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on Open MacroEconomics |
| By: | Michael Artis (Institute for Political and Economic Governance, Manchester University); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | The paper uses long-run GDP data for developed countries drawn from Maddison (2003) to generate deviation cycles for the period from 1870 to 2001. The cyclical deviates are examined for their bilateral cross-correlation values in three separate periods, those of the first globalization wave (1870 to 1914), the period of the“bloc economyâ€(1915 to 1959) and for the period of the second globalization (1960-2001). Cluster analysis is applied and the McNemar test is used to test for the relative coherence of alternative groupings of countries in the three periods. The bloc economy period emerges as one that features some well-defined sub-global clusters, where the second globalization period does not, the first globalization period lying between the two in this respect. The second globalization period shows a generally higher level of cross correlations and a lower variance than the other two periods. The features uncovered suggest that the second globalization period is indeed one that comprises a more inclusive world economy than ever before. |
| Keywords: | Globalization, Bloc economy, Business cycle, Cluster analysis, McNemar test |
| JEL: | F02 F15 F41 N10 E32 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:232&r=opm |
| By: | Fabio Milani (Department of Economics, University of California-Irvine) |
| Abstract: | This paper employs a structural model to estimate whether global output gap has become an important determinant of U.S. inflation dynamics. The results provide support for the relevance of global slack as a determinant of U.S. inflation after 1985. The role of domestic output gap, instead, seems to have diminished over time. |
| Keywords: | Globalization; Global Slack; Inflation Dynamics; Phillips Curve; Bayesian Estimation |
| JEL: | E31 E50 E52 E58 F41 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:080910&r=opm |
| By: | Macdonald, Ryan |
| Abstract: | The present study illustrates the differential impact on regional economies of relative price changes stemming from commodity price movements, exchange rate changes and changes in international manufactured goods prices. It focuses on Canadian provinces, which are a large, geographically distributed federation of regional economies with widely differing economic bases. In this regard, the study illuminates an important method for examining regional economic performance that is particularly well suited to federations such as Russia or the European Monetary Union, or to large countries such as the United States. |
| Keywords: | International trade, Economic accounts, Gross domestic product |
| Date: | 2008–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp2e:2008021e&r=opm |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christophe Rault (Université d’Orléans, LEO, CNRS, UMR 6221, Rue de Blois-B.P.6739, 45067 Orléans Cedex 2, France.) |
| Abstract: | We assess the cointegration relationship between current account and budget balances, and effective real exchange rates, using recent bootstrap panel cointegration techniques and SUR methods. We investigate the magnitude of the relationship between the two imbalances for each country for the period 1970-2007, and for different EU and OECD country groupings. The panel cointegration tests used allow for within and between correlation, while the SUR results show both positive and negative effects of budget balances on current account balances for several countries. The magnitude of the effects varies across countries, and there is no evidence pointing to a direct and close relationship between budgetary and current account balances. JEL Classification: C23, E62, F32, H62. |
| Keywords: | budget balance, external balance, EU, panel cointegration. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080961&r=opm |
| By: | Maurizio Michael Habib (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jan Stráský (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper discusses the choice of an optimal external anchor for oil exporting economies, using optimum currency area criteria and simulations of a simple model of a small open economy pegging to a basket of two currencies. Oil exporting countries - in particular those of the Gulf Cooperation Council - satisfy a number of key optimum currency area criteria to adopt a peg. However, direction of trade and synchronisation of business cycle of oil exporters suggest that there is no single "ideal" external anchor among the major international currencies. Model simulations - parameterised for an oil exporting economy - indicate that a currency basket is generally preferable to a single currency peg, especially when some weight is placed by the policy maker on output stabilisation. Only when inflation becomes the only policy objective and external trade is mostly conducted in one currency that a peg to a single currency becomes optimal. JEL Classification: F31, C30, C51, C61, O24. |
| Keywords: | oil exporting countries, exchange rate regimes, basket, model simulation. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080958&r=opm |
| By: | Prasad, Eswar (Cornell University) |
| Abstract: | In this paper, I analyze India's approach to capital account liberalization through the lens of the new literature on financial globalization. India's authorities have taken a cautious and calibrated path to capital account opening, which has served the economy well in terms of reducing its vulnerability to crises. By now, the capital account has become quite open and reversing this is not a viable option. Moreover, the remaining capital controls are rapidly becoming ineffective, making the debate about capital controls rather moot. Managing de facto financial integration into international capital markets and aligning domestic macroeconomic policies in a manner that maximizes the indirect benefits and reduces the risks is the key challenge now facing India's policymakers on this front. |
| Keywords: | India, international financial integration, capital flows, capital controls |
| JEL: | F3 F4 O2 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3838&r=opm |
