Investments made across national boundaries create international flows of capital. These flows help to determine the health of the global economy as well as the economy of the United States. Economists have developed theories about the causes and effects of these flows. However, while the term 'flow' suggests that these investments move a single coordinated force, in fact the investments are determined by many individual decisions made by individual investors and investing institutions. This project will use very detailed evidence on a fraction of these investments to build a better picture of international capital flows. The project will also test theories about these global flows respond to US monetary policy and examine how this specific category of investments may have real economic effects on receiving countries and may help to determine exchange rates. This research will help us understand how US economic policies affect the global economy, and how the decisions of investors around the world affect the US economy. The educational component of this CAREER grant will incorporate these research findings into classroom material as well as specialized courses aimed at central bankers around the globe. As a result, the project will give us new results that will promote the competitiveness of the US economy.
The project has four main aims. First, the PI and his coauthors seek to develop summary measures of global bond markets that are based on these detailed and accurate measurements. Second, the team will consider how global capital flows respond to changes in one country's monetary policy; by testing economic theory, the research will give us better evidence for how changes in US monetary policy can affect the world economy. Third, the project will investigate whether the specific composition of international investments helps to determine how the investment affects the country receiving funds. Fourth, the team will test hypotheses about whether and how currency positions affect exchange rates.