Galen Sher | International Monetary Fund (original) (raw)

Papers by Galen Sher

- The economy is starting to recover after the huge energy price shock. IMF staff expect this to ... more - The economy is starting to recover after the huge energy price shock. IMF staff expect this to gain momentum, gradually, as wages continue to grow faster than inflation. 📈

- Germany's greatest economic challenge is the expected shrinking of the labor force over the next five years. A big wave of baby-boomer retirements is coming and immigration is unlikely to fill the gap. To deal with this, ambitious reforms are needed to boost labor supply and raise pfroductivity. 🧓

- To boost labor supply, the authorities should expand access to more reliable childcare and lower taxes on secondary earners in married couples, both of which would let women extend their working hours from part-time to full-time, if they choose to do so. 👷‍♀️

- Productivity could be raised by increasing public investment, deepening the European single market, promoting digitalization, and cutting red tape. 🛫

IMF Selected Issues Papers, Aug 1, 2024

Germany needs substantially higher levels of public investment. At the same time, the country is ... more Germany needs substantially higher levels of public investment. At the same time, the country is facing rising pension, healthcare, and long-term care expenditures associated with aging, as well as rising defense spending pressures associated with Russia’s war in Ukraine. If Germany were eventually to ease moderately its national fiscal rules, as recommended by IMF staff, this would create some fiscal room to accommodate these rising spending pressures through a higher deficit but would not be sufficient on its own. This chapter therefore explores options for Germany to generate additional fiscal room by reducing its public spending and increasing its revenues, while minimizing the associated costs to the economy. To aid this exploration, this chapter also examines areas where Germany’s spending and revenue levels stand out in international comparison. The options for generating fiscal room include: (i) finding efficiencies in healthcare spending; (ii) stabilizing the finances of the social security system; (iii) eliminating environmentally harmful subsidies; (iv) raising revenues from goods and services taxes; (v) raising property taxes and closing loopholes in inheritance taxes; and (vi) earning higher returns on the government’s financial assets.

IMF Departmental Papers, 2024

Following the 2022 energy crisis, this paper investigates whether Europe’s ongoing efforts to cut... more Following the 2022 energy crisis, this paper investigates whether Europe’s ongoing efforts to cut greenhouse gas emissions can also enhance its energy security. The global computational general equilibrium model analysis finds that individual policy tools, including carbon pricing, energy efficiency standards, and accelerated permitting procedures for renewables, tend to improve energy security. Compared to carbon pricing, sector-specific regulations deliver larger energy security gains and spread those more evenly across countries, benefitting also some fossil-fuel-intensive economies in Central and Eastern Europe. This finding strengthens the case for a broad climate policy package, which can both achieve Europe’s emissions-reduction goals and deliver sizeable energy security co-benefits. An illustrative package, which would cut emissions in the EU, UK, and EFTA by 55 percent with respect to 1990 levels by 2030, is estimated to improve the two energy security metrics used in this paper by close to 8 percent already by 2030. Beyond the policies analyzed in the model, the paper also discusses the technology, market design, and supply chain reforms that Europe needs for an energy-secure green transition.

IMF Staff Report, 2023

The German economy has demonstrated resilience following the shut-off of Russian gas supply last ... more The German economy has demonstrated resilience following the shut-off of Russian gas supply last year, with highly adverse scenarios of widespread energy scarcity being avoided. This success reflects impressive efforts to conserve energy and secure future energy supplies, as well as the lack of severe winter weather. Nonetheless, adverse effects from the energy shock and tighter financial conditions have been sufficient to tilt the economy into recession in recent months. Inflation also spiked as the energy price shock added to existing pandemic-related supply bottlenecks, though inflation is now falling as these effects start to ease. Germany’s financial system remains well capitalized and liquid overall, but banking turmoil in other advanced economies earlier this year has nonetheless heightened the focus on potential financial stability risks associated with rising interest rates.

Selected Issues Paper , 2023

Germany’s macroprudential policy toolkit is well-developed, but its key missing piece is a set of... more Germany’s macroprudential policy toolkit is well-developed, but its key missing piece is a set of instruments related to a borrower’s income. In addition, existing powers to adopt LTV limits have not yet been deployed. Against this background, this paper advances the discussion of borrower-based macroprudential policy in Germany by explaining how borrower-based measures could strengthen financial stability, macroeconomic stability, and consumer protection; explaining how potential concerns about these instruments could be addressed; offering approaches to initial calibrations of instruments for further analysis; and hinting at their likely effects based on other countries’ experiences. The paper also uses a microsimulation model to show that activating borrower-based measures could provide as much capital to the banking system as the capital buffer requirements that were activated in 2022.

