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on Open Economy Macroeconomic |
| By: | Jonathan Heathcote; Fabrizio Perri |
| Abstract: | In one-good international macro models with nondiversifiable labor income risk, country portfolios are heavily biased toward foreign assets. The fact that the opposite pattern of diversification is observed empirically constitutes the international diversification puzzle. This paper embeds a portfolio choice decision in a two-country, two-good version of the stochastic growth model. In this environment, which is a workhorse for international business cycle research, equilibrium country portfolios can be characterized in closed form. Portfolios are biased toward domestic assets, as in the data. Home bias arises because endogenous international relative price uctuations make domestic assets a good hedge against labor income risk. Evidence from developed economies in recent years is qualitatively and quantitatively consistent with the mechanisms highlighted by the theory. keywords: Country portfolios, International business cycles, Home bias jel classification codes : F36, F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:472&r=opm |
| By: | Mario J. Crucini; J. Scott Davis |
| Abstract: | International business-cycle models assume that home and foreign goods are poor substitutes. International trade models assume they are close substitutes. This paper constructs a model where this discrepancy is due to frictions in distribution. Imports need to be combined with a local non-traded input, distribution capital, which is slow to adjust. As a result, imported and domestic goods appear as poor substitutes in the short run. In the long run this non-traded input can be reallocated, and quantities can shift following a change in relative prices. Thus the observed substitutability between home and foreign goods gets larger as time passes. |
| JEL: | F1 F14 F44 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18753&r=opm |
| By: | Agnès Bénassy-Quéré; Dramane Coulibaly |
| Abstract: | We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in nontradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods. |
| Keywords: | Real exchange rate;Balassa-Samuelson effect;Product market regulations;Employment protection |
| JEL: | F41 J50 L40 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2012-37&r=opm |
| By: | Marco Committeri (Bank of Italy); Francesco Spadafora (International Monetary Fund) |
| Abstract: | We review the impact of the global financial crisis, and its consequences for the sovereign sector of the euro area, on the international “rules of the game” for dealing with sovereign debt crises. These rules rest on two main pillars. The most important is the IMF’s lending framework (policies, financing facilities, and financial resources), which is designed to support macroeconomic adjustment packages based on the key notion of public debt sustainability. The complementary pillar is represented by such contractual provisions as Collective Action Clauses (CACs) in sovereign bonds, which aim to facilitate coordination among private creditors in order to contain the costs of a debt default or restructuring. We analyze the most significant changes (and their consequences) prompted by the recent crises to the Fund’s lending framework, not only in terms of additional financial resources, new financing facilities (including precautionary ones), and cooperation with euro-area institutions, but also as regards the criteria governing exceptional access to the Fund’s financial resources. We highlight a crucial innovation to these criteria, namely that, for the first time, they now explicitly take account of the risk of international systemic spillovers. Finally, we underscore the need for improved collective governance of systemic fiscal risks, with greater discipline in public finances and market monitoring, expansion of existing financial safety nets, accelerated dissemination of CACs, and new tools to sever the link between sovereign and banking risks. |
| Keywords: | collective action clauses, sovereign debt restructuring, IMF financing, systemic spillovers |
| JEL: | F33 F34 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_143_01&r=opm |
| By: | Ugo Panizza (UNCTAD and The Graduate Institute, Geneva); Andrea Filippo Presbitero (Universit… Politecnica delle Marche, MoFiR) |
| Abstract: | This paper surveys the recent literature on the links between public debt and economic growth in advanced economies. We find that theoretical models yield ambiguous results. Whether high levels of public debt have a negative effect on long-run growth is thus an empirical question. While many papers have found a negative correlation between debt and growth, our reading of the empirical literature is that there is no paper that can make a strong case for a causal relationship going from debt to economic growth. We also find that the presence of thresholds and, more in general, of a non-monotone relationship between debt and growth is not robust to small changes in data coverage and empirical techniques. We conclude with a discussion of the challenges involved in measuring and defining public debt and some suggestions for future research which, in our view, should emphasize cross-country heterogeneity. |
| Keywords: | Government Debt, Growth, OECD countries |
| JEL: | F33 F34 F35 O11 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:78&r=opm |
| By: | Nicolas Houy (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Izabela Jelovac (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | This paper analyzes the timing decisions of pharmaceutical firms to launch a new drug in countries involved in international reference pricing. We show three important features of launch timing when all countries reference the prices in all other countries and in all previous periods of time. First, there is no withdrawal of drugs in any country and in any period of time. Second, there is no strict incentive to delay the launch of a drug in any country. Third, whenever the drug is sold in a country, it is also sold in all countries with larger willingness to pay. We then show that the three results do not hold when the countries only reference a subset of all countries. The first two results do not hold when the reference is on the last period prices only. |
| Keywords: | Drug launch timing; international reference pricing |
| Date: | 2013–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00782179&r=opm |