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on Open MacroEconomics |
| By: | Stéphane Auray (CNRS – THEMA (UMR 8184), EQUIPPE (EA 4018) – Universités Lille Nord de France (ULCO), Université de Sherbrooke (GREDI) and CIRPEE, Canada); Aurélien Eyquem (GATE LSE, Université de Lyon, and Ecole Normale Supérieure de Lyon, France, and GREDI, Université de Sherbrooke, Canada) |
| Abstract: | This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. It is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations. |
| Keywords: | International Business Cycles, Endogenous Entry, Financial Markets Incompleteness, Sticky Prices, Monetary Policy, Welfare |
| JEL: | E51 E58 F36 F41 |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:11-05&r=opm |
| By: | Matthias Gubler (Faculty of Business and Economics, University of Basel, Switzerland); Matthias S. Hertweck (Department of Economics, University of Konstanz, Germany) |
| Abstract: | This paper develops a 9-dimensional SVAR to investigate the sources of the U.S. business cycle. We extend the standard set of identified shocks to include unexpected changes in commodity prices. Our main result is that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks. In particular, we find that commodity price shocks explain a large share of cyclical movements in inflation. Neutral technology shocks and monetary policy shocks seem less relevant at business cycle frequencies. The impulse response dynamics provide support for medium-scale DSGE models, but not for strong price rigidities. |
| Keywords: | business cycles, commodity price shocks, structural VAR |
| JEL: | C32 E32 E52 Q43 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1103&r=opm |
| By: | Ariel Burstein; Jonathan Vogel |
| Abstract: | How do trade liberalizations affect relative factor prices and to what extent do they cause factors to reallocate across sectors? We first present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices. Under some restrictions, changes in the "factor content of trade" are sufficient statistics for the impact of trade on relative factor prices. We then study the determination of the factor content of trade in a specific version of our general framework featuring imperfect competition, increasing returns to scale, and heterogeneous producers. We show how heterogeneous firms' decisions shape the factor content of trade, and, therefore, the impact of trade liberalization on relative factor prices and between-sector factor allocation. |
| JEL: | F1 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16904&r=opm |
| By: | Stéphane Auray (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université des Sciences et Technologies de Lille - Lille I); Beatriz De Blaz (Departamento de Teoría Económica e Historia Económica - Universidad Autónoma de Madrid); Aurélien Eyquem (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon) |
| Abstract: | This paper analyzes jointly optimal fiscal and monetary policies in a small open economy with capital and sticky prices. We allow for trade in consumption goods under perfect international risk sharing. We consider balanced-budget fiscal policies where authorities use distortionary taxes on labor and capital together with monetary policy using the nominal interest rate. First, as long as a symmetric equilibrium is considered, the steady state in an open economy is isomorphic to that of a closed economy. second, whereas sticky prices allocations are almost indistinguishable from flexible prices allocations, the open economydimension delivers results that are qualitatively similar to those of a closed economy but with significant quantitative changes. Fluctuations in terms of trade implied by complete international financial markets affect (i) consumption through changes in the consumption price index (CPI), (ii) hours through changes in the CPI-based real wage and (iii) capital accumulation through the relative price of capital goods. These wedges affect the volatility and persistence of optimal tax rates, and resulting allocations are quite different, as compared to a closed economy. |
| Keywords: | small open economy; sticky prices; optimal monetary and fiscal policies |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00581173&r=opm |
| By: | Lederman, Daniel |
| Abstract: | One side-effect of the Global Financial Crisis of 2008-09 was the resurgence of a debate over exchange rates. The conventional wisdom dictates that real-exchange rate adjustments are needed in order to bring about changes in trade balances across countries. However, the literature on the effect of exchange rate fluctuations and currency under-valuations on exports is surprisingly ambiguous. This note explores for the first time the potential role of foreign direct investment as an intermediate variable in the process of trade adjustment after large real-exchange rate changes. Real-exchange rate devaluations might result in increases in foreign direct investment inflows, as investors can take advantage of changes in the foreign-currency value of domestic assets. If so, the response of exports will depend to some extent on the nature of such foreign direct investment inflows, with inflows motivated by"horizontal"foreign direct investment associated with negligible changes in export growth after devaluation. The author utilizes quarterly data on real effective exchange rates, foreign direct investment inflows and exports to explore the effects of large devaluations (defined as the largest observed quarterly real effective exchange rate devaluation) on foreign direct investment and exports from 1990 to 2010. The admittedly speculative evidence suggests that there were heterogeneous experiences regarding the timing and magnitude of subsequent changes in foreign direct investment and exports, but on average foreign direct investment inflows tended to precede export surges within two year horizons. |
| Keywords: | Debt Markets,Economic Theory&Research,Emerging Markets,Currencies and Exchange Rates,Foreign Direct Investment |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5619&r=opm |
| By: | Barry Eichengreen; Donghyun Park; Kwanho Shin |
| Abstract: | Using international data starting in 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates. |
| JEL: | F00 O10 O4 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16919&r=opm |
| By: | Theoharry Grammatikos; Robert Vermeulen |
| Abstract: | This paper tests for the transmission of the 2007-2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes. First, we find strong evidence of crisis transmission to European non-financials from US non-financials, whereas the increase in dependence of European financials on US financials is rather limited. Second, in order to test how the sovereign debt crisis affected stock market developments we split the crisis in pre- and post-Lehman sub periods. Results show that financials become significantly more dependent on changes in Greek CDS spreads after Lehman’s collapse, compared to the pre-Lehman sub period. However, this increase is not present for non-financials. Third, before the crisis euro appreciations are associated with European stock market decreases, whereas during the crisis this is reversed. Finally, the reversal in the relationship between the Eurodollar exchange rate and stock prices seems to have been triggered by Lehman’s collapse. |
| Keywords: | financial crisis; euro exchange rate; EMU; equity markets; sovereign debt |
| JEL: | F31 G15 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:287&r=opm |
| By: | Du Caju, Philip (National Bank of Belgium); Rycx, Francois (Free University of Brussels); Tojerow, Ilan (Free University of Brussels) |
| Abstract: | In the last decades, international trade has increased between industrialised countries and between high- and low-wage countries. This important change has raised questions on how international trade affects the labour market. In this spirit, this paper aims to investigate the impact of international trade on wage dispersion in a small open economy. It is one of the few to: i) use detailed matched employer-employee data to compute industry wage premia and disaggregated industry level panel data to examine the impact of changes in international trade on changes in wage differentials, ii) simultaneously analyse both imports and exports, and iii) examine the impact of imports according to the country of origin. Looking at the export side, we find (on the basis of the system GMM estimator) a positive effect of exports on industry wage premia. The results also show that import penetration has a significant and negative impact on industry wage differentials whatever the country of origin. However, the country of origin appears to matter quite a lot. Indeed, the detrimental effect of imports on wages is found to be significantly bigger when the latter come from low-income countries than from high-income countries. |
| Keywords: | wage structure, inter-industry wage differentials, international trade, matched employer-employee data |
| JEL: | F16 J31 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5597&r=opm |