IMF Working Papers, 2023

Reducing transport sector emissions is an important pillar of the green transition. However, the ... more Reducing transport sector emissions is an important pillar of the green transition. However, the transition to electric vehicles (EV) portends major changes in vehicle manufacturing activity, on which many livelihoods in Europe depend. Using the heterogeneity across European countries in the speed of transition to EV production and variation in sectoral and regional exposure to the automotive sector, this paper offers early evidence of the labor market implications of the EV transition. Our results suggest that the transformation of the auto sector is already having an adverse impact on employment in the affected sectors and regions, which can be expected to grow at least in the near term. Many of the affected workers will be able to retire and our analysis suggests that those who will have to transition to new “greener” jobs have a fair chance to do so when compared to other workers in the manufacturing sector. Furthermore, we find evidence that active labor market policies, specifically training, can help to reduce the adjustment costs for the affected workers.

IMF Working Papers, 2023

When the U.S. economy sneezes, do emerging markets catch a cold? We show that economic news, and ... more When the U.S. economy sneezes, do emerging markets catch a cold? We show that economic news, and not just monetary policy, in the United States affects financial conditions in emerging markets. News about U.S. employment has the strongest effects, followed by news about economic activity and about vaccines during the COVID-19 pandemic. News about inflation has instead limited effects on average. A key channel of international transmission of U.S. economic news appears to be the risk perceptions or risk aversion of international investors. We also show that some of the transmission of U.S. economic news occurs independently of the U.S. monetary policy reaction. Finally, we expand on evidence that financial conditions in the U.S. and emerging markets respond differently to U.S. monetary policy surprises, depending on the reaction of US stock prices.

IMF Staff Report, 2022

The fallout from the war in Ukraine has hit the German economy before it regained its pre-pandemi... more The fallout from the war in Ukraine has hit the German economy before it regained its pre-pandemic GDP level, with effects running through higher energy costs, the possibility of gas shortages and broader supply disruptions, and weaker confidence. Consumer price inflation has spiked above 8 percent, largely because of energy price increases, but inflation pressures are becoming more widespread.

Growth is projected to slow to about 1.5 percent in 2022, mostly reflecting significant headwinds from the war. The recovery should pick up modestly in 2023 if energy supplies are secured, supply bottlenecks dissipate, and disruptive COVID-19 infection waves are avoided. Risks are to the downside, especially from a potential further cut-off of Russia’s natural gas exports.

The authorities’ policy response to the pandemic and war spillovers has been timely and generally well-designed. Staff’s main policy recommendations are as follows:
> Fiscal policy. The broadly neutral fiscal stance in 2022 is appropriate under the baseline forecast. The government’s plan to tighten policy and return to the debt
brake rule in 2023 should be manageable under the baseline assumptions of waning drags from the pandemic and energy prices. If downside risks materialize, however, the government should allow automatic stabilizers to operate fully and continue to flexibly provide targeted support, and if needed consider activating the escape clause of the debt break rule for another year. Looking ahead, Germany needs to invest in its own productive potential and resiliency through enhancing energy security, digitalization, life-long learning, innovation, labor supply, and social protection. Higher investment can also help lower Germany’s large external imbalances. Structural increases in spending for strategic priorities should be integrated into the core budget over time, which may require a review of the fiscal framework, including expenditure and revenue policies, and the fiscal rule.

> Contingency planning for a gas shutoff scenario. Staff’s analysis suggests that a full and permanent Europe-wide shutoff could lower annual German GDP by 1–3 percent in 2022, 2023, and 2024, which would not be recovered later, and could raise inflation by about 2 percentage points on average. A cold winter, economic frictions, and inefficient rationing could increase these losses. Cooperation with other EU countries to prepare contingency plans for possible gas shortages is key. The authorities should clarify infrastructure needs and potential rationing plans in various cut-off scenarios, to encourage further preparation and investment. Most of the existing measures to help vulnerable households and firms cope with spiking energy costs and potential gas shortages are generally well-designed. However, tax cuts on fossil fuels and subsidies for firms’ energy bills reduce incentives to conserve energy at a critical time, and should be phased out as planned; other support facilities for firms need clear termination dates.

