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on Open MacroEconomics |
| By: | Lian An; Jian Wang |
| Abstract: | We estimate exchange rate pass-through (PT) into import, producer and consumer price indexes for nine OECD countries, using a method proposed by Uhlig (2005). In a Vector Autoregression (VAR) model, we identify the exchange rate shock by imposing restrictions on the signs of impulse responses for a small subset of variables. These restrictions are consistent with a large class of theoretical models and previous empirical findings. We find that exchange rate PT is less than one at both short and long horizons. Among three price indexes, exchange rate PT is greatest for import price index and smallest for consumer price index. In addition, greater exchange rate PT is found in an economy which has a smaller size, higher import share, more persistent exchange rate, more volatile monetary policy, higher inflation rate, and less volatile aggregate demand. |
| Keywords: | Vector autoregression ; Price indexes ; Consumer price indexes |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:70&r=opm |
| By: | Mária Vojtková (University of Economics in Bratislava, Faculty of National Economy, Department of Banking and International Finance) |
| Abstract: | In the study we focus on theoretical and practical aspects of the role of the U.S. dollar in current international monetary system. We shortly describe the historical evolution of monetary system when it comes to the dollar position in it. Subsequently, we assess current status of the U.S. dollar in financial markets and its share on international foreign exchange reserves. In the application part, we examine how changes in the U.S. dollar exchange rate affect countries operating in the pegged exchange regime. At the same time, we focus on the problem of current account deficit of the U.S. balance of payments and its relationship to the export-oriented countries pegged to the U.S. dollar. |
| Keywords: | Bretton-Wood monetary system, U.S. dollar, pegged exchange regime, fixed exchange regime, balance of payment, terms of trade |
| JEL: | E42 E52 F30 F33 |
| Date: | 2011–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:brt:wpaper:002&r=opm |
| By: | Marco Airaudo; Luis-Felipe Zanna |
| Abstract: | In this paper we present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to changes in inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on particular characteristics of open economies, including the degree of trade openness and the degree of exchange rate pass-through into import prices. For instance, in our model, we find that a rule that responds to expected future inflation is more prone to induce endogenous cyclical and chaotic dynamics the more open the economy and the higher the degree of exchange rate pass-through. |
| Keywords: | Small Open Economy; Interest Rate Rules; Taylor Rules; Multiple Equilibria; Chaos; Endogenous Fluctuations |
| JEL: | E32 E52 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:171&r=opm |
| By: | George Alessandria; Joseph P. Kaboski; Virgiliu Midrigan |
| Abstract: | The authors examine the source of the large fall and rebound in U.S. trade in the recent recession. While trade fell and rebounded more than expenditures or production of traded goods, they find that relative to the magnitude of the downturn, these trade fluctuations were in line with those in previous business cycle fluctuations. The authors argue that the high volatility of trade is attributed to more severe inventory management considerations of firms involved in international trade. They present empirical evidence for autos as well as at the aggregate level that the adjustment of inventory holdings helps explain these fluctuations in trade. |
| Keywords: | Trade ; Financial crises ; Inventories |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:11-6&r=opm |
| By: | Robert Kollmann; Zeno Enders; Gernot J. Mueller |
| Abstract: | This paper incorporates a global bank into a two-country business-cycle model. The bank collects deposits from households and makes loans to entrepreneurs, in both countries. It has to finance a fraction of loans using equity. We investigate how such a bank capital requirement affects the international transmission of productivity and loan default shocks. Three findings emerge. First, the bank's capital requirement has little effect on the international transmission of productivity shocks. Second, the contribution of loan default shocks to business cycle fluctuations is negligible under normal economic conditions. Third, an exceptionally large loan loss originating in one country induces a sizeable and simultaneous decline in economic activity in both countries. This is particularly noteworthy, as the 2007–09 global financial crisis was characterized by large credit losses in the US and a simultaneous sharp output reduction in the U.S. and the euro Area. Our results thus suggest that global banks may have played an important role in the international transmission of the crisis. |
