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on Open MacroEconomics |
| By: | Beaudry, Paul; Dupaigne, Martial; Portier, Franck |
| Abstract: | This paper reexamines the question of how to explain business cycle co-movements within and between countries. First, we present two simple theoretically flexible price models to illustrate how and why news shocks can generate robust positive co-movements in economic activity across countries. We also discuss under what conditions the multi-sector version of the model generates appropriate business cycle patterns within countries. Second, we develop a quantitative two-country multi-sector model that is capable of replicating many international business cycle facts. The model is a two-country extension of the closed economy model of Beaudry and Portier [2004], in which there are limited possibilities to reallocate factors between investment and consumption good sectors. |
| Keywords: | business cycles, expectations, international fluctuations |
| JEL: | E32 F41 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22242&r=opm |
| By: | Alan V. Deardorff (University of Michigan) |
| Abstract: | This paper uses simple trade theory to interpret global imbalance. A world equilibrium in which one country runs a trade surplus and the other a deficit can be interpreted as the welfare improving outcome of free inter-temporal trade. However, comparative advantage would predict that the surplus would arise in the more slowly growing economy, unless consumer preferences differ sufficiently to reverse that. In order to explain the apparent situation of the United States and China in the world today without resorting to such differences in preferences, the paper suggests that both countries may be using policies that, in effect, subsidize the export of the goods in which they have comparative inter-temporal disadvantage. If this is the case, the resulting trade reduces world welfare compared to autarky, and it can easily make both countries worse off. |
| Keywords: | global imbalance, inter-temporal comparative advantage |
| JEL: | F11 F32 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:599&r=opm |
| By: | Kim, Hyeongwoo; Moh, Young-Kyu |
| Abstract: | This paper revisits the empirical evidence of purchasing power parity under the current float by the recursive mean adjustment (RMA) method (So and Shin, 1999). We first demonstrate superior finite sample performance of the RMA-based unit root test over the augmented Dickey-Fuller test via Monte Carlo experiments for 18 linear and nonlinear autoregressive data generating processes. The RMA-based unit root test rejects the null hypothesis of unit root for 16 out of 20 current float real exchange rates relative to the US dollar.We also find that the computationally simple RMA-based asymptotic confidence interval can provide useful information regarding the half-life of the real exchange rate. |
| Keywords: | Recursive Mean Adjustment; Finite Sample Performance; Purchasing Power Parity; Half-Life |
| JEL: | C12 C22 F31 |
| Date: | 2010–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22712&r=opm |
| By: | Frost, Mark; Parton, Kevin |
| Abstract: | The Australian dollar is considered a commodity-based currency, with the high level of primary commodity exports in Australiaâs trade balance given as an explanation. Key studies have concluded that Australiaâs terms of trade are a primary driver of the real exchange rate based on a comparative advantage trade model. These studies have been undertaken at an aggregate level where changes in the terms of trade have been assumed as a given. Since the Australian economy was deregulated in the early 1980s, there have been dramatic changes in the structure of the economy. Australiaâs trading activity has grown and now contributes more within the domestic economy. Similarly the structure and contribution of key imports and exports has also evolved. Furthermore the role of the traded goods and services balance and the income balance within the Australian current account balance has also changed, with a significant change occurring in 2003/04. The purpose of this paper is twofold. Firstly it establishes whether the relationship between the Australian exchange rate and terms of trade has changed in response to changes in the role of the traded goods and services sector within the Australian current account balance. Secondly the paper disaggregates the movements in the terms of trade to establish what role its various components have on the wider relationship between the Australian exchange rate and the terms of trade. The paper concludes that despite substantial changes in the structure and nature of the current account balance and the traded goods and services sector, the Australian exchange rate still responds to changes in the terms of trade as if it is still a commodity-based currency and economy. |
| Keywords: | Demand and Price Analysis, International Relations/Trade, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare10:59735&r=opm |
| By: | Kim, Soyoung (Asian Development Bank Institute); Yang, Doo Yong (Asian Development Bank Institute) |
| Abstract: | This paper analyzes the impact of United States (US) monetary shocks on the economies of selected East Asian countries using a structural vector autoregression model. We found that the impacts of the US monetary shocks on domestic interest rates and exchange rates contradict conventional wisdom. The conventional exchange rate channel is unlikely to play much role in the transmission of US monetary policy shocks to floating exchange rate regimes in East Asian countries, excluding Japan. In these countries, the domestic interest rate responds strongly to US interest rate changes, largely by authorities giving up monetary autonomy due to fear of floating. On the other hand, the domestic interest rate does not respond much to changes in US rates in the countries with a fixed exchange rate regime and capital account restrictions, such as the People's Republic of China and Malaysia. This may suggest that the countries with a fixed exchange rate regime enjoy a higher degree of monetary autonomy, probably with the help of capital account restrictions. |
| Keywords: | east asian rate regimes; floating vs. non-floating; international monetary transmission |
| JEL: | F32 F33 |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0181&r=opm |
| By: | Nils Holinski; Clemens Kool; Joan Muysken |
| Abstract: | In this paper we document the growing dispersion of external and internal balances between countries in the North and South of the Euro area over the time period 1992 to 2007. We find a persistent divergence process that seems to have started with the introduction of the common currency and has its roots in the savings and investment behavior of private sectors. We dismiss the common argument in the literature that imbalances are the temporary outcome of an overall European economic convergence process and argue that future research should place greater emphasis on country heterogeneity in behavior to fully understand economic developments in the Euro area and to derive policy implications. |
| Keywords: | Euro area, current acccount imbalances, Stability and Growth Pact |
| JEL: | F15 F32 F41 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1012&r=opm |