> Public investment and structural reforms. Germany needs to boost public investment in energy security and decarbonization; digitalization; and transportation infrastructure. The authorities should rapidly and decisively overcome the long-standing obstacles to ramping up public investment—burdensome administrative procedures, legal hurdles, limited planning capacity, labor and material shortages, and imperfect coordination across different levels of government. Structural reforms should focus on boosting labor supply, skills, and business dynamism.

> Financial stability. The 2022 FSAP assesses the German banking sector generally resilient to shocks, but points to pockets of vulnerability and downside risks that require close monitoring and call for some additional buffers for less capitalized banks. Given continued rapid house price gains, the recently activated capital-based
measures should be supplemented with borrower-based measures, such as supervisory guidance on a loan-to-value cap. The authorities are also urged to accelerate the closure of data gaps, strengthen guidance on lending standards and add income-based measures to their macroprudential toolkit. The authorities should also consolidate the existing mandatory deposit insurance schemes into a single scheme with a government liquidity backstop.

IMF Working Papers, 2022

We analyze the potential impacts on the German economy of a complete and permanent shutoff of the... more We analyze the potential impacts on the German economy of a complete and permanent shutoff of the remaining Russian natural gas supplies to Europe, accounting for the curtailment of flows through Nord Stream 1 that has already taken place. We find that such a scenario could lead to gas shortages of 9 percent of national consumption in the second half of 2022, 10 percent in 2023 and 4 percent in 2024, which would be worse in the winter months, and would likely fall on firms, given legal protections on households. We combine the effects of less gas on production with the consequent effects of reduced supply of intermediate goods and services to downstream firms, and with reduced economic activity due to rising uncertainty. Together, these three channels reduce German GDP relative to baseline levels by about 1.5 percent in 2022, 2.7 percent in 2023 and 0.4 percent in 2024, with no gains in subsequent years from deferred economic activity. The associated rise in wholesale gas prices could increase inflation by about 2 percentage points on average in 2022 and 2023. Our simulations suggest that the economic impacts can be reduced significantly by having households voluntarily share a small part of the burden, and by rationing gas supplies more to more gas-intensive and downstream firms. We also suggest other ways to enhance German energy security.

World Economic Outlook, 2022

When COVID-19 hit, the combined supply and demand shock was expected to lead to a dramatic collap... more When COVID-19 hit, the combined supply and demand shock was expected to lead to a dramatic collapse in trade. However, trade in goods bounced back quite rapidly, although trade in services still remains sluggish. Disruptions in key international networks of production and trade have also prompted calls to relocate that production domestically. In this context, this chapter finds that pandemic-specific factors had a key role in the rotation of demand from services to goods; and while there were significant negative spillover effects of pandemic containment policies on trade partners, these were short-lived, and trade and value chains proved resilient overall. However, to guard against future shocks, those international production and trade networks can be strengthened by increasing diversification, and enhancing substitutability, in input sourcing.

IMF Working Papers

Cyber risk is an emerging source of systemic risk in the financial sector, and possibly a macro-c... more Cyber risk is an emerging source of systemic risk in the financial sector, and possibly a macro-critical risk too. It is therefore important to integrate it into financial sector surveillance. This paper offers a range of analytical approaches to assess and monitor cyber risk to the financial sector, including various approaches to stress testing. The paper illustrates these techniques by applying them to Singapore. As an advanced economy with a complex financial system and rapid adoption of fintech, Singapore serves as a good case study. We place our results in the context of recent cybersecurity developments in the public and private sectors, which can be a reference for surveillance work.

