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on Open MacroEconomics |
| By: | Olivier Gervais; Lawrence Schembri; Lena Suchanek |
| Abstract: | In emerging-market economies, real exchange rate adjustment is critical for maintaining a sustainable current account position and thereby for helping to reduce macroeconomic and financial instability. The authors examine empirically two related hypotheses: (i) that real exchange rate flexibility and adjustment promotes external stability, and (ii) that a flexible nominal exchange rate facilitates real exchange rate adjustment. Based on an event-study analysis for a large set of emerging-market economies over the period 1975–2008, the authors find that real exchange rate adjustment has contributed significantly to reducing current account imbalances. The adjustment of current account deficits in countries with a fixed exchange rate regime does not typically occur through the classical adjustment mechanism, but as a consequence of exchange rate crises, where the nominal exchange rate collapses and there are substantial costs in terms of forgone output. Vector-error-correction results support the findings of the event study; namely, in the long run the real exchange rate movements facilitate current account adjustment. |
| Keywords: | Development economics; Exchange rate regimes; International topics |
| JEL: | F31 F32 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:11-5&r=opm |
| By: | Sandra Gomes (Bank of Portugal); Pascal Jacquinot (European Central Bank); Matthias Mohr (European Central Bank); Massimiliano Pisani (Bank of Italy) |
| Abstract: | We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a 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, a unilateral markup reduction 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. Second, cross-country coordination of reforms would add extra benefits to each region, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. In the long run German (Portuguese) output would increase by 9.2 (8.6) percent. Third, cross-country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of price competitiveness and real activity. Overall, our results suggest that while reforms implemented individually by each country in the euro area will produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. |
| Keywords: | economic policy, structural reforms, dynamic general equilibrium modeling, competition, markups. |
| JEL: | C53 E52 F47 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_830_11&r=opm |
| By: | Gita Gopinath; Oleg Itskhoki; Brent Neiman |
| Abstract: | We document the behavior of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the U.S. Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the onset of the crisis. |
| JEL: | E3 F1 F4 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17594&r=opm |
| By: | Chang-Jin Kim (KIEP - Korea Institute for International Economic Policy); Jong-Wha Lee |
| Abstract: | This paper examines whether changes in exchange rate arrangements have affected monetary independence in East Asian countries after the 1997 Asian crisis. We find that the sensitivity of local to U.S. interest rates has declined for many Asian countries since they adopted floating exchange rate regimes after the crisis. This empirical finding suggests that the choice of exchange rate regime is an important factor for the independence of monetary policy. Floating regimes appear to offer East Asian countries at least some degree of monetary independence after the East Asian crisis. |
| Keywords: | exchange rate regime, monetary independence, East-Asia |
| JEL: | F31 O24 O23 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:21765&r=opm |
| By: | Monica Correa Lopez |
| Abstract: | This paper documents stylized facts of international medium-term business cycles by exploring the pattern of comovement between a catching-up economy, Spain, and each of the obvious candidate countries to technological leadership of the 1950-2007 period, the U.S., France, Germany, Italy and the U.K. A remarkable feature of the international medium-term business cycle is the strong, positive lead displayed by the U.S. technology and terms of trade cycles over Spain's macroeconomic aggregates. The corresponding evidence when the counterpart to Spain is a large European economy is weaker, particularly in the case of Europe's medium-term technology cycles. Nonparametric tests results suggest that, over the medium-term cycle, a shift towards more economic integration may not necessarily be associated with increased international comovement. |
| Keywords: | Medium-term business cycles; Stylized facts; International comovement; Technology diffusion |
| JEL: | E32 F41 O3 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1132&r=opm |
| By: | Michael Brei; Leonardo Gambacorta; Goetz von Peter |
| Abstract: | This paper examines whether the rescue measures adopted during the global financial crisis helped to sustain the supply of bank lending. The analysis proposes a setup that allows testing for structural shifts in the bank lending equation, and employs a novel dataset covering large international banks headquartered in 14 major advanced economies for the period 1995-2010. While stronger capitalisation sustains loan growth in normal times, banks during a crisis can turn additional capital into greater lending only once their capitalisation exceeds a critical threshold. This suggests that recapitalisations may not translate into greater credit supply until bank balance sheets are sufficiently strengthened. |
| Keywords: | bank lending channel, monetary policy, financial crisis, rescue packages, recapitalisation |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:357&r=opm |
| By: | Carlos Vieira (CEFAGE-UE, Universidade de Évora, Portugal); Isabel Vieira (CEFAGE-UE, Universidade de Évora, Portugal) |
| Abstract: | The academic and political discussion about which countries met the conditions for joining EMU was decisively influenced by the Frankel and Rose (1997) hypothesis concerning endogenous OCA properties. The answer to their question "Is EMU more justifiable ex post than ex ante?" was a definite yes in their ex ante analysis. Our ex post examination of the euro's first decade, however suggests that the hypothesis does not hold for some countries. This paper utilizes panel data estimation techniques to compute OCA indices that help assess the OCA endogeneity hypothesis and signal current external and fiscal imbalances. |
| Keywords: | optimum currency areas, OCA index, monetary union |
| JEL: | F15 F36 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0042&r=opm |