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Luciana Juvenal
When analyzing terms-of-trade shocks, it is implicitly assumed that the economy responds symmetrically to changes in export and import prices. Using a sample of developing countries our paper shows that this is not the case. We construct export and import price indices using commodity and manufacturing price data matched with trade shares and separately identify export price, import price, and global economic activity shocks using sign and narrative restrictions. Taken together, export and import price shocks account for around 40 percent of output fluctuations but export price shocks are, on average, twice as important as import price shocks for domestic business cycles.
Luciana Juvenal

effects on the terms of trade after an export price shock are higher the larger the commodity export share and in countries which exhibit a higher concentration of their commodity export base. Interestingly, countries that have a higher commodity export share exhibit, on average, a larger response of export prices and the terms of trade in response to a global economic activity shock. The response of output following an import price shock is more homogeneous across countries, with richer economies displaying a smaller response of output. 5 This paper contributes to

Mr. Amadou N Sy, Mr. Rabah Arezki, and Thorvaldur Gylfason

become available until the late 1930s, and Table 3.1 presents time series for selected countries where these series are reasonably complete. Here too, the primary share exhibits a dramatic decline as the economies develop over time. The table additionally demonstrates far lower primary shares at each point in time for the richer countries, compared with the poorer ones. The latter cross-section observation is confirmed by a broader sample of nations shown in Figure 3.1 . There is a strong reverse correlation between the level of economic development and the share of

Ms. Yuko Hashimoto and Signe Krogstrup

3. Financial Depth Note: The chart is based on the average of the most recent five years of observations. Financial depth is based on total positions and calculated as follows: Financial depth for total = (Bank total assets + Bank total liabilities + Nonbank total assets + Nonbank total liabilities) / GDP. Bank share total is as the one used in Figure 2 . The relationship between financial depth based on domestic positions and external positions individually and the bank share exhibit similar patterns (not shown). Source: The SRF dataset. C

Ms. Yuko Hashimoto and Signe Krogstrup
This paper assesses the role of bank and nonbank financial institutions’ balance sheet foreign exposures and risk management practices in driving capital flow responses to global risk. Using a unique and previously unexplored dataset on domestic and cross border balance sheet positions of financial institutions collected by the IMF, we show that the response of overall capital flows to global risk shocks is associated with the on-balance sheet foreign exposures of nonbanks, but not with that of banks. A possible interpretation is that risk-averse and dynamically optimizing nonbanks reduce their foreign risk exposure when global risk perceptions increase, leading to capital flows, while banks tend to be hedged against these risks off balance sheet. In advanced countries, the findings suggest that nonbank portfolio adjustment to changing risk conditions may take place through derivatives transactions with banks, the hedging practices of which trigger bank related capital flows rather than portfolio flows.
Philipp Harms, Mathias Hoffmann, Miriam Kohl, and Tobias Krahnke
In this paper, we present empirical evidence that higher income inequality is associated with a greater equity share in countries' external liabilities, and we develop a theoretical model that can explain this observation: In a small open economy with traded and nontraded goods, entry barriers depress entrepreneurial activity in nontraded industries and raise income inequality. The small number of domestic nontraded-goods firms leaves room for foreign firms to operate on the domestic market, and it reduces external borrowing. The model suggests that barriers to entrepreneurial activity could be conducive to attract equity-type capital inows. Our empirical results lend some support to this conjecture.
Philipp Harms, Mathias Hoffmann, Miriam Kohl, and Tobias Krahnke

.367 0.391 0.362 0.362 Notes: Robust standard errors in parentheses. Ordinary least squares regressions. ***Significant at 1%; **significant at 5%; *significant at 10%. Section A.1 provides details on sources and variable definitions. Starting in column (2), we add measures of inequality. All these variables are significantly correlated with the equity share or FDI in total external liabilities, with the Gini coefficient and the Top 10 income share exhibiting a positive relationships and the Bottom 20 income share a negative relationship. Note