Ecomod2013, 2013

Financial intermediaries transform assets with certain risk characteristics into assets with othe... more Financial intermediaries transform assets with certain risk characteristics into assets with other risk characteristics. We define net asset transformation from liabilities to assets in terms of the pricing characteristics of contingent claims. Maturity transformation can be defined as a special case, across the whole balance sheet or locally to one contract type. We present and summarise a new rich dataset on the balance sheet asset and liability exposures of large European banks that submitted to the European Banking Authority’s EU capital exercise. In particular, we show that these banks transform short-term customer deposits and 1-5 year hybrid and subordinated debt liabilities into loan assets with greater than 5 years’ maturity. The value-weighted average maturity of the assets of these banks exceeds their liabilities by 2.07 years, with standard deviation 1.44 years. Given the importance of loan assets among these banks for determining interest rate risk, we describe and measure the interest rate risk of their loan portfolios. We find that their loan assets are primarily allocated to households and non-financial corporations in the Euro area. We critically assess the interest rate repricing risk in these loan portfolios under five simple methods, including the Basel Committee guidelines on interest rate risk assessment. We identify four major limitations in the Basel Committee guideline method and illustrate the size of the approximations they introduce through examples. Using these five methods, we measure the extent to which a standardised 200 basis point parallel interest rate shock affects the values of their loan portfolios. We find that simple loan-specific pricing models provide different, and presumably better, rankings of the relative interest rate riskiness of bank loan portfolios than the Basel Committee guideline method.

Information theory provides ideas for conceptualising information and measuring relationships bet... more Information theory provides ideas for conceptualising information and measuring relationships between objects. It has found wide application in the sciences, but economics and finance have made surprisingly little use of it. We show that time series data can usefully be studied as information -by noting the relationship between statistical redundancy and dependence, we are able to use the results of information theory to construct a test for joint dependence of random variables. The test is in the same spirit of those developed by ,a), but differs from these in that we add extra randomness to the original stochatic process. It uses data compression to estimate the entropy rate of a stochastic process, which allows it to measure dependence among sets of random variables, as opposed to the existing econometric literature that uses entropy and finds itself restricted to pairwise tests of dependence. We show how serial dependence may be detected in S&P500 and PSI20 stock returns over different sample periods and frequencies. We apply the test to synthetic data to judge its ability to recover known temporal dependence structures.

IMF Working Papers

World Economic Outlook, 2021

Advanced economies are expected to recover from the COVID-19 crisis faster than most emerging mar... more Advanced economies are expected to recover from the COVID-19 crisis faster than most emerging market economies, reflecting their earlier access to vaccinations and greater room to maintain supportive macroeconomic policies. Divergent economic recoveries could complicate the task of emerging market central banks should interest rates in advanced economies begin to rise when conditions in emerging market economies continue to warrant a loose monetary policy stance. The findings in this chapter confirm that monetary policy in advanced economies—especially in the United States—still has a large impact on financial conditions in emerging market economies. Aggressive policy easing by advanced economy central banks early in the pandemic thus provided much relief to financial markets in emerging market economies. Looking ahead to the recovery, clear guidance from advanced economy central banks on future scenarios for policy will be key to avoiding financial disruption to emerging markets. The analysis of the chapter suggests that, whereas a monetary policy tightening resulting from a stronger-than-expected US economy tends to be relatively benign for most economies, a surprise tightening, which could reflect a change in the US Federal Reserve’s expected reaction function, tends to curb global investor risk appetite and trigger capital outflows from emerging markets. The chapter’s analysis also suggests that emerging market economies with lower fiscal vulnerability are more insulated from external financial shocks than others, and countries with more transparent and rules-based monetary and fiscal frameworks enjoy greater monetary policy autonomy.

IMF G-20 Surveillance Note, 2020

This note was prepared in advance of the July 18, 2020 G-20 Finance Ministers and Central Bank Go... more This note was prepared in advance of the July 18, 2020 G-20 Finance Ministers and Central Bank Governors' Meetings. The note discusses recent economic developments, the economic outlook and risks, and policy recommendations for G-20 members.

World Economic Outlook, 2020

The share of immigrants in advanced economies has risen significantly in recent years, while esca... more The share of immigrants in advanced economies has risen significantly in recent years, while escalating conflicts have caused large refugee flows that have primarily affected emerging market and developing economies. This chapter examines the drivers of migration, its recent evolution, its possible developments going forward, and its economic impact on recipient countries.

G-20 Background Note, 2020

The COVID-19 pandemic has disproportionately hurt disadvantaged groups. While many people have be... more The COVID-19 pandemic has disproportionately hurt disadvantaged groups. While many people have been adversely impacted by the health emergency and necessary mitigation measures, those with a lack of savings and insurance are particularly hard hit when faced with a sudden decline in income. People in the informal sector with weaker job attachment, workers in lower-skilled service sector occupations that are less likely to be able to work remotely, and people in areas with insufficient access to health care or where social distancing is difficult have been highly exposed to the economic damage wrought by the pandemic. Disruptions in public services also disproportionately affect disadvantaged children who are more likely to rely on social programs such as nutrition and early childhood programs and lack adequate access to distance learning opportunities.

