|
on Open MacroEconomics |
| By: | Kappler, Marcus; Reisen, Helmut; Schularick, Moritz; Turkisch, Edouard |
| Abstract: | In this paper we study the macroeconomic effects of large exchange rate appreciations. Using a sample of 128 countries from 1960-2008, we identify large nominal and real appreciations shocks and study their macroeconomic effects in a dummy-augmented panel autoregressive model. Our results show that an exchange rate appreciation can have strong effects on current account balances. Within three years after the appreciation event, the current account balance on average deteriorates by three percentage points of GDP. This effect occurs through a reduction of savings without a meaningful reduction in investment. Real export growth slows down substantially, while imports remain by and large unaffected. The output costs of appreciation are small and not statistically significant, indicating a shift towards domestic sources of growth. All these effects appear somewhat more pronounced in developing countries. -- |
| Keywords: | current account adjustment,global imbalances,exchange rate changes |
| JEL: | F4 F31 F32 N10 O16 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20113&r=opm |
| By: | Guenter W. Beck (University of Siegen, Hölderlinstr. 3, 57076 Siegen, Germany and CFS.); Kirstin Hubrich (Research Department, European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Massimiliano Marcellino (European University Institute, Via Roccettini, 9, I-50014 Fiesole, Florenz, Italy; Bocconi University and CEPR.) |
| Abstract: | We use a novel disaggregate sectoral euro area data set with a regional breakdown to investigate price changes and suggest a new method to extract factors from over-lapping data blocks. This allows us to separately estimate aggregate, sectoral, country-specific and regional components of price changes. We thereby provide an improved estimate of the sectoral factor in comparison with previous literature, which decomposes price changes into an aggregate and idiosyncratic component only, and interprets the latter as sectoral. We find that the sectoral component explains much less of the variation in sectoral regional inflation rates and exhibits much less volatility than previous findings for the US indicate. We further contribute to the literature on price setting by providing evidence that country- and region-specific factors play an important role in addition to the sector-specific factors. We conclude that sectoral price changes have a “geographical” dimension, that leads to new insights regarding the properties of sectoral price changes. JEL Classification: E31, C38, D4, F4. |
| Keywords: | Disaggregated prices, euro area regional and sectoral inflation, common factor models. |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111334&r=opm |
| By: | Taya Dumrongrittikul |
| Abstract: | This paper investigates empirically the Balassa-Samuelson hypothesis (BSH) using annual data over 1970-2008 from 33 countries grouped into developed and developing countries. The innovative feature of our study is that we introduce a new approach for classifying traded and nontraded industries. Our proposed approach allows for country specific heterogeneity over each industry, and changes in classifications of industries across periods. We apply panel cointegration tests with group-mean panel dynamic ordinary least squares (DOLS) estimators suggested in Pedroni (2000, 2001) to examine the BSH. We also use persistence profiles in order to investigate the speed of adjustment to equilibrium in response to shocks on cointegrating relations, and employ them as a complementary tool for checking whether the long run relationships obtained from the tests are actually valid. Our main finding is that there is not enough evidence in favour of the BSH nor in favour of purchasing power parity (PPP) in either developed or developing countries. In developed countries, there is strong evidence that higher growth countries will experience real exchange rate appreciation. However, this relation does not provide evidence in favour of the BSH. We actually find opposing evidence that as productivity growth in traded goods relative to that in nontraded goods increases, the real exchange rated tends to depreciate. For developing countries, our results support the BSH. However, the speed of reversion to equilibrium is very slow. We also find moderate evidence that comparatively rapidly growing developing countries will experience real exchange rate depreciation. |
| Keywords: | Balassa-Samuelson effect, real exchange rate, non-stationary panels, traded and nontraded sectors, persistence profile |
| JEL: | C12 C23 F31 F43 |
| Date: | 2011–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2011-5&r=opm |
| By: | BODART, Vincent (Université catholique de Louvain, Department of Economics and IRES, B-1348 Louvain-la-Neuve, Belgium); CANDELON, Bertrand (University of Maastricht, Department of Economics, 6200 MD Maastricht, The Netherlands); CARPANTIER, Jean - François (Université catholique de Louvain, Department of Economics, CORE and IRES, B-1348 Louvain-la-Neuve, Belgium) |
