Gravity and Heterogeneous Trade Cost Elasticities

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to popular trade cost variables such as currency unions, trade agreements, and WTO membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost effects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

The imf Conditionality in the Age of Post-National Governance

The paper focuses on conditionality in imf programs for member states of monetary unions in light of the decision of the imf’s Executive Board on Program Design in Currency Unions (2018). Despite the growing importance of supranational institutions, the imf lacked until 2018 any explicit framework for imposing conditions on currency union bodies in cases where a member state of such a union requested an imf program. The aim of this paper is to assess the newly adopted imf approach to conditionality for currency union institutions based on the concept of “policy assurances” and to answer the question of whether the imf had authority to impose conditions on supranational institutions prior to the 2018 Board decision and whether the imf should in principle have such authority.

Currency Unions and Global Value Chains: The Impact of the Euro on the Italian Value Added Exports

Many estimates of the effect of the common currency on trade have been made, although a clear answer has yet to be given. This work analyses the trade effect of the euro by providing a twofold contribution. First, one of the main stylised facts that has emerged from the recent literature is that trade flows in gross terms can differ substantially from those measured in value added terms. Accordingly, we focus on the structure of global value chains rather than conventional gross trade. To this aim, we provide an estimate of the value added trade flows that would have existed between Italy and its main trading partners if Italy had not joined the monetary union and show how, and to what extent, international production sharing has been affected. Second, we use a methodology that is different from traditional, parametric ones. Specifically, we apply the synthetic control method to construct appropriate counterfactuals and estimate the causal impact of the euro. Our empirical analysis provides a relevant case for considering value added in addition to gross trade since it shows that the euro facilitated the forward integration of Italian exports, whereas it slowed down backward integration. Overall, these results suggest that the euro had an impact on Italian global value chain participation by altering value added flows across member as well as non-member states, with great heterogeneity in the results across value added trade components and sectors.

Extension of Consultation Cycles Due to COVID-19 Pandemic

To better respond to the unprecedented demand from the membership for financing and crisis support in response to the covid-19 pandemic, there is a temporary postponement of staff’s work on Article IV consultations and mandatory Financial Stability Assessments. To ensure the postponement has no adverse impact of members’ compliance with their obligations, the deadlines for upcoming Article IV consultations and for discussions with currency unions have been extended by 6 months. This paper provides additional background on these temporary arrangements.