The crisis could leave permanent scars on the income distribution as it hit amid uneven access to opportunities and persistent income gaps in many economies. Not only have income inequalities risen in many countries during the past quarter century, economies with high levels of inequality often also have low social mobility across generations owing to unequal access to opportunities. Moreover, the greater the pre-existing inequalities, the more unequal are likely to be the impact of the pandemic. In the absence of strong policy action to protect vulnerable groups, the crisis thus risks having a lasting impact on the income distribution.

The impact of COVID-19 has reinforced the need to shed light on the uneven access to opportunities. Policy design needs to take into account that gaps can be present throughout life.
• Uneven access to health care, early childhood development, and education perpetuates throughout life. Differences in long-term outcomes often reflect that children born into low socioeconomic
status more often are exposed to poor nutrition and health risks. Furthermore, while educational attainment has increased across the G-20, gaps persist, including as people in advanced economies tend to have more years of schooling than in emerging market economies. A larger share of individuals in emerging market economies also exhibits “learning poverty”—that is, an inability to read and comprehend a simple text by age 10.
• Youth and women face sizable gaps in the labor market. Many young people face joblessness, and female labor force participation is often well below that of men. In addition, the informal sector accounts for a large share of activity, particularly among women, leaving many people with fewer safety nets than in the formal sector. Disparities also exist across space within countries, as lagging regions tend to have worse experiences in terms of health, education, and labor market outcomes.
• Many people do not have full access to financial services and technology. This impacts payments, savings, credit, and insurance, and constrains access to education, starting a business, and coping with shocks. Many small enterprises have difficulties obtaining credit to grow, which hinders firm dynamism and job creation.

Uneven access to the full benefits from technological advances and structural impediments to the entry of new firms hold back competition and, in turn, job creation. Uneven access to opportunities, low intergenerational mobility, and persistent income inequality weigh on growth. An empirical analysis shows that uneven access to opportunities is associated with low intergenerational mobility in income and education. In turn, it hampers growth through suboptimal levels of education, and inequality tends to hold back the strength and durability of growth. Where intergenerational mobility is low, the analysis also shows that benefits from structural reforms may not be distributed evenly to all individuals.

To ensure that any increase in inequality from the crisis does not become permanent and to foster a durable and inclusive recovery, action is required to level the playing field for all.
• Focus on health, early childhood development, and education is essential. Interventions should help ensure adequate health care and improve maternal health and the early childhood environment. This includes ensuring adequate nutrition, access to water and sanitation, and social protection for disadvantaged groups. Improving educational outcomes should focus not only on spending levels but also on the quality of education, including to address learning poverty. In this respect, model simulations show that increasing educational attainment in emerging market economies can benefit growth and reduce inequality. To complement national policies for systemic change, place-based policies targeted to disadvantaged communities—such as interventions to improve the quality of schooling, health, childcare, safety, housing, and infrastructure—can improve the prospects of upward mobility for children growing up in these communities.
• Policymakers should level the playing field across age and gender. Labor market policies and structural reforms to strengthen competition in product markets can be instrumental in leveling the playing field for all, so that the post-pandemic recovery expands economic opportunities
across all groups. Considerations should be given to active labor market policies, training, as well as the design of labor market regulations. Complementary product market reforms can be particularly important in ensuring a business environment that encourages innovation and growth
to help generate additional employment opportunities, including for youth. Leveling the playing field across gender would also require removing legal restrictions on women.
• Enhancing access to financial services and technology is vital for inclusive growth. This would require encouraging the availability of low-cost products and improving financial information and capabilities. Small and medium-sized enterprises would have better opportunities to grow if information gaps were closed, allowing for better assessment of their creditworthiness. While Fintech has helped expand access to financial services, more can be done by using the widespread availability of mobile phones to alleviate gaps in traditional financial account ownership.