| Abstract: | Commodity currency literature recently stressed the importance of commodity prices as a determinant of real exchange rates in developing countries (Cashin, Cespedes and Sahay 2004). We provide new empirical evidence on this issue by focusing on countries which are specialized in the ex-port of one leading commodity. For those countries, we investigate to which extent their real exchange rate is sensitive to price fluctuations of their dominant commodity. By using non-stationary panel techniques robust to cross-sectional-dependence, we find that the price of the dominant commodity has a significant long-run impact on the real exchange rate when the exports of the leading commodity have a share of at least 20 percent in the country’s total exports of merchandises. Our results also show that the larger the share, the larger the size of the impact. |
| Keywords: | real exchange rates, commodity prices, non-stationary panel |
| JEL: | C32 C33 E31 F32 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2011006&r=opm |
| By: | Oviedo, P. Marcelo; Singh, Rajesh |
| Abstract: | This paper studies a two country model with economies disaggregated into traded and nontraded sectors and in which investment goods as in practice are produced by combining inputs from all sectors. The model also accounts for nontraded distribution services employed in retailing traded goods to consumers. The results show that the model with multiple input investments outperforms the standard model in which sectoral output also serves as its capital. In particular, it substantially improves (a) the movements of trade balance and relative prices, (b) within country comovements of sectoral and aggregate quantities, and (c) cross-country comovements of output vis-Ã -vis consumption. |
| Keywords: | International business cycles; Quantity anomaly; Distribution costs; Cross-country correlations. |
| JEL: | F32 F34 F41 |
| Date: | 2011–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:32800&r=opm |
| By: | Dmitriev, Mikhail |
| Abstract: | Private agents consider prices as given and do not take into account effects of their actions on other agents via prices. In the environment with a financial frictions this generates inefficiency (fire-sale externality). In particular consumers tend to overaccumulated dollarized liabilities in the decentralized economies and take excessive risk. On the other hand benevolent social planner internalizes these effects and tries to restrict speculative capital inflows and accumulate international reserves in order to insure against macroeconomic instability, caused by excessive and inefficient accumulation of dollar-denominated liabilities. In this paper I consider general equilibrium effects of such policies in a multi-country setup. I show that country-specific social planners fail to internalize the effect of their policies on the world interest rate. As a result in a uncooperative equilibrium developing countries insure against fire-sales externalities at the price of deteriorating terms of trade. This terms of trade effect can offset benefits from insurance, so that in uncooperative equilibrium country-specific social planners may have lower welfare relative to the decentralized economies. These results are robust to market completeness and correlation of shocks in developing economies. |
| Keywords: | Fire-Sales Externalities; International Cooperation |
| JEL: | F42 F41 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21148&r=opm |
| By: | Lionel Artige; Laurent Cavenaile |
| Abstract: | Global imbalances are considered as one of the main culprits of the financial crisis which started in the United States in 2007. This paper aims to build a two- country deterministic growth framework with overlapping generations to investigate the macroeconomic effects of global imbalances that originate from forced saving in one country. This framework allows us to study the existence of a dynamic equi- librium with global imbalances, the impact on the world interest rate, and the short-run and long-run welfare implications on the young and old generations in both countries. In particular, we show that global imbalances worsen the welfare of the young generations of both countries in the short run and can offset the potential gain of the international integration of capital markets. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rpp:wpaper:1106&r=opm |
| By: | Sandra Gomes; P. Jacquinot; M. Mohr; M. Pisani |
| Abstract: | We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating a large scale multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, there are benefits from implementing unilateral structural reforms. A reduction of markup by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. As reforms are implemented gradually over a period of five years, output would smoothly reach its new long-run level in seven years. Second, cross-country coordination of reforms would add extra benefits to each region in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. This is true in particular for a small and open economy such as Portugal. Specifically, in the long run German output would increase by 9.2 percent, Portuguese output by 8.6 percent. Third, cross-country coordination would make the macroeconomic performance of the different regions belonging to the euro area more homogeneous, both in terms of price competitiveness and real activity. Overall, our results suggest that reforms implemented apart by each country in the euro area produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. |
| JEL: | C53 E52 F47 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201113&r=opm |
| By: | Ashoka Mody; Antu Panini Murshid |
