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on Open MacroEconomics |
| By: | Deokwoo Nam; Jian Wang |
| Abstract: | In this paper, we find that expected (news) and unexpected (contemporaneous) components of productivity changes have opposite effects on the U.S. real exchange rate. Following Barsky and Sims' (2010) identification method, we decompose US total factor productivity (TFP) into news and contemporaneous productivity changes. The US real exchange rate appreciates following a favorable news shock to TFP, while it depreciates in response to a positive contemporaneous shock. In addition, the identified news TFP shocks play a much more important role than the identified contemporaneous TFP shocks in driving the US real exchange rate. These findings provide empirical guidance to important international macroeconomic issues, such as the international transmission of productivity shocks and the modeling of exchange rate volatility. |
| Keywords: | Business cycles ; Foreign exchange rates ; Productivity |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:64&r=opm |
| By: | Richard Frensch; Achim Schmillen (Osteuropa-Institut, Regensburg (Institut for East European Studies)) |
| Abstract: | The Balassa-Samuelson hypothesis – i.e. that real exchange rates between each pair of countries increase with the tradables sector productivities ratio between these countries, and decrease with their non-tradables sector productivities ratio – has been one of the most prominent frameworks in open economy macroeconomics for more than forty years. However, empirical studies have often been unable to confirm it. We argue that this might at least in part be due to measurement errors leading to downward-biased estimates. We test the Balassa-Samuelson hypothesis with innovative trade-based vari-ety measures to differentiate between tradables and non-tradables sector productivities that do not suffer from such errors-in-variables. Using a pairwise regression approach, we find stable and very robust Balassa-Samuelson effects over all our specifications. |
| Keywords: | Balassa-Samuelson, product variety, measurement errors, pairwise regressions |
| JEL: | F40 F43 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:288&r=opm |
| By: | Trung T Bui; Tamim Bayoumi |
| Abstract: | The 2008 crisis underscored the interconnectedness of the international business cycle, with U.S. shocks leading to the largest global slowdown since the 1930s. We estimate spillover effects across major advanced country regions in a structural VAR (SVAR) using pre-crisis data. Our new method freely estimates the contemporaneous correlation matrix for underlying shocks in the VAR and (uniquely, to our knowledge) the associated uncertainty. Our results suggest that the international business cycle is largely driven by U.S. financial shocks with a significant impact from global shocks, mainly reflecting commodity prices. Other advanced economic regions play a much smaller and regional role in growth spillovers. Our findings are consistent with the emerging evidence on the current crisis |
| Keywords: | Business cycles , Developed countries , Economic growth , Economic models , International financial system , Spillovers , United States , |
| Date: | 2010–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/239&r=opm |
| By: | Sebastian Galiani; Daniel Heymann; Nicolas E Magud |
| Abstract: | We introduce non-tradable goods to the Heckscher-Ohlin-Samuelson (HOS) model to study the distributive effects of terms of trade shocks. We show that the employment of resources in activities producing exclusively for the local market induces a crucial association between domestic spending and factor demand and prices, which is absent in the usual HOS framework. Specifically, in a two-sector economy (producing only exportable and non-tradable goods) there are no redistributive effects of external terms of trade shifts-i.e. no Stolper-Samuelson-type of effect. By extending the model to the domestic production of a third, importable good, we show that distributional tensions arise. Distributional conflicts occur within urban labor groups (skilled vs. unskilled) and not only between the "traditional" rural vs. urban factors. Finally, export taxes are imposed to re-distribute the effects of external shocks. We show that the ability of the government to cushion the impact of the terms of trade shift on the economy’s income distribution depends crucially on the use of the tax revenues. |
| Keywords: | Export taxes , Exports , External shocks , Labor productivity , Terms of trade , Trade models , |
| Date: | 2010–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/241&r=opm |
| By: | Emanuel Kohlscheen |
