International Finance and Macroeconomics.

• Position: Program and Working Group Meetings

The NBER's Program on International Finance and Macroeconomics met in Cambridge on March 23. Menzie D. Chinn, NBER and University of Wisconsin, and Lars E.O. Svensson, NBER and Princeton University, organized this program:

Luis Catao, IMF; Ana Fostel, George Washington University; and Sandeep Kaput, University of London, "Persistent Gaps and Default Traps"

Discussant: Roberto Chang, Rutgers University and NBER

Michael B. Devereux, University of British Columbia, and Alan Sutherland, University of St. Andrews, "Solving for Country Portfolios in Open Economy Macro Models"

Cedric Tille, Federal Reserve Bank of New York, and Eric Van Wincoop, University of Virginia and NBER, "International Capital Flows"

Discussants for both papers: Pierpaolo Benigno, Luiss Guido Carli Rome and NBER; and Martin Bodenstein, Federal Reserve Board

Gita Gopinath, Harvard University and NBER; Oleg Itskhoki, Harvard University; and Roberto Rigobon, MIT and NBER, "Pass-through at the Dock: Pricing to Currency and to Market?"

Discussant: Linda S. Goldberg, Federal Reserve Bank of New York and NBER

Akito Matsumoto, IMF, "The Rote of Nonseparable Utility and Nontradables in International Business Cycle and Portfolio Choice"

Discussant: Fabio Ghironi, Boston College and NBER

Francis X. Diebold, University of Pennsylvania and NBER; Canlin Li, University of California, Riverside; and Vivian Z. Yue, New York University, "Global Yield Curve Dynamics and Interactions: A Generalized Nelson-Siegel Approach"

Discussant: Alessandro Rebucci, IMF

Catao, Fostel, and Kapur show how virtuous and vicious cycles in countries' credit histories arise. In their model, output persistence is coupled with asymmetric information about the nature of output shocks between borrowers and lenders. In such an environment, a default creates a pessimistic outlook about the borrowers' output path. This translates into higher debt-to-expected-output ratios, pushing up interest spreads and hence debt servicing costs. By raising the cost of future repayments, this creates default traps. The researchers provide empirical support for the model by building a long and broad cross-country dataset spanning more than a century. These data are used to highlight the main stylized facts about defaults and to provide econometric evidence that the effects of persistence on sovereign creditworthiness are significant, after controlling for other determinants of sovereign risk.

Open economy macroeconomics typically...