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on Open MacroEconomics |
| By: | Makoto Saito (Professor, Faculty of Economics, Hitotsubashi University, 2-1, Naka, Kunitachi, Tokyo, 186-8601, Japan, phone: +81-42- 580-8807, fax: +81-42-580-8882 (E-mail: makoto@econ.hit-u.ac.jp)); Shiba Suzuki (Assistant Professor, Faculty of Economics, Meisei University); Tomoaki Yamada (Associate Professor, School of Commerce, Meiji University) |
| Abstract: | In this paper, we explore whether markets can create endogenously good collateral in a crisis by analyzing a simple exchange economy where a country-specific catastrophic shock is shared between two countries. To see this possibility, we examine whether the equilibrium achieved by the time-0 complete markets with solvency constraints can be recovered in the dynamically complete markets with collateral constraints. This paper demonstrates that it is possible to recover the time-0 equilibrium outcome in a sequential manner when pricing errors occur randomly in evaluating Lucas trees at a catastrophic event. Such stochastic components may be interpreted as a policy initiative to create good collateral and yield constrained efficient outcomes at crisis periods. |
| Keywords: | Solvency Constraints, Collateral Constraints, Dynamic Optimal Contract, Catastrophic Shocks |
| JEL: | F34 G12 G15 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:10-e-19&r=opm |
| By: | Aurelien Eyquen; Gunes Kamber (Reserve Bank of New Zealand) |
| Abstract: | We show that internationalised production, modelled as trade in intermediate goods, brings the dynamics of a small open economy closer to that observed in the data. We build a stylized new-Keynesian small open economy model and we show that when production is internationalised, movements of international relative prices affect the economy through an additional channel, denoted as the “cost channel”. Both qualitatively and quantitatively, this channel (i) increases the share of output variance explained by foreign shocks, consistent with empirical evidence, (ii) implies that the exchange rate pass-through is closer to estimated values, and (iii) increases the international correlation of output relative to that of consumption. |
| JEL: | E30 F41 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2010/04&r=opm |
| By: | Powell, David (RAND); Wagner, Joachim (Leuphana University Lüneburg) |
| Abstract: | An emerging literature on international activities of heterogeneous firms documents that exporting firms are more productive than firms that only sell on the national market. This positive exporter productivity premium shows up in a large number of empirical studies after controlling for observed and unobserved firm characteristics in regression models including firm fixed effects. These studies test for a difference in productivity between exporters and non-exporters at the conditional mean of the productivity distribution. However, if firms are heterogeneous, it is possible that the size of the premium varies over the productivity distribution. In this paper we apply a newly developed estimator for fixed-effects quantile regression models to estimate the exporter productivity premium at quantiles of the productivity distribution for manufacturing enterprises in Germany, one of the leading actors in the world market for goods. We show that the premium decreases over the quantiles – a dimension of firm heterogeneity that cannot be detected through mean regression. |
| Keywords: | exporter productivity premium, quantile regression, fixed effects |
| JEL: | F14 C21 C23 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5112&r=opm |
| By: | Nabil Aflouk (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Se-Eun Jeong (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jacques Mazier (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jamel Saadaoui (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII) |
| Abstract: | Since the mid-1990s, the world imbalances have increased significantly with a large US current deficit facing Asian surpluses, mainly Chinese. Since 2007, a partial reduction of these imbalances has been obtained, largely thanks to production's decreases, without large exchange rate adjustments. The Asian surpluses have remained important. The objective of this paper is to examine the exchange rate misalignments (ERM) of the main emerging countries in Asia and Latin America since the 1980s, so as to shed light on the 2000s by a long term analysis and compare with the industrialized countries' case. Our results confirm that ERM have been reduced since the mid-2000s at the world level, but the dollar remained overvalued against the East Asian countries, except the yen. Chinese, Indian and Brazilian exchange rate policies have been much contrasted since the 1980s. The Indian rupee has been more often overvalued while a more balance situation prevailed in Brazil only since the 2000s. The Latin American countries have faced wider and more dispersed ERM and current imbalances than East Asian countries. But Argentina, Chile and Uruguay benefits now of undervalued currencies while Mexico is closer to equilibrium. |
| Keywords: | Equilibrium Exchange Rate, Current Account Balance, Macroeconomic Balance, Emerging Countries |
