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on Open MacroEconomics |
| By: | Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró |
| Abstract: | We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems. |
| Keywords: | Banking Integration, Co-movement, Fluctuations, Financial Legislation |
| JEL: | E32 F15 F36 G21 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1005&r=opm |
| By: | Robert A. Blecker |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:2010-03&r=opm |
| By: | Ansgar Belke; Ingo G. Bordon; Torben W. Hendricks |
| Abstract: | This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fits with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a significant monetary transmission process from global liquidity to other macro variables such as goods prices. We find further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus inflation. Given this clear empirical pattern it appears justified to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current financial crisis, if not possibly more. |
| Keywords: | Commodity prices, cointegration, CVAR analysis, global liquidity, inflation, international spillovers |
| JEL: | E31 E52 C32 F42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp971&r=opm |
| By: | Sebnem Kalemli-Ozcan (University of Houston and NBER); Bent E. Sørensen; Vadym Volosovych |
| Abstract: | We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of "deep" financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility. |
| Keywords: | firm volatility, foreign ownership, regional integration, social capital, macro volatility |
| JEL: | E32 F15 F36 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1006&r=opm |
| By: | Frankel, Jeffrey (Harvard University); Xie, Daniel (Peterson Institute for International Economics, Washington, DC) |
| Abstract: | A new technique for estimating countries' de facto exchange rate regimes synthesizes two approaches. One approach estimates the implicit de facto basket weights in an OLS regression of the local currency value rate against major currency values. Here the hypothesis is a basket peg with little flexibility. The second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up. Here the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly substantial degree of exchange rate flexibility around that anchor. It is important to have available a technique that can cover both dimensions: inferring anchor weights and the flexibility parameter. We test the synthesis technique on a variety of fixers, floaters, and basket peggers. We find that real world data demand a statistical technique that allows parameters and regimes to shift frequently. Accordingly we here take the next step in estimation of de facto exchange rate regimes: endogenous estimation of parameter breakpoints, following Bai and Perron. |
| JEL: | F31 F41 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp10-003&r=opm |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | The global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both originate in the combination of economic policies adopted by the two key economies, the US and China. Global financial markets served as a transmission belt, both during the boom as during the bust. In the US, the interaction among the Fed's monetary stance, global real interest rates, distorted incentives in credit markets, and financial innovation created the mix of conditions which first drove growth, but then made the US the epicenter of the global financial crisis. Exchange rate and other economic policies followed by emerging markets such as China and the oil-exporting countries contributed to the US ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble during the upswing. But we find that the key drivers of asset prices are global liquidity conditions. Central banks flooded the markets with ample liquidity. Mopping up this excess liquidity will be one major task for central banks worldwide, which needs to be done in a coordinated fashion. Moreover, our analysis has shown that liquidity will first show up in asset price inflation and only later in consumer goods inflation. This renders it difficult for central bank to exit from their current very expansive monetary policy stance if they continue to focus only on price stability. |
| Keywords: | Asset prices, China, current account adjustment, global liquidity, oil prices,<br /> savings glut, monetary policy, policy coordination |
| JEL: | E21 E43 E52 F32 F42 Q43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp973&r=opm |
| By: | Marios Zachariadis |
| Abstract: | This paper considers the relation between immigration and prices for a large number of cities across the world over the period from 1990 to 2006. Aggregate immigration ratios are shown to have a negative impact on international relative prices. The evidence is consistent with demand-side and supply-side considerations both being relevant for the price-reducing effect of immigration, with the latter offering a more likely explanation at annual frequencies during this period. Our findings regarding the inverse relation of immigration and prices and the channels via which this operates across international cities, are broadly consistent wih Lach (2007) and Cortes (2008) who investigate the same relation within Israel and for the US respectively. |
| Keywords: | Immigration, prices, inflation, international price differences |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:3-2010&r=opm |
| By: | Ayla Ogus (Department of Economics, Izmir University of Economics); Niloufer Sohrabji (Department of Economics, Simmons College) |
| Abstract: | The Turkish current account has been exploding in the last few years leading to concerns of a crisis. One of the primary factors identified in the rising deficits is the appreciating lira. In addition, income elasticity of exports and imports can also shed light on continuing trade deficits. In this paper we analyze exchange rate and income elasticity of Turkish imports and exports. We find a significant gap between domestic and foreign income elasticities (for exports and imports respectively) which points to a threat of growing trade deficits. In addition we also find that the exchange rate elasticity is negative for both Turkish exports and imports. This indicates that depreciation of the Turkish lira will have a negative effect on both imports and exports. |
| Keywords: | Cointegration; current account deficits; exchange rate and income elasticity, Turkey |
| JEL: | F32 F41 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:izm:wpaper:0906&r=opm |
| By: | Inoue, Takeshi; Hamori, Shigeyuki |
| Abstract: | This study empirically analyzes the sources of the exchange rate fluctuations in India by employing the structural VAR model. The VAR system consists of three variables, i.e., the nominal exchange rate, the real exchange rate, and the relative output of India and a foreign country. Consistent with most previous studies, the empirical evidence demonstrates that real shocks are the main drives of the fluctuations in real and nominal exchange rates, indicating that the central bank cannot maintain the real exchange rate at its desired level over time. |
| Keywords: | Exchange Rate, India, RBI, SVAR, India, Foreign Exchange |
| JEL: | E31 F31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper216&r=opm |