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on Open MacroEconomics |
| By: | Gunes Kamber; Christoph Thoenissen |
| Abstract: | We examine the transmission mechanism of banking sector shocks in a two-country DSGE model. Assuming that the home country is small relative to the rest of world, we find that spillovers from foreign banking sector shocks are modest unless banks in the small country hold foreign banking assets. The correlation between home and foreign GDP rises with the exposure of the of the domestic banking sector to foreign bank assets. |
| Date: | 2011–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1108&r=opm |
| By: | Massimo Antonini; Kevin Lee; Jacinta Pires |
| Abstract: | We document that, at business cycle frequencies, fluctuations in nominal variables, such as aggregate price levels and nominal interest rates, are substantially more synchronized across countries than fluctuations in real output. To the extent that domestic nominal variables are largely determined by domestic monetary policy, this might seem surprising. We ask if a parsimonious international business cycle model can account for this aspect of cross-country aggregate fluctuations. It can. Due to spillovers of technology shocks across countries, expected future responses of national central banks to fluctuations in domestic output and inflation generate movements in current prices and interest rates that are synchronized across countries even when output is not. Even modest spillovers produce cross-country correlations such as those in the data. |
| Keywords: | International business cycles, prices, interest rates. |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:11/08&r=opm |
| By: | Maurice J. Roche (Department of Economics, Ryerson University, Toronto, Canada); Michael J. Moore (School of Management and Economics, The Queen's University of Belfast, Belfast, Northern Ireland) |
| Abstract: | We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with „deep? habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression. |
| Keywords: | Exchange Rate Puzzles; Forward Foreign Exchange; Habit Persistence |
| JEL: | F31 F41 G12 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:rye:wpaper:wp001&r=opm |
| By: | Carfì, David; Schilirò, Daniele |
| Abstract: | The crisis within the euro area have become frequent during 2010. First was the Greek economy to face a default problem of its sovreign debt, in November it was Ireland who has been in a serious financial situation at the verge of collapse causing difficulties to the euro. In this contribution we focus on the Greek crisis and we suggest, through a model of coopetition based on game theory and conceived at a macro level, feasible solutions in a cooperative perspective for the divergent interests which drive the economic policies in Germany and Greece, with the aim of improving the position of Greece, Germany and the whole euro area, also making a contribution to expand the set of macroeconomic policy tools. By means of our general analytical framework of coopetition, we show the strategies that could bring to feasible solutions in a cooperative perspective for Germany and Greece,where these feasible solutions aim at offering a win-win outcome for both countries, letting them to share the pie fairly within a growth path represented by a non-zero sum game. A remarkable analytical result of our work consists in the determination of the win-win solution by a new selection method on the transferable utility Pareto boundary of the coopetitive game. |
| Keywords: | European Monetary Union; Coopetitive Games; Macroeconomic Policy; Bargaining solutions |
| JEL: | F40 D7 C78 C71 E6 C72 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31891&r=opm |
| By: | Ippei Fujiwara (Bank of Japan); Tomoyuki Nakajima (Kyoto University); Nao Sudo (Bank of Japan); Yuki Teranishi (Bank of Japan) |
| Abstract: | Using a two-country New Open Economy Macroeconomics model, we analyze how monetary policy should respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously. We first characterize optimal monetary policy, and show that the optimal rate of infl ation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. We find that the interest-rate rule targeting the producer price index performs very well in this respect. |
| Keywords: | Zero interest rate policy; two-country model; international spillover; monetary policy coordination |
| JEL: | E52 E58 F41 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:780&r=opm |
| By: | Josheski, Dushko; Koteski , Cane |
| Abstract: | This paper examines PPP parity theory with data for Macedonia. We test the empirical consensus in this literature that real exchange rates tend towards PPP in the very long run, also we use co-integration Engle-Granger method and error correction mechanism. The hypothesis we test that PPP theory holds in long run in the case of Macedonia, and this hypothesis is proven to be true. |
| Keywords: | PPP; Exchange rate; Co-integration; unit root; stationarity |
| JEL: | E0 G0 |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32023&r=opm |
| By: | Schüder, Stefan |
| Abstract: | This paper develops an open economy portfolio balance model with endogenous asset supply. Domestic producers finance capital goods through credit and bonds in accordance with debt capital costs as well as through equity assets. Private households hold a portfolio of domestic and foreign assets, shift balances depending on risk-return considerations, and maximise real consumption in accordance with the real exchange rate. Within this general equilibrium model, it can be shown that expansive monetary interventions, being applied throughout the course of economic crises, stabilise the real amount of domestic investments at the cost of inflation, currency devaluation, distortions of interest rates, and risk clusters on the central bank’s balance sheet. Furthermore, through exchange rate stabilising interventions, the central bank is able to stabilise the real amount of domestic investments and in turn the main goal of exchange rate stabilisation is also achieved. However, either risk clusters on central bank’s balance sheet or changes in the domestic price level emerge. This consequently results in both types of central bank interventions promoting an inefficient international allocation of real capital investments. |
| Keywords: | portfolio balance; monetary policy; macroeconomic risk; exchange rate; real capital investments |
| JEL: | E52 E44 E10 |
| Date: | 2011–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32019&r=opm |
| By: | Teng, Faxin; Meier , Claudia; Kamenev, Dmitry; Klein, Martin |
| Abstract: | China is widely seen as one of the sources of global macroeconomic imbalances. Its persistent current account surplus and capital exports to the United States are even cited as one of the causes of the global financial crisis. The most common explanation traces China's current account surplus to a mismatch between saving and investment due to inefficiently low domestic demand. We challenge this explanation. Our argument rests on an analogy that we construct between two countries generally thought to be very different: Russia and China. Russia, a raw materials exporting country, has been running current account surpluses similar to China's in relation to GDP. As for most raw materials exporting countries this is considered normal, reflecting efficient reinvestment of wealth from natural resources in financial assets. We show that a similar efficiency argument can be constructed for China, although the nature of wealth that is reinvested in financial assets is different in the two countries. Our analysis implies that China's current account surpluses can be expected to disappear over the long horizon – although the time when this will happen may still be very far away. Moreover, an appreciation of the Chinese currency may not have the desired effect of mitigating the country's current account surplus as a weakening in competitiveness is counterbalanced by a strengthening of investment motives. |
| Keywords: | trade structures;trade imbalances; current account imbalances; outside assets |
| JEL: | F14 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31946&r=opm |
| By: | Herzog, Ryan W. |
| Abstract: | There have been many attempts to explain the unreasonably high correlation between domestic saving and investment rates. The threshold testing procedure developed by Hansen (1999) provides a framework for testing the effects of key variables relating to capital mobility in conjunction with the saving-investment relationship. Ho (2003) first applied this method to the saving-investment puzzle controlling for thresholds in country size. Extending this model, this paper reports a number of significant thresholds effects for country- size, trade and financial openness measures, age dependency ratios and trade balances. After controlling for threshold effects the relationship between savings and investment is found to be statistically insignificant. Additionally, controlling for the thresholds effects in a dynamic model of the current account allows for direct comparison between the savings-investment coefficient and adjustments to a country’s external balance. |
| Keywords: | Saving; Investment; Feldstein-Horioka; Capital Mobility; Threshold Effects |
| JEL: | F32 C23 F41 |
| Date: | 2010–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32087&r=opm |