| Date: | 2010–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00484808_v3&r=opm |
| By: | Arturo J. Galindo, Alejandro Izquierdo, and Liliana Rojas-Suarez |
| Abstract: | This paper explores the impact of international financial integration on credit markets in Latin America. Using a cross-country dataset covering 17 Latin American countries between 1996 and 2008, the authors find that financial integration amplifies the impact of international financial shocks on aggregate credit and interestrate fluctuations. Despite this pernicious effect, the net impact of integration on deepening credit markets is positive and dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset covering more than 500 banks in Latin America for a similar time period to explore the role of financial integration—captured through the participation of foreign banks—in propagating external shocks. The authors find that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. However, this result does not hold for all foreign banks: Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates. Important policy recommendations to avoid foreign banks’ amplification of external financial shocks include the establishment of ring-fencing mechanisms, the development of early-warning systems, and the incorporation for agreements between domestic and foreign supervisors. |
| Keywords: | foreign banks, credit, interest rates, financial shocks |
| JEL: | F36 G0 G21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:203&r=opm |
| By: | Marga Peeters |
| Abstract: | Summary for non-specialistsThanks to policies that are geared towards opening up borders, the GCC countries have imparted a significant stimulus to the world economy, to a much greater extent than other oil exporting countries in similar conditions. The development of the gross capital flows in view of the recent global crisis and their composition are the main focus of this study. Aspects of globalization, trade and financial integration, such as the dependence on oil, regional integration, foreign direct investment and cross-border assets and loans are addressed. |
| Keywords: | Saudi Arabia United Arab Emirates Bahrain Kuwait Oman Qatar Angola Algeria Ecuador Iran Iraq Libya Nigeria Venezuela European Union |
| JEL: | F15 F21 F34 F4 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0415&r=opm |
| By: | Hutchison, Michael; Kendall, Jake; Pasricha, Gurnain; Singh , Nirvikar |
| Abstract: | This paper analyzes the extent to which the effectiveness of capital controls in India have changed over time. We begin by calculating deviations from covered interest parity utilizing data from the 3-month offshore non-deliverable rupiah forward (NDF) market. Then, using the self-exciting threshold autoregression methodology, we estimate a no-arbitrage band whose boundaries are determined by transactions costs and by the effectiveness of capital controls. Inside the bands, small deviations from CIP follow a random walk process. Outside the bands, profitable arbitrage opportunities exist and we estimate an adjustment process back towards the boundaries. We identify three distinct periods, and estimate the model over each sub-sample in order to capture the de facto effect of changes in capital controls over time. We find that de facto capital control barriers: (1) are asymmetric over inflows and outflows, (2) have changed over time from primarily restricting outflows to effectively restricting inflows; (3) arbitrage activity closes deviations from CIP when the threshold boundaries are exceeded in all sub-samples. In recent years, capital controls have been more symmetric over capital inflows and outflows and the deviations from CIP outside the boundaries are closed more quickly. |
| Keywords: | capital controls; India; arbitrage; non-deliverable forward markets; covered interest parity; self-exciting autoregressive threshold model |
| JEL: | F41 F36 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21771&r=opm |
| By: | Muhammad Tariq Majeed; Ronald MacDonald |
| Abstract: | This study examines the impact of globalization on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. With separate modelling for poverty and inequality, explicit control for financial intermediation, and comparative analysis for developing countries, the study attempts to provide a deeper understanding of cross country variations in income inequality and poverty. The major findings of the study are five fold. First, a non-monotonic relationship between income distribution and the level of economic development holds in all samples of countries. Second, both openness to trade and FDI do not have a favourable effect on income distribution in developing countries. Third, high financial liberalization exerts a negative and significant influence on income distribution in developing countries. Fourth, inflation seems to distort income distribution in all sets of countries. Finally, the government emerges as a major player in impacting income distribution in developing countries. |
| Keywords: | Globalization; Poverty; Inequality; FDI; Developing Countries. |
| JEL: | F21 F41 J24 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_22&r=opm |