| Abstract: | Recent commentary has downplayed the growth dividend from international financial integration, highlighting the possibly negative correlation between capital inflows and long-run growth. This paper presents new evidence consistent with standard economic theory and a more benign interpretation of cross-border private capital flows. The key observation is that a country’s growth volatility changes over time. With volatility below a threshold, an inflow of foreign capital has promoted growth. However, during periods of volatile growth, more flows have been associated with slower growth. Volatility levels and changes reflect an interaction of domestic production and institutional structures with global factors. |
| Keywords: | Capital flows , Capital inflows , Current account surpluses , Developing countries , Development assistance , Economic growth , Economic models , Foreign investment , |
| Date: | 2011–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/90&r=opm |
| By: | Pritha Mitra |
| Abstract: | The recent boom-bust episode in Emerging Europe was largely the product of surges and sudden stops in capital inflows. This paper empirically argues that the sectors into which capital flows determines their impact on GDP growth. Applying data from EU New Member States, it is found that capital flows into real estate have a greater impact on swings in GDP than other sectors, irrespective of a country's exchange rate or fiscal policy. Consequently, as new waves of capital inflows spread to emerging markets, policies may usefully focus on supporting capital inflows towards economic sectors that minimize large swings in GDP. |
| Keywords: | Bank credit , Capital flows , Capital inflows , Eastern Europe , Economic growth , Emerging markets , European Economic and Monetary Union , Foreign direct investment , Real estate prices , |
| Date: | 2011–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/67&r=opm |
| By: | Pasquale Tridico |
| Abstract: | The objective of the paper is to show that the recovery from the current economic crisis in US and in EU requires a new policy paradigm and a new global governance. I argue that, contrary to the recent austerity policies in EU and US, a new level of government involvement is required in order to keep aggregate demand stable, make full employment possible, and create a transparent financial sector, serving the real economy and encouraging productive investments. Moreover, at global level, two main issues seem to affect negatively the markets: first the lack of an independent international currency, and second the instability of one of the biggest market, the Eurozone. The first needs a wider international solution, the latter needs a political responses at EU level in order to deepen integration |
| Keywords: | global imbalances, global governance, international currency |
| JEL: | F02 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:130&r=opm |
| By: | Juha Tervala (Aboa Centre for Economics and University of Turku) |
| Abstract: | In this paper, I examine the international welfare effects of monetary policy. I develop a New Keynesian two-country model, where central banks in both countries follow the Taylor rule. I show that a decrease in the domestic interest rate, under producer currency pricing, is a beggar-thyself policy that reduces domestic welfare and increases foreign welfare in the short term, regardless of whether the cross-country substitutability is high or low. In the medium term, it is a beggar-thy-neighbour (beggar-thyself) policy, if the Marshall-Lerner condition is satisfied (violated). Under local currency pricing, a decrease in the domestic interest rate is a beggar-thy-neighbour policy in the short term, but a beggarthyself policy in the medium term. Both under producer and local currency pricing, a monetary expansion increases world welfare in the short term, but reduces it in the medium term. |
| Keywords: | Open economy macroeconomics, monetary policy, beggar-thyself, beggar-thy-neighbour, Taylor rule, welfare analysis |
| JEL: | E32 E52 F30 F41 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp66&r=opm |
| By: | Jana Brandt (University of Giessen); Jürgen Meckl (University of Giessen); Ivan Savin (University of Giessen) |
| Abstract: | We analyze the medium- and long-run effects of international integration of capital markets on specialization patterns of countries. For that purpose, we incorporate induced technical change into a Heckscher-Ohlin model with a continuum of final goods. This provides a comprehensive theory that explains the dynamics of comparative advantages based on differences in effective factor endowments. Our model constitutes an appropriate framework for understanding the changes in industrial structure of foreign trade observed, e.g., in the CEE countries over the last two decades. In addition, our approach provides a theoretical foundation for the empirical prospective comparative advantage index (Savin and Winker 2009) with new insights into the future dynamics of comparative advantages. Eventually, the model may serve as a basis to set development priorities in countries being in the period of transition. |
| Keywords: | Factor-biased technical change, continuum of goods, comparative advantage, factor mobility, innovation, knowledge spillovers |
| JEL: | F17 F21 F43 O33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201118&r=opm |