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on Open MacroEconomics |
| By: | Stephen Cecchetti; Michael R King; James Yetman |
| Abstract: | The macroeconomic performance of individual countries varied markedly during the 2007-09 global financial crisis. While China's growth never dipped below 6% and Australia's worst quarter was no growth, the economies of Japan, Mexico and the United Kingdom suffered annualised GDP contractions of 5-10% per quarter for five to seven quarters in a row. We exploit this cross-country variation to examine whether a country's macroeconomic performance over this period was the result of pre-crisis policy decisions or just good luck. The answer is a bit of both. Better-performing economies featured a better-capitalised banking sector, lower loan-to-deposit ratios, a current account surplus, high foreign exchange reserves and low levels and growth rates of private sector credit-to-GDP. In other words, sound policy decisions and institutions reduced their vulnerability to the financial crisis. But these economies also featured a low level of financial openness and less exposure to US creditors, suggesting that good luck played a part. |
| Keywords: | financial crisis, principal components |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:351&r=opm |
| By: | Haddad, Mona; Harrison, Ann; Hausman, Catherine |
| Abstract: | The authors identifies a new set of stylized facts on the 2008-2009 trade collapse that they hope can be used to shed light on the importance of demand and supply-side factors in explaining the fall in trade. In particular, they decompose the fall in international trade into product entry and exit, price changes, and quantity changes for imports by Brazil, the European Union, Indonesia, and the United States. When the authors aggregate across all products, most of the countries analyzed experienced a decline in new products, a rise in product exit, and falls in quantity for product lines that continued to be traded. The evidence suggests that the intensive rather than extensive margin mattered the most, consistent with studies of other countries and previous recessionary periods. On average, quantities declined and prices fell. However, these average effects mask enormous differences across different products. Price declines were driven primarily by commodities. Within manufacturing, while most quantity changes were negative, in most cases price changes moved in the opposite direction. Consequently, within manufacturing, there is some evidence consistent with the hypothesis that supply side frictions played a role. For the United States, price increases were most significant in sectors which are typically credit constrained. |
| Keywords: | Markets and Market Access,Access to Markets,Economic Theory&Research,Emerging Markets,Commodities |
| Date: | 2011–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5749&r=opm |
| By: | Gourinchas, Pierre-Olivier; Obstfeld, Maurice |
| Abstract: | A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century’s first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis. |
| Keywords: | banking crisis; Credit boom; currency crisis; emerging markets; leverage; sovereign default |
| JEL: | E44 F32 F34 G15 G21 N10 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8518&r=opm |
| By: | Enrico Spolaore; Romain Wacziarg |
| Abstract: | We document an empirical relationship between the cross-country adoption of technologies and the degree of long-term historical relatedness between human populations. Historical relatedness is measured using genetic distance, a measure of the time since two populations’ last common ancestors. We find that the measure of human relatedness that is relevant to explain international technology diffusion is genetic distance relative to the world technological frontier (“relative frontier distance”). This evidence is consistent with long-term historical relatedness acting as a barrier to technology adoption: societies that are more distant from the technological frontier tend to face higher imitation costs. The results can help explain current differences in total factor productivity and income per capita across countries. |
| JEL: | F43 O33 O57 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17271&r=opm |
| By: | Yamin Ahmad (Department of Economics, University of Wisconsin - Whitewater); Ming Chien Lo (Department of Economics, St Cloud State University); Olena Mykhaylova (Department of Economics, University of Richmond) |
| Abstract: | This paper investigates the time series properties of real exchange rates series produced by DSGE models. We simulate a variety of new open economy DSGE models that incorporate features such as local currency pricing, home bias, non-traded goods and incomplete markets. We attempt to ascertain whether the dynamics of the real exchange rate in this class of models are consistent with those found in the time series literature using data from the current floating period. Although none of the basic specifications we consider match the volatility in the raw data, our findings suggest that home bias in consumption and non-traded goods are the key components of DSGE models that are able to generate persistent real exchange rates, comparable to that in the data. Moreover, we find that some of the structural micro-level nonlinearity embedded within DSGE models may be represented as macro-level nonlinearity in the form of a smooth transition autoregressive process, which has previously been found to pprsimoniously characterize the dynamics of real exchange rates in the time series literature. |
| Keywords: | Real Exchange Rate Dynamics, Nonlinear Dynamics, DSGE Modeling, Smooth Transition Estimation, Simulations |
| JEL: | F41 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:uww:wpaper:11-01&r=opm |
| By: | François Gourio; Michael Siemer; Adrien Verdelhan |
| Abstract: | Recent work in international finance suggests that the forward premium puzzle can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle framework, and calibrate the model to match the differences between low and high interest rates countries. Unlike traditional real business cycle models, our model generates volatile exchange rates, a large currency forward premium, "excess comovement'' of asset prices relative to quantities, and an imperfect correlation between relative consumption growth and exchange rates. Our model implies, however, that high interest rate countries have smoother quantities, equity returns and interest rates than low interest rate countries, contrary to the data. |
| JEL: | E32 E44 F31 G12 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17277&r=opm |
| By: | Darryl McLeod (Fordham University, Department of Economics); Elitza Mileva (European Central Bank) |
| Abstract: | Maintaining a weak real exchange rate is a widely recommended growth strategy, in part because of the success of Asian exporters, most recently China. Simulations of a simple two-sector open economy growth model based on Matsuyama (1992) suggest that a weaker real exchange rate can lead to a "growth surge", as workers move into traded goods industries with more "learning by doing" and exit non-traded goods sectors with slower productivity growth. Using the updated total factor productivity (TFP) estimates from Bosworth and Collins (2003) we test this model in a panel of 58 countries. We find the anticipated non-linear relationship between the real exchange rate and TFP growth: beyond a certain point real currency depreciation reduces TFP and GDP growth. Manufacturing exports appear to be one channel via which the real exchange rate affects TFP growth. Fears that a weaker real exchange rate might reduce investment and therefore productivity growth by making imported equipment more expensive are not supported by our estimates. |
| Keywords: | Economic growth, total factor productivity growth, exchange rate policy |
| JEL: | O14 O41 O47 O57 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:frd:wpaper:dp2011-04&r=opm |
| By: | Winkelried, Diego (Central Reserve Bank of Peru.) |
| Abstract: | It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industralised world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment - that a low and more stable inflation rate leads to a decrease in the pass-through - have gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully-fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down. |
| Keywords: | Exchange rate pass-through, inflation targeting,structural VAR. |
| JEL: | C32 E31 E47 F31 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2011-012&r=opm |
| By: | Eylem Ersal Kiziler (Department of Economics, University of Wisconsin - Whitewater) |
| Abstract: | This paper studies the cyclicality of portfolio flows under the presence of productivity growth rate shocks. Productivity growth rate shocks successfully replicate countercyclical net equity outflows and procyclical bond inflows for advanced countries, which couldn't be captured in a model with only level shocks. Similarly, for an emerging market economy, the model with growth rate shocks generates countercyclical net equity inflows and procyclical bond inflows in accordance with data. Following a growth rate shock, home agents experience a decrease both in equity inflows and outflows on impact. Inflows decrease due to sales of home equity to realize capital gains and outflows decrease due to initial dissaving to finance increases in consumption and investment. Equity inflows increase later, as home dividends rise. Equity outflows pick up also as wealthier home agents increase purchases of foreign assets to hedge against home productivity shocks. |
| Keywords: | Portfolio Flows, Productivity Growth Rate Shocks |
| JEL: | F36 F41 G11 G15 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:uww:wpaper:11-02&r=opm |