of supply-side shocks, the EU's economy in a joint carbon market is more sensitive because its cross-border spillover effects are enhanced, while demand-side shocks have a stronger impact on the EU's economy under a separate carbon market. Third, the Ramsey policy rule revealed that both China's and the EU's emission quotas should be adjusted pro-cyclically under separate carbon markets. The cross-border spillover effects of the joint carbon market, however can change the pro-cyclical characteristics of foreign (EU's) optimal quotas.

How Do Banking Groups React to Macroprudential Policies? Cross-Border Spillover Effects of Higher Capital Buffers on Lending, Risk-Taking and Internal Markets

We study the impact of macroprudential capital buffers on banking groups' lending and risk-taking decisions, also investigating implications for internal capital markets. For identification, we exploit heterogeneity in buffers applied to other systemically important institutions, using information from three unique confidential datasets, including information on the EBA scoring process. This policy design induces a randomized experiment in the neighborhood of the threshold, which we use to identify the effect of higher capital requirements by comparing the change in the outcome for banks just above and below the cut-off, before and after the introduction of the buffer. The analysis is implemented relying on a fuzzy regression discontinuity and on a difference-in-differences matching design. We find that, when parent banks are constrained with higher buffers, subsidiaries deleverage lending and risk-taking towards non-financial corporations and marginally expanded lending towards households, with negative effects on protability. Also, we find that parents cut down on holdings of debt and equity issued by their subsidiaries. Our findings support the hypothesis that higher capital buffers have a positive disciplinary effect by reducing banks' risk-taking while having a (temporary) adverse impact on the real economy through a decrease in affiliated banks' lending activity. Therefore, to ensure the effectiveness of macroprudential policy, it is essential that policymakers assess their potential cross-border effects. JEL Classification: E44, E51, E58, G21, G28

Macroprudential Policy in a Monetary Union with Cross-Border Banking

We analyse the interaction between monetary and macroprudential policies in the euro area by means of a two-country DSGE model with financial frictions and cross-border spillover effects. We calibrate the model for the four largest euro area countries (i.e. Germany, France, Italy, and Spain), with particular attention to the calibration of cross-country financial and trade linkages and country specific banking sector characteristics. We find that countercyclical macroprudential interventions are supportive of mon-etary policy conduct through the cycle. This complementarity is significantly reinforced when there are asymmetric financial cycles across the monetary union, which provides a case for targeted country-specific macroprudential policies to help alleviate the burden on monetary policy. At the same time, our findings point to the importance of taking into account cross-border spillover effects of macroprudential measures within the Monetary Union. JEL Classification: E32, E44, E52, F36, F41

Monetary policy co-movement and spillover of shocks among BRICS economies

ABSTRACTThe 2008 global financial crisis has revealed the possibility of cross-border spillover effects of domestic Monetary Policy (MP) on financial stability and capital flows around the world. Recognizing these facts, Central Banks in Advanced Economies (AE) have undertaken simultaneous Monetary Policy actions to minimize collateral damage and contain financial risks. In this paper, we investigate whether a similar spillover and co-movement of Monetary Policy exist among BRICS countries. Specifically, we study the transmission of monetary policy shocks among the member countries using monthly data. We use the method of Principal Component Analysis (PCA) and Vector Autoregression Model to identify possible dynamic relationships. Our results indicate possible co-movement in interest rates and significant cross-border transmission of monetary policy shocks among the BRICS countries.

Cross-border spill-overs from fiscal stimulus in a monetary union

We analyse domestic and cross-border effects of fiscal policy in a two-region business cycle model of a monetary union. Without relying on debt consolidation via spending reversals along the lines of Corsetti, Meier and Mueller (2010) and Corsetti and Mueller (2014) we show that a fiscal expansion by the core economies of the euro area is associated with crowding in of both core and periphery consumption. Interestingly, cross-border spill-over effects are larger the larger the share of credit constrained households in the periphery.