| By: | Stéphane Adjemian (Université du Maine, Avenue Olivier Messiaen, 72085 Le Mans Cedex 9, France.); Matthieu Darracq Pariès (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper presents first the estimation of a two-country DSGE model for the euro area and the rest-of-the-world including relevant oil-price channels. We then investigate the optimal resolution of the policy tradeoffs emanating from oil-price disturbances. Our simulations show that the inflationary forces related to the use of oil as an intermediate good seem to require specific policy actions in the optimal allocation. However, the direct effects of oil prices should be allowed to exert their mechanical influence on CPI inflation and wage dynamics through the indexation schemes. We also illustrate that any fine-tuning strategy which tries to counteract the direct effects of oil-price changes in headline inflation would prove counter-productive both in terms to stabilization of underlying inflation and by causing unnecessary volatility in the macroeconomic landscape. Finally, it appears that perfect foresight on future oil price developments allows a more rapid absorption of the steady state decline in purchasing power and real national income in the optimal allocation. Through the various expectation channels, economic agents facilitate the necessary adjustments and optimal monetary policy can still tolerate the direct effects of oil price changes on CPI inflation as well as some degree of underlying inflationary pressures in the view of easing partly the burden of downward real wage shifts. Our monetary policy prescriptions have been derived in a modeling framework where oil-price fluctuations are essentially exogenous to policy actions and where expectations are formed under the rational expectations paradigm. Notably, the extension of such conclusions to imperfect knowledge and weak central bank credibility configurations remain challenging fields for further research. JEL Classification: E4, E5, F4. |
| Keywords: | Oil prices, Optimal monetary policy, New open economy macroeconomics, Bayesian estimation. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080962&r=opm |
| By: | Giorgia Albertin |
| Abstract: | This paper provides a general equilibrium analysis of the trade effects of the formation of a currency union, and of its subsequent enlargement to include an economically dissimilar country. Furthermore, it investigates how economic dissimilarities among countries affect the magnitude of the trade effects fostered by a common currency. We show that sharing a common currency enhances the volume of bilateral trade among countries. However, the more economically dissimilar is an accession country, compared to the original members of a currency union, the smaller are the gains in trade that would follow the enlargement of a currency union. |
| Keywords: | Monetary unions , Trade integration , International trade , Trade models , |
| Date: | 2008–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/249&r=opm |
| By: | Kamilya Tazhibayeva; Anna Ter-Martirosyan; Aasim M. Husain |
| Abstract: | This paper empirically assesses the impact of oil price shocks on the underlying non-oil economic cycle in oil-exporting countries. Panel VAR analysis and the associated impulse responses indicate that in countries where the oil sector is large in relation to the economy, oil price changes affect the economic cycle only through their impact on fiscal policy. Once fiscal policy changes are removed, oil price shocks do not have a significant independent effect on the economic cycle. |
| Keywords: | Oil exporting countries , Fiscal policy , Business cycles , Oil prices , Nonoil sector , Economic growth , Economic models , |
| Date: | 2008–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/253&r=opm |
| By: | Korhonen, Iikka (BOFIT); Ledyaeva, Svetlana (BOFIT) |
| Abstract: | In this paper we assess the impact of oil price shocks on oil-producer and oil-consumer economies. VAR models for different countries are linked together via a trade matrix, as in Abeysinghe (2001). As expected, we find that oil producers (Russia and Canada here) benefit from oil price shocks. For example, a large oil shock, leading to a price increase of 50%, boosts Russian GDP by some 12%. However, oil producers are hurt by indirect effects of oil shocks, as economic activity in their export countries suffers. For oil consumers, the effects are more diverse. In some countries, output drops in response to an oil price shock, while other countries seem to be relatively immune to oil price changes. Finally, indirect effects are also detected for oil-consumer countries. Those countries trading more with oil producers receive indirect benefits via higher demand from the oil producing countries. In general the largest negative total effects from positive oil price shocks are found in China, USA and Japan while European countries seem to fare quite well during recent positive oil-price shocks. |
| Keywords: | oil; macroeconomic fluctuations; trade linkages; Russia |
| JEL: | C32 E32 F43 Q43 |
| Date: | 2008–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2008_016&r=opm |
| By: | Ozgul Bilici (Department of Economics, Izmir University of Economics); Erkan Erdil (Department of Economics, Middle East Technical University); I. Hakan Yetkiner (Department of Economics, Izmir University of Economics) |
| Abstract: | This paper aims to determine the role of EU in Turkey’s trade flows by using the gravity model. It also aims to test whether the Customs Union (of EU) that Turkey entered in 1996 made a deviation in Turkey’s trade flows. Regional trade agreements on the one hand create new trade opportunities (trade creation effect). On the other hand, these agreements may also lead to diversion from free trade (trade diversion effect). Turkey’s Customs Union agreement without becoming a member of EU provides a laboratory to researchers to test whether the agreement was significant enough to cause any deviation in Turkey’s trade flow. In the first part of the study, we shortly provide some descriptive statistics related to Turkey’s trade flows with EU to see whether EU has gained any weight in the flows. In the second part, we first develop a gravity model that econometrically designates the determinants of Turkey’s trade flows via panel data approach. Next, we use this equation to test the importance of EU countries in Turkey’s trade flow and whether the flow has been subject to a deviation after the Customs Union agreement. Our findings indicate that EU countries have always been important in Turkey’s trade flow and that Customs Union has increased EU’s importance marginally in determining Turkey’s trade flow. |
| Keywords: | Gravity model, Turkey, EU, Panel Data, Customs Union |
| JEL: | F02 F11 F13 F14 F21 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:izm:wpaper:0806&r=opm |