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on Open MacroEconomics |
| By: | Christopher J. Erceg; Jesper Lindé |
| Abstract: | This paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1046&r=opm |
| By: | Pierre-Richard Agénor; K. Alper; L. Pereira da Silva |
| Abstract: | We develop a dynamic stochastic model of a middle-income, small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both cases subject to an endogenous premium. A sudden flood in capital flows generates an expansion in credit and activity, and asset price pressures. Countercyclical regulation, in the form of a Basel III-type rule based on real credit gaps, is effective at promoting macroeconomic stability (defined in terms of the volatility of a weighted average of inflation and the output gap) and financial stability (defined in terms of the volatility of a composite index of the nominal exchange rate and house prices). However, because the gain in terms of reduced volatility may exhibit diminishing returns, a countercyclical regulatory rule may need to be supplemented by other, more targeted, macroprudential instruments. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:166&r=opm |
| By: | Tarek Alexander Hassan |
| Abstract: | Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: Bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that differences in the size of economies indeed explain a large fraction of the cross-sectional variation in currency returns. The data also support a number of additional implications of the model: The introduction of a currency union lowers interest rates in participating countries and stocks in the non-traded sector of larger economies pay lower expected returns. |
| JEL: | F3 F31 F4 G0 G12 G15 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18057&r=opm |
| By: | Hogrefe, Jan; Jung, Benjamin; Kohler, Wilhelm K. |
| Abstract: | Member countries of a currency union like the euro area have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional microeconomic trade effect and macroeconomic trade effects deriving from bilateral misalignment within currency unions. Econometric estimation reveals that for the euro area the misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country-specific estimates of the misalignment-induced effect on trade which demonstrate heterogeneous outlooks across countries for the costs and benefits from adopting the euro. -- |
| Keywords: | Euro,gravity model,exchange rates,trade imbalances |
| JEL: | F12 F13 F15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:32&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 non-export 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: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2012:i:084&r=opm |
| By: | Jorg Bibow |
| Abstract: | This paper investigates the causes behind the euro debt crisis, particularly Germany's role in it. It is argued that the crisis is not primarily a "sovereign debt crisis" but rather a (twin) banking and balance of payments crisis. Intra-area competitiveness and current account imbalances, and the corresponding debt flows that such imbalances give rise to, are at the heart of the matter, and they ultimately go back to competitive wage deflation on Germany's part since the late 1990s. Germany broke the golden rule of a monetary union: commitment to a common inflation rate. As a result, the country faces a trilemma of its own making and must make a critical choice, since it cannot have it all--perpetual export surpluses, a no transfer / no bailout monetary union, and a "clean," independent central bank. Misdiagnosis and the wrongly prescribed medication of austerity have made the situation worse by adding a growth crisis to the potpourri of internal stresses that threaten the euro's survival. The crisis in Euroland poses a global "too big to fail" threat, and presents a moral hazard of perhaps unprecedented scale to the global community. |
| Keywords: | Euro; Monetary Union; Banking Crisis; Balance-of-Payments Crisis; Sovereign Debt Crisis; Competitiveness Imbalances; Fiscal Transfers; Bailouts; Austerity |
| JEL: | E42 E52 E58 E65 F36 G01 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_721&r=opm |
| By: | Duncan Hodge |
| Abstract: | The Dutch disease argument suggests that in commodity exporting countries "overvaluation" of the currency due to increases in commodity prices harms manufacturing even though the economy as a whole benefits, led by the booming natural resources sector. The relationship between the real exchange rate and manufacturing is studied here with regard to South Africa as a minerals-rich export-led economy. Since manufacturing is co-determined within a system of inter-related variables, a Johansen VAR/VEC cointegration approach was used to estimate these relationships. Using quarterly data for the sample period 1980—2010, the main findings are: world growth is the single most important determinant of domestic manufacturing; while the real exchange rate has the predicted negative sign, there is no evidence of a Dutch disease specific effect on manufacturing; large increases in unit labour costs since the early 1980s have dragged down manufacturing in South Africa over the sample period. |
| JEL: | E20 E31 F43 O55 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:281&r=opm |
| By: | Lin, Justin Yifu; Fardoust, Shahrokh; Rosenblatt, David |
| Abstract: | This paper analyzes the historical evolution of the international monetary system in the context of the rising role of developing countries in the world economy and the emerging multi-polar growth setting. It evaluates the stability of the current"non-system"and how the global economic context is likely to affect that stability in the coming years with potential adverse effects on both advanced and developing economies. Given the likely trend toward a multi-polar reserve currency system, the paper evaluates the stability of the emerging system, as well as the current proposals for reform of the international monetary system. The paper concludes that more ambitious reforms of the system may be needed to meaningfully reduce future global economic and financial instability. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Emerging Markets,Economic Theory&Research,Fiscal&Monetary Policy |
| Date: | 2012–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6070&r=opm |
| By: | Agnieszka Gehringer |
| Abstract: | In the present contribution, we concentrate on the process of financial liberalization in a specific context of European economic and monetary integration. We implement de facto and de jure measures of financial liberalization and find that formal aspects of financial openness generate a strongly positive impact on economic growth and its sources, productivity growth and capital accumulation. Moreover, there is evidence of a positive contribution to the process stemming from the EU membership, while no substantial effect comes from the euro adoption. Finally, we investigate the effects from financial integration on country groups within the EU. |
| Keywords: | Financial integration, economic growth, productivity, European integration |
| JEL: | F41 F36 F43 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2012:i:086&r=opm |