Concerns have been raised that outward foreign direct investment may reduce domestic employment and lead to the ‘hollowing-out’ of the manufacturing industries at home. This column uses a unique dataset of Japanese firms’ overseas activities to show that going abroad does not necessarily lead to a reduction of domestic employment. Investment by Japanese firms into other Asian countries has a positive impact on domestic job creation and a negative impact on job destruction, whereas the impact of investment into European and North American countries is negative for both job creation and destruction in Japan.
The ECB's unconventional monetary policy package implemented in February 2012 changed collateral requirements. This column examines the effects in the French credit market, using data on corporate loans. Credit indeed increased after the liquidity injection, exclusively driven by supply. There was also strategic risk-taking by a group of banks, an unintentional implication of the policy.
The banking systems in Central, Eastern, and South Eastern Europe are dominated by subsidiaries of multinational banks, many with parent banks from the EU. This column analyses the effects of regulatory and supervisory changes within the EU and euro area on host regulation and supervision in these countries and on their cooperation with home supervisors and resolution authorities in Western Europe. It also offers some recommendations for authorities both at the EU level and in the small host countries.
The economies of many countries are operating close to full capacity, but unemployment and inflation are both low. Using data from the US, UK and Canada, this column compares differences in the macroeconomic behaviour of real GDP, the inflation rate and the yields on three-month Treasury securities in the three countries. It shows that the Farmer monetary model, closed with a belief function, outperforms the New Keynesian model, closed with the New Keynesian Phillips curve. The data fit the multiple equilibria emphasised in the Farmer model well, rather than the mean-reverting processes assumed by the New Keynesian model.
Trade in intermediates (or ‘unbundling of production') and trade in capital have become increasingly important in last 25 years. This column shows that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. Unbundling of production hurts middle-income countries but helps those with high productivity. Trade in intermediates also increases within-country inequality, and this increase is U-shaped in the aggregate productivity level of the country.
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