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on Open MacroEconomics |
| By: | Drozd, Lukasz A.; Nosal, Jaromir B. |
| Abstract: | This paper evaluates the performance of leading micro-founded pricing-to-market frictions vis-a-vis a set of robust stylized facts about international prices. In order to make that evaluation meaningful, we embed each friction into a unified IRBC framework and parameterize the models in a uniform way. Our goal is to evaluate the broad-based applicability of these frictions for policy-oriented DSGE modeling by documenting their strengths and weaknesses. We make three points: (i) the mechanisms generating pricing to market are not always neutral to business cycle dynamics of quantities, (ii) some mechanisms require producer markups at least 50% to account for the full range of estimates of the empirical exchange rate pass-through to export prices of 35%-50%, (iii) some frictions crucially depend on a particular driver of uncertainty in the underlying model. |
| Keywords: | pricing to market; law of one price; incomplete pass-through; international correlations; international business cycle; sticky prices; pass-through coefficient |
| JEL: | E32 F41 F31 |
| Date: | 2010–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22513&r=opm |
| By: | Linda S. Goldberg (Federal Reserve Bank of New York and National Bureau of Economic Research); Cedric Tille (Geneva Graduate Institute for International and Development Studies, Centre for Economic Policy Research and Hong Kong Institute for Monetary Research) |
| Abstract: | The use of different currencies in the invoicing of international trade transactions plays a major role in the international transmission of economic fluctuations. Existing studies argue that an exporter's invoicing choice reflects structural aspects of her industry, such as market share and the price-sensitivity of demand, the hedging of marginal costs, due for instance to the use of imported inputs, and macroeconomic volatility. We use a new highly disaggregated dataset to assess the roles of the various invoicing determinants. We find support for the factors identified in the literature, and document a new feature, in the form of a link between shipments size and invoicing. Specifically, larger transactions are more likely to be invoiced in the importer's currency. We offer a potential theoretical explanation for the empirical link between transaction size and invoicing by allowing invoicing to be set through a bargaining between exporters and importers, a feature that is absent from existing models despite its empirical relevance. |
| Keywords: | Invoicing Currency, Vehicle Currency, Pass-Through, International Trade |
| JEL: | F3 F4 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:082010&r=opm |
| By: | Raúl Serrano (Department of Business Administration, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza); Vicente Pinilla (Department of Applied Economics, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza) |
| Abstract: | This paper focuses on analysing the evolution of the terms of trade of products in the agricultural and food trade in the second half of 20th century. We have compiled 56 new price indices for internationally‐traded agricultural products. Furthermore, in order to obtain real prices, the agricultural price series have been deflated by an international trade price index that includes major changes in the prices of not only manufactured goods, but also other commodities, such as energy products, which have had so much influence on the shocks occurring in the period. Another feature of this work is the use of a new time series method. We shall analyse the presence of two structural breaks in non‐stationary series, as well as establishing the years of structural break endogenously. Our aim is to characterise the distinct trends of the groups of products by determining which groups experienced the greatest decline, and the possible causes, both economic and institutional |
| Keywords: | Singer‐Prebish Hypothesis, terms of trade, agricultural and food trade, agricultural prices |
| JEL: | F14 N50 N70 Q17 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:1003&r=opm |
| By: | Karl Whelan (University College Dublin) |
| Abstract: | Did global imbalances cause the financial crisis? A number of influential figures have argued that inflows of foreign capital into the US due to the current account deficit helped to trigger the crisis. This paper argues that the evidence for this position is weak. The capital inflows into the US associated with the current account deficit were also not the key factor driving foreign purchases of US toxic assets. The so-called global savings glut was not as significant a pattern as is often presented. Macroeconomic policies that reduced global imbalances could have been adopted but these would probably not have prevented the crisis. Global policy efforts to prevent a recurrence of the financial crisis need to focus on improved banking regulation. Reducing global imbalances should be of secondary importance. |
| Date: | 2010–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201013&r=opm |
| By: | Virginie Coudert; Cecile Couharde; Valerie Mignon |
| Abstract: | This paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries. Many emerging countries have loosened the link of their currencies to the US dollar since the bursting of the subprime crisis in July 2007. Spillovers from advanced financial markets to currencies in emerging countries stem from the same causes documented in the literature on contagion, such as the drying–up of investors’ liquidity, the rise in risk aversion, and the updating of their risk assessments. Consequently, interdependencies across currencies are likely to be exacerbated during crisis periods. To test this hypothesis, we assess the exchange rate policies by their degree of flexibility, itself proxied by the exchange rate volatility, and investigate their relationship to a global financial stress indicator, measured by the volatility on global markets. We introduce the possibility of non-linearities by running smooth transition regressions (STR) over a sample of 21 emerging countries from January 1994 to September 2009. The results confirm that exchange rate flexibility does increase more than proportionally with the global financial stress, for most countries in the sample. We also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area. |
| Keywords: | Financial crises; dollar pegs; contagion effects; nonlinearity |
| JEL: | F31 G15 C22 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2010-08&r=opm |
| By: | Sami Alpanda; Kevin Kotze; Geoffrey Woglom |
| Abstract: | We estimate a New Keynesian small open economy DSGE model for South Africa, using Bayesian techniques. The model features imperfect competition, incomplete asset markets, partial exchange rate pass-through, and other commonly used nominal and real rigidities, such as sticky prices, price indexation and habit formation. We study the effects of various shocks on macroeconomic variables, and calculate the optimal Taylor rule coefficients using a loss function for the central bank. We find that the optimal Taylor rule places a heavier weight on inflation and output than the estimated Taylor rule, but almost no weight on the depreciation of currency. |
| Keywords: | optimal monetary policy, small open economy, Bayesian estimation |
| JEL: | F41 E52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:174&r=opm |