Fiscal policy can also facilitate enhancing access to opportunities and reducing inequality. As we move forward from the immediate crisis response, fiscal policy would need to consider not only if there is fiscal space and a need to expand overall spending to enhance access to opportunities, as well as health care and social protection, but also if reprioritization can help enhance spending efficiency. Gender budgeting can help address gender inequality, in addition to improving access to affordable and high-quality childcare and parental leave policies. Removing tax policy provisions that discriminate against the second earner can help lift female labor force participation. More progressive taxation by increasing the tax rate for high-income earners can have the dual impact of generating revenue for additional expenditure and reducing ex-post inequality. Public transfers and safety nets can facilitate income and wealth redistribution and support families’ investment in children. Reducing barriers to spatial mobility would raise social mobility by helping people move to better jobs, opportunities, and services. Policies include improving infrastructure and reducing explicit or implicit costs of internal migration, such as by ensuring that safety net programs are portable across space.

G-20 Surveillance Note, 2020

IMF Working Papers, 2020

- Productivity could be raised by increasing public investment, deepening the European single market, promoting digitalization, and cutting red tape. 🛫

IMF Selected Issues Papers, Aug 1, 2024

IMF Departmental Papers, 2024

IMF Staff Report, 2023

Selected Issues Paper , 2023

IMF Working Papers, 2023

IMF Staff Report, 2022

IMF Working Papers, 2022

World Economic Outlook, 2022

IMF Working Papers

Ecomod2013, 2013

IMF Working Papers

World Economic Outlook, 2021

IMF G-20 Surveillance Note, 2020

World Economic Outlook, 2020

G-20 Background Note, 2020

G-20 Surveillance Note, 2020

IMF Working Papers, 2020

I consider a measure of serial dependence in stochastic processes based on the compressibility of... more I consider a measure of serial dependence in stochastic processes based on the compressibility of samples under modern compression algorithms. I relate the measure, which depends on the entropy rate of the stochastic process, to traditional measures of dependence, including those based on entropy like Hong and White [2004]. I present numerical evidence on the finite and large sample distributions of the measure under serial independence, that can be used to choose critical values for hypothesis tests for dependence.

[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]

I present a model for describing the dependence of financial intermediary net worth on the term t... more I present a model for describing the dependence of financial intermediary net worth on the term to maturity structure of nominal interest rates. Such a model can be used to predict the change in net worth caused by a change in nominal interest rates. I show how to quantify the uncertainty in this change in net worth that arises from term structure parameter estimation and measurement error in accounting data. I apply the methods to measure the exposure of US banks to changes in nominal interest rates.

[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]

I revisit claims in the literature about the relationship between financial development and econo... more I revisit claims in the literature about the relationship between financial development and economic growth. I find that the Solow-Swan growth determinants are important omitted variables in the existing empirical literature. The role for credit in determining growth is attenuated once one controls for investment. The positive relationship between growth and credit in the literature is explained by a combination of the well known positive relationship between growth and investment and a positive relationship between investment and credit. However, there is evidence for a negative relationship between growth and credit at levels of credit above 90% of output and this relationship is not explained by any declining effect of credit on investment at these high levels of credit.

[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]

I find that domestic asset prices and capital flows between residents and non-residents reflect t... more I find that domestic asset prices and capital flows between residents and non-residents reflect the content of domestic print news media. In particular, I find that the contents of national newspapers can predict 9 percent of the variation in daily stock returns one day ahead and 7 percent of the variation in the daily excess return of long-term bonds over short-term bonds three days ahead. This predictability in stocks and bonds coincides with predictability of the content of domestic print news media for net equity and debt portfolio capital inflows, suggesting that the domestic print news media affects foreign residents' demand for domestic assets. Moreover, predictability of domestic print news media for near future stock returns is driven by emotive language, suggesting a role for `sentiment', while such predictability for stock returns further ahead and the premium on long-term bonds is driven by non-emotive language, suggesting a role for other media factors in determining asset prices. These results do not seem to reflect a purely historical phenomenon, finite-sample biases, reverse causality, serial correlation, volatility or day-of-the-week effects. The results support models where foreign agents' short-run beliefs or preferences respond to the content of domestic print news media heterogeneously from those of domestic agents, while becoming more homogeneous in the medium term.

This manuscript derives the equations numbered (7) through (17) in Hnatkovska [2010]. It synthesi... more This manuscript derives the equations numbered (7) through (17) in Hnatkovska [2010]. It synthesises material in the main text and online appendix of that article, fills in some missing explanations and points out what I see as errors. The purpose of this manuscript is to assist readers in replicating the derivation of the main model equations in Hnatkovska [2010].