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on Open MacroEconomics |
| 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 (defi ned 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 fi ts 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 signifi cant monetary transmission process from global liquidity to other macro variables such as goods prices. We fi nd further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus infl ation. Given this clear empirical pattern it appears justifi ed 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 fi nancial crisis, if not possibly more. |
| Keywords: | Commodity prices; cointegration; CVAR analysis; global liquidity; infl ation; international spillovers |
| JEL: | E31 E52 C32 F42 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0167&r=opm |
| By: | Cerdeiro, Diego A. |
| Abstract: | The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Economic Stabilization,Emerging Markets,Economic Theory&Research |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5252&r=opm |
| By: | Christophe RAULT; Guglielmo Maria CAPORALE; Thouraya HADJ AMOR |
| Abstract: | The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries |
| Keywords: | emerging economies, real exchange rate, financial integration, misalignment, second-generation panel unit-root and cointegration tests |
| JEL: | E31 F0 F31 C15 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-970&r=opm |
| By: | Alexandra Ferreira-Lopes (ISCTE - Lisbon University Institute - Department of Economics, UNIDE-ERC and DINÂMIA); Tiago Neves Sequeira (UBI and INOVA-UNL) |
| Abstract: | In this work we assess the existence of a S-Curve pattern in ten Central and Eastern European Countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia, Czech Republic, Hungary, and also for an aggregate of the ten transition countries. In the case of Lithuania, Poland, Romania, and Slovakia the pattern is weaker than in the mentioned countries but it stills prevails. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus, Kehoe, and Kydland (1994) calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of a S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes. |
| Keywords: | Central and Eastern European Countries, Current Account Dynamics, Terms of Trade, S-Curve. |
| JEL: | C68 F32 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp0310&r=opm |
| By: | Ansgar Belke; Holger Zemanek; Gunther Schnabl |
| Abstract: | In the past decade, a set of euro area countries has accumulated large current account defi cits. After a brief relaxation of the euro area internal imbalances in the wake of the fi nancial crisis, it appears as if this pattern arises anew when times normalize again and Germany still sticks to export-led growth. This issue has been labelled one of the most challenging economic policy issues for Europe inter alia by the European Commission and some other players on the EU level. In this paper, we analyse the role of private restructuring and structural reforms for the urgently needed sustainable readjustment of intra-euro area current account balances. A panel regression reveals a signifi cant impact of structural reforms on intra-euro area current account balances. This implies that in particular structural reforms and wage restraint in notorious current account and budget defi cit countries such as Greece are highly suitable to support long-term economic stability in Europe. |
| Keywords: | Structural reforms; current account balances; euro area; dynamic panel estimation; interaction term |
| JEL: | E24 F15 F16 F32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0176&r=opm |
| By: | Medina, Leandro |
| Abstract: | The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly dataset─ which includes unique country specific commodity price indices and a comprehensive measure of public expenditures─ this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for 8 commodity exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions generally react strongly to shocks to commodity prices, yet there are marked differences across countries in observed reactions. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. On the other side of the spectrum, Chile’s fiscal indicators react very little to commodity price fluctuations, and their dynamic responses are very similar to those seen in high-income commodity exporting countries. A plausible explanation to this distinct behavior across countries could be related to the efficient application of fiscal rules, accompanied by strong institutions, political commitment and high standards of transparency. |
| Keywords: | Latin America; Emerging Economies; Commodity Prices; Fiscal Policy; Macroeconomics; Procyclicality; Procyclical; Dynamic Effects;Government Spending |
| JEL: | E62 H50 O13 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21690&r=opm |
| By: | Kubelec, Chris (Bank of England); Sa, Filipa (Trinity College, University of Cambridge) |
| Abstract: | This paper constructs a data set on stocks of bilateral external assets and liabilities for a group of 18 countries, including developed and emerging economies. The data set covers the years 1980 to 2005 and distinguishes between four asset classes: foreign direct investment, portfolio equity, debt, and foreign exchange reserves. A number of stylised facts emerge from it. There has been a remarkable increase in interconnectivity over the past two decades. Financial links have become larger and more frequent and countries have become more open. The global financial network is centred around a small number of nodes, which have many and large links. In addition, the network exhibits ‘small-world’ properties, such as high clustering and low average path length. The combination of high interconnectivity, a small number of hubs, and ‘small-world’ properties makes for a robust-yet-fragile system, in which disturbances to the key hubs would be rapidly and widely transmitted. The global financial network is centred around the United States and the United Kingdom, which have large links and are connected to most other countries. This contrasts with the global trade network, which is arranged in three clusters: a European cluster (centred on Germany), an Asian cluster (centred on China), and an American cluster (centred on the United States). |
| Keywords: | International financial networks; international investment; financial liberalisation |
| JEL: | F20 F30 |
| Date: | 2010–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0384&r=opm |
| By: | Dierk Herzer (Johann Wolfgang Goethe-University, Frankfurt am Main / Germany) |
| Abstract: | This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing countries, (ii) increased factor productivity is both consequence and a cause of increased outward FDI, and (iii) there are large differences in the long-run effects of outward FDI on total factor productivity across countries. Cross-sectional regressions indicate that these cross-country differences in the productivity effects of outward FDI are significantly negatively related to cross-country differences in labor market regulation, whereas there is no statistically significant association between the productivity effects of outward FDI and the level of human capital, the level of financial development, or the degree of trade openness in the home country. |
| Keywords: | Outward FDI; total factor productivity; developing countries; panel cointegration |
| JEL: | F21 O11 F23 C23 |
| Date: | 2010–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:199&r=opm |
| By: | Paul J.J. Welfens (EUropäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Dora Borbély (EUropäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | An analysis of structural change along its main dimensions (relative goods and factor prices, shifts in sectoral output and employment shares, and the respective contributions of process and product innovation) is first presented. Next, capital mobility is introduced as well as Sinn's controversial characterization of the large German trade surplus against the backdrop of the increase in international outsourcing. The authors then flesh out the model to show that growth, at least in the medium term, hinges on both demand and supply-side dynamics, with the structure of output and the intensity of trade contributing to growth. Finally, in this exegesis on structural change, innovation, and growth, some dynamic Schumpeterian considerations are offered. The bottom line is that the ability of firms from EU15 countries to rely on imported intermediate products from EU accession countries is the basis for gaining competitiveness in both the global economy and vis-à-vis the United States. It enables them to become more price competitive while restructuring domestic outsourcing in the EU15, making it more focused on producing technologically advanced intermediate products than heretofore. A detailed set of empirical regularities are investigated along two main dimensions: innovation traits and structural change, and Sinn's bazaar effect. International competitiveness is evaluated on the basis of revealed comparative advantage indicators (RCAs) and export unit values (EUVs). |
| Keywords: | Open Economy Macroeconomics, Innovation Dynamics, Structural Change |
| JEL: | F41 F43 O33 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei170&r=opm |