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on Open Economy Macroeconomic |
| By: | Joshua Aizenman; Brian Pinto; Vladyslav Sushko |
| Abstract: | We examine how financial expansion and contraction cycles affect the broader economy through their impact on real economic sectors in a panel of countries over 1960-2005. Periods of accelerated growth of the financial sector are more likely to be followed by abrupt financial contractions than are periods of slower financial sector growth. Sharp fluctuations in the financial sector have strongly asymmetric effects, with the majority of real sectors adversely affected by contractions, but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively through the financial openness channel, with precautionary foreign exchange reserve holdings serving as a key buffer. |
| Keywords: | financial cycles, financial and trade openness, real transmission of financial shocks, foreign exchange reserves |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:411&r=opm |
| By: | Linda Goldberg; Cédric Tille |
| Abstract: | We develop a theoretical model of international trade pricing in which individual exporters and importers bargain over the transaction price and exposure to exchange rate fluctuations. We find that the choice of price and invoicing currency reflects the full market structure, including the extent of fragmentation and the degree of heterogeneity across importers and across exporters. Our study shows that a party has a higher effective bargaining weight when it is large or more risk tolerant. A higher effective bargaining weight of importers relative to exporters in turn translates into lower import prices and greater exchange rate pass-through into import prices. We show the range of price and invoicing outcomes that arise under alternative market structures. Such structures matter not only for the outcome of specific exporter-importer transactions, but also for aggregate variables such as the average price, the average choice of invoicing currency, and the correlation between invoicing currency and the size of trade transactions. |
| Keywords: | International trade ; Imports - Prices ; Foreign exchange rates |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:611&r=opm |
| By: | Martin Evans (Department of Economics, Georgetown University) |
| Abstract: | This paper presents a new model for studying international capital flows and debt dynamics. The model emphasizes the role of expectations concerning future trade flows and returns as the determinants of a country’s foreign asset and liability positions, and how revisions in these expectations drive gross and net capital flows. I use the model to estimate the drivers of the U.S. external position and capital flows between 1973 and 2008. The estimates show that most of the secular rise in U.S. international indebtedness is attributable to growing optimism about future returns on U.S. holdings of foreign equity and FDI assets. Expectations concerning future returns are also the most important determinant of net capital flows, but the flows themselves are not important drivers of the U.S. external position. My estimates also show that the transformation of world savings into risky assets by the U.S. had little effect on its external position, but the expected real depreciation of the dollar allowed the U.S. to sustain a much higher level of international debt after the 1990s. |
| Keywords: | Capital Flows, External Imbalances, International Debt, International Solvency, Exorbitant Privilege JEL Codes: F31, F32, F34 |
| Date: | 2012–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~12-12-04&r=opm |
| By: | Werner Roeger; Jan in 't Veld |
| Abstract: | This paper uses a two region DSGE model for the Euro area (periphery vs. core), to analyse the costs of higher sovereign risk premia, the so called 'sovereign risk channel'. We highlight the importance of valuation effects of sovereign bonds in bank balance sheets for the transmission of sovereign default expectations to the private sector. While at the current juncture the fiscal multiplier is larger in the EA periphery, we show that for highly indebted countries in the EA no fiscal consolidation could have more detrimental effects if it leads to expectations of sovereign default. In our view these results provide useful additional information for the debate on fiscal austerity which focusses mainly on the size of the multiplier. |
| JEL: | E62 E32 E62 G21 H63 F41 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0479&r=opm |
| By: | Friederike Niepmann |
| Abstract: | Individual banks differ substantially in their foreign operations. This paper introduces heterogeneous banks into a general equilibrium framework of banking across borders to explain the documented variation. While the model matches existing micro and macro evidence, novel and unexplored predictions of the theory are also strongly supported by the data: The efficiency of the least efficient bank active in a host country increases the greater the impediments to banking across borders and the efficiency of the banking sector in the host country. There is also evidence of a tradeoff between proximity and fixed costs in banking. Banks hold more assets and liabilities in foreign affiliates relative to cross-border positions if the target country is further away and the cost of foreign direct investment is low. These results suggest that fixed costs play a crucial role in the foreign activities of banks. |
| Keywords: | Banks and banking, International ; Banks and banking, Foreign ; Banks and banking - Costs ; Bank investments |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:609&r=opm |
| By: | Balázs Égert |
| Abstract: | This study seeks to determine the extent to which the former communist states of Central and South-West Asia are “infected” by the Dutch Disease. We take a detailed look at the functioning of the transmission mechanism of the Dutch Disease, i.e. the chains that run from commodity prices to real output in manufacturing. We complement this with two econometric exercises. First, we estimate nominal and real exchange rate models to see whether commodity prices are correlated with the exchange rate. Second, we run growth equations to analyse the possible effects of commodity prices and the dependency of economic growth on natural resources. |
| Keywords: | Oil price Dutch Disease; Real exchange rate Natural resource; Economic growth |
| JEL: | E31 F31 O11 P17 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2013-10&r=opm |
| By: | Michael C. Burda; ; ; |
| Abstract: | By any measure, the European Monetary Union and the European Union are in a deep hole. In the summer of 2011 we came uncomfortably close to an uncontrolled sovereign default of an EU country, a member of the European Monetary Union, hardly ten years after the common currency project was launched. In the months that followed, Greece was brought back from the precipice, but by the time of this writing has accumulated sovereign indebtedness of more than €380b or more than 170% of the country’s gross domestic product. By current estimates, more than half of this debt is held by foreigners, and mostly by foreign official institutions. How could a country with less than 2% of EU output be the source of such great concern? Quite simply, because in the meantime Ireland, Portugal, Spain and Italy (which along with Greece, are known as the GIIPs countries, or the PIIGS in less politically correct circles) have all spent significant time at the financial edge, with borrowing costs rising enough to threaten the integrity of the Eurozone banking system, the mechanism of payments, the European Central Bank and the common currency itself. In my view, we are still not out of the hole, even though most recent events may belie that assessment. |
| Keywords: | Euro sovereign debt, NEURO, European integration |
| JEL: | F33 F34 E42 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-019&r=opm |
| By: | Dall'Olio, Andrea; Iootty, Mariana; Kaneira, Naoto; Saliola, Federica |
| Abstract: | This paper tests whether structural or firm-specific characteristics contributed more to (labor) productivity growth in the European Union between 2003 and 2008. It combines the Amadeus firm-level data on productivity and firm characteristics with country-level data describing regulatory environments from the World Bank's Doing Business surveