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on Open MacroEconomics |
| By: | Gian Maria Milesi-Ferretti (International Monetary Fund and CEPR); Philip Lane (Trinity College Dublin, IIIS and CEPR) |
| Abstract: | The period preceding the global financial crisis was characterized by a substantial widening of current account imbalances across the world. Since the onset of the crisis, these imbalances have contracted to a significant extent. In this paper, we analyze the ongoing process of external adjustment in advanced economies and emerging markets. We find that countries whose precrisiscurrent account balances were in excess of what could be explained by standard economic fundamentals have experienced the largest contractions in their external balance. We subsequently examine the contributions of real exchange rates, domestic demand and domestic output to the adjustment process (allowing for differences across exchange rate regimes) and find that external adjustment in deficit countries was achieved primarily through demand compression, rather than expenditure switching. Finally, we show that other investment flows was the main adjustment category in the financial account but that ECB liquidity and official external assistance have cushioned the exit of private capital flows for some countries. |
| Keywords: | global crisis, current account adjustment. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp369&r=opm |
| By: | Stijn Claessens; Hui Tong; Shang-Jin Wei |
| Abstract: | Using accounting data for 7722 non-financial firms in 42 countries, we examine how the 2007-2009 crisis affected firm performance and how various linkages propagated shocks across borders. We isolate and compare effects from changes in external financing conditions, domestic demand, and international trade on firms’ profits, sales and investment using both sectoral benchmarks and firm-specific sensitivities estimated prior to the crisis. We find that the crisis had a bigger negative impact on firms with greater sensitivity to demand and trade, particularly in countries more open to trade. Interestingly, financial openness appears to have made limited difference. |
| JEL: | F3 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17360&r=opm |
| By: | KAWAKAMI Atsushi; MIYAGAWA Tsutomu; TAKIZAWA Miho |
| Abstract: | Following Foster, Haltiwanger, and Syverson (2008), we construct physical output based TFP (TFPQ) measures using data from the Census of Manufactures. We find that productivity differences among business establishments using TFPQ are larger than those using the traditional revenue-based TFP measures (TFPR). The negative correlation between physical output and output prices implies that establishments are facing a downward demand curve and the traditional measures of TFP are affected by idiosyncratic demand shocks. Probit estimations regarding exit behavior show that the combined effects of physical productivity improvement and higher prices through the increase in demand result in a lower probability of exit. Breaking down aggregate productivity growth using TFPQ, we find that the contribution of the net entry effects the largest factor to productivity improvement, in contrast to previous Japanese studies. Our results provide a more positive foundation for "creative destruction" policies than previous studies suggest. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11064&r=opm |
| By: | Claudio Raddatz; Sergio L. Schmukler |
| Abstract: | This paper uses micro-level data on mutual funds from different financial centers investing in equity and bonds to study how investors and managers behave and transmit shocks across countries. The paper finds that the volatility of mutual fund investments is driven quantitatively by both the underlying investors and fund managers through (i) injections/redemptions into each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, for example, generating large reallocations during the global crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to these weights. Consequently, capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks. |
| JEL: | F3 F32 F36 G1 G11 G15 G2 G23 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17358&r=opm |
| By: | Alexander Popov (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | I analyze output growth, volatility, and skewness as the joint outcomes of financial openness. Using an industry panel of 53 countries over 45 years, I find that financial openness increases simultaneously mean growth and the negative skewness of the growth process. The increase in output skewness appears to come from a more negatively skewed distribution of investment, TFP, and new business creation. The growth benefits of financial liberalization are augmented, and its costs associated with higher probability of rare large contractions are mitigated by deep credit markets and by strong institutions. The main result of the paper holds in aggregated data. JEL Classification: E32, F30, F36, F43, G15. |
| Keywords: | Financial openness, growth, volatility, skewness, development. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111368&r=opm |
| By: | Kim, Hyeongwoo |
| Abstract: | Cheung et al. (2004) use a vector error correction model (VECM) for the current float nominal exchange rate and the relative price data and claim that the sluggish Purchasing Power Parity (PPP) reversion is primarily driven by the nominal exchange rate, not by relative price adjustment, which is at odds with the conventional sticky-price models. Our major findings are as follows. First, we suggest cases where VECMs are of limited usefulness even when all the variables in the system are not weakly exogenous. Second, using century-long exchange rates, we find that the relative price plays an important role for PPP reversion when real shocks occur. Third, protracted hump-shaped responses of real exchange rates are frequently observed when there is a relative price shock, leading to sluggish adjustments toward PPP. Nominal exchange rate shocks generate humped dynamics much less frequently. |
| Keywords: | Purchasing Power Parity; Convergence Rate; Half-Life; Up-Life; Quarter-Life; Hump-Shaped Response; Variance Decomposition |
| JEL: | C32 F31 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33005&r=opm |
| By: | Marcel Fratzscher |
| Abstract: | The causes of the 2008 collapse and subsequent surge in global capital flows remain an open and highly controversial issue. Employing a factor model coupled with a dataset of high-frequency portfolio capital flows to 50 economies, the paper finds that common shocks – key crisis events as well as changes to global liquidity and risk – have exerted a large effect on capital flows both in the crisis and in the recovery. However, these effects have been highly heterogeneous across countries, with a large part of this heterogeneity being explained by differences in the quality of domestic institutions, country risk and the strength of domestic macroeconomic fundamentals. Comparing and quantifying these effects shows that common factors (“push” factors) were overall the main drivers of capital flows during the crisis, while country-specific determinants (“pull” factors) have been dominant in accounting for the dynamics of global capital flows in 2009 and 2010, in particular for emerging markets. |
| JEL: | F21 F30 G11 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17357&r=opm |
| By: | Zeng, Xiangquan (Renmin University of China); Yuxue, Cui (China Institute of Industrial Relations); Shisong, Qing (China Institute for Employment Research); Yumei, Yang (Renmin University of China) |
| Abstract: | Coordination of macro-economic development and employment is an essential issue for China's social development, which largely depends on economic expansion, as well as integration into the global market to create jobs. Through the literature review and empirical test, this paper analyses the relationship between macro-economic policy and employment, and discusses the impact of real exchange rate and foreign trade on employment. The research indicates that a stable and competitive exchange rate policy plays an indispensable role in employment promotion, more effective than monetary and fiscal policies, while the export growth also plays a positive role in employment promotion. |
| Keywords: | China, employment, foreign trade, real exchange rate |
| JEL: | E24 O23 O24 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5931&r=opm |
| By: | Christian Dreger; Dierk Herzer |
| Abstract: | This paper challenges the common view that exports generally contribute more to GDP growth than a pure change in export volume, as the export-led growth hypothesis predicts. Applying panel cointegration techniques to a production function with non-export GDP as the dependent variable, we find for a sample of 45 developing countries that: (i) exports have a positive short-run effect on non-export GDP and vice versa (short-run bidirectional causality), (ii) the long-run effect of exports on nonexport output, however, is negative on average, but (iii) there are large differences in the long-run effect of exports on non-export GDP across countries. Cross-sectional regressions indicate that these cross-country differences in the long-run effect of exports on non-export GDP are significantly negatively related to cross-country differences in primary export dependence and business and labor market regulation. In contrast, there is no significant association between the growth effect of exports and the capacity of a country to absorb new knowledge. |
| Keywords: | Export-led growth, Developing countries, Panel cointegration |
| JEL: | F43 O11 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1149&r=opm |