| Keywords: | Equity ; Bank capital ; Productivity ; Default (Finance) ; Loans |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:72&r=opm |
| By: | Michał Brzozowski (Faculty of Economic Sciences, University of Warsaw); Sadananda Prusty (Institute of Management Technology) |
| Abstract: | This paper empirically investigates the impact of GDP volatility on current account balances for a large sample of developed and developing countries. We extend the standard set of short- and long-term determinants of current accounts to include GDP volatility computed from the annual growth rate of GDP. It turns out that for low income countries the impact of GDP volatility on their current account balances is negative, whereas the reverse is true for high income countries. The intertemporal approach to the balance of payments followed in this paper suggests that a diverse response of current account balances to GDP volatility can be due to the different degree of shock persistence in developed and developing countries. |
| Keywords: | current account, savings, investment, volatility |
| JEL: | F32 F41 C33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2011-02&r=opm |
| By: | Kenneth Judd (Hoover Institution); Lilia Maliar (Universidad de Alicante); Serguei Maliar (Universidad de Alicante) |
| Abstract: | We use the stochastic simulation algorithm, described in Judd, Maliar and Maliar (2009), and the cluster-grid algorithm, developed in Judd, Maliar and Maliar (2010a), to solve a collection of multi-country real business cycle models. The following ingredients help us reduce the cost in high-dimensional problems: an endogenous grid enclosing the ergodic set, linear approximation methods, fixed-point iteration and efficient integration methods, such as non-product monomial rules and Monte Carlo integration combined with regression. We show that high accuracy in intratemporal choice is crucial for the overall accuracy of solutions and offer two approaches, precomputation and iteration-on-allocation, that can solve for intratemporal choice both accurately and quickly. We also implement a hybrid solution algorithm that combines the perturbation and accurate intratemporal-choice methods |
| Keywords: | heterogeneous agents, numerical methods, stochastic simulation, parameterized expectations algorithm, projection, perturbation. |
| JEL: | C63 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-01&r=opm |
| By: | Michael Artis; George Chouliarakis; Pkg Harischandra |
| Abstract: | This paper studies the international business cycle behaviour across 25 advanced and emerging market economies for which 125 years of annual GDP data are available. The picture that emerges is more fragmented than the one drawn by studies that focused on a narrower set of advanced market economies. The paper offers evidence in favour of a secular increase in international business cycle synchronization within a group of European and a group of English-speaking economies that started during 1950-1973 and accelerated since 1973. Yet, in other regions of the world, country-specific shocks are still the dominant forces of business cycle dynamics. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:153&r=opm |
| By: | Harms, Philipp; Hoffmann, Mathias; Ortseifer, Christina |
| Abstract: | We show that including distribution costs into a general equilibrium model of international portfolio choice contributes to explaining the 'home bias' in international equity investment. Our model is able to replicate observed investment positions for a wide range of parameter values, even if agents have an incentive to hedge labor income risk by purchasing foreign equity. This is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and nonfinancial income. -- |
| Keywords: | International Financial Market Integration,International Risk Sharing,Home Bias |
| JEL: | F41 G11 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201024&r=opm |
| By: | Sposi, Michael J. |
| Abstract: | This paper addresses the question of why the price of nontradables relative to tradables is positively correlated with income per worker. I construct a two-sector model in which agents differ with respect to managerial ability. Agents sort themselves by choosing to become a worker, a manager in nontradables, or a manager in tradables. A fixed cost of exporting places the most productive managers in the tradable sector, and the magnitude of the fixed cost determines the extent of this margin. Fixed costs together with trade costs determine the amount of competition across sectors which in turn determines prices across sectors. The calibrated model explains more than 60% of the cross-country differences in the relative price of nontradables, due to the presence of larger fixed costs in poor countries combined with nontrivial import costs. |
| Keywords: | relative prices; PPP; tradables; nontradables; competition |
| JEL: | F16 F10 F12 |
| Date: | 2010–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28385&r=opm |