| Abstract: | In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates, this study computes the dynamics of exchange rate pass-throughs to consumer price indices. We find that pass-throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities. Previous studies that set out to estimate exchange rate pass-throughs ignored changes in policy regimes, making them vulnerable to the Lucas critique. We find that, within the group of emerging floaters, estimated pass-throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods. These findings are consistent with the pass-through model of Floden and Wilander (2006) and earlier findings by Campa and Goldberg (2005), respectively. Furthermore, we find that the Indonesian Rupiah, the Thai Baht and possibly the Mexican Peso are commodity currencies, in the sense that their real exchange rates are cointegrated with international commodity prices. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:224&r=opm |
| By: | M. Ayhan Kose; Christopher Otrok; Raju Huidrom; Thomas Helbling |
| Abstract: | This paper examines the importance of credit market shocks in driving global business cycles over the period 1988:1-2009:4. We first estimate common components in various macroeconomic and financial variables of the G-7 countries. We then evaluate the role played by credit market shocks using a series of VAR models. Our findings suggest that these shocks have been influential in driving global activity during the latest global recession. Credit shocks originating in the United States also have a significant impact on the evolution of world growth during global recessions. |
| Keywords: | Business cycles , Capital markets , Credit , Cross country analysis , Economic models , Economic recession , External shocks , Group of seven , Time series , United States , |
| Date: | 2010–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/261&r=opm |
| By: | To Dieu-Hang; Tom Kompas |
| Abstract: | The presence of transaction costs in trading implies a non-linear adjustment process of real exchange rates towards Purchasing Power Parity (PPP). This may make the traditional tests for PPP using a linear framework --- ones that generally tend to refute the PPP hypothesis --- unreliable. Instead, this study models the dynamics of the adjustment towards PPP using a modified exponential smooth transition autoregressive process which accounts for both a symmetric and asymmetric adjustment mechanism and tests for the validity of PPP using a new test. Using quarterly data from 10 APEC countries, our results suggest that the bilateral US real exchange rates are mean reverting. Our study provides strong evidence supporting the PPP hypothesis and resolves the inconclusiveness from previous empirical results. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:idc:wpaper:idec10-02&r=opm |
| By: | Martin Uebele |
| Abstract: | This article analyzes international business cycles in Europe 1862-1913 using disaggregated data and Dynamic Factor Analysis. In comparison with estimates of real national product there is more evidence for international business cycles in disaggregated data of Germany, France and Great Britain before World War I. This is because data used to construct historical national accounts are often not sufficient to date business cycles, and especially because little is known about general price fluctuations. Thus, national products in current prices show higher degrees of international correlation than deflated ones although price indices themselves are not very well correlated across countries. |
| Keywords: | International Business Cycles, Historical National Accounting, Disaggregate Data, Dynamic Factor Models |
| JEL: | E31 E32 F15 N13 N73 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cqe:wpaper:1610&r=opm |
| By: | Sérgio F. Meyrelles-Filho (UFGO); Frederico G. Jayme Jr (Cedeplar-UFMG) |
| Abstract: | This paper analyses empirically the relationship between economic growth and the openness of the financial account of the balance of payments. It takes into consideration the balance of payments’ constrained growth, as well as the difficulties in the empirical literature in measuring capital mobility. Starting from the capital mobility index we estimate a panel across 80 countries, both developed and developing between 1997-2003. Results suggest that more capital mobility in developing countries affects growth negatively, whereas it possibly stimulates growth in developed countries. |
| Keywords: | Economic Growth, Capital Mobility, Dynamic Panel |
| JEL: | F32 F43 C33 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td411&r=opm |
| By: | Andreas Steiner (Universitaet Osnabrueck) |
| Abstract: | Countries’ capital account policies might be contagious in the sense that domestic policies are driven by other countries’ policies. A model of strategic interactions is developed to show that countries’ best response to policy changes elsewhere consists in imitating this policy. Using a spatial econometric model, the hypothesis of policy interactions is tested in a large panel data set. The evidence shows that capital account policies are contemporaneously correlated across countries. Concerning fundamentals, the move to a fixed exchange rate regime and an increase in real world interest rates are correlated with the imposition of capital account restrictions. |
| Keywords: | Capital Controls, Strategic Interaction, Panel Data Analysis |
| JEL: | C23 F21 F3 F42 |
| Date: | 2010–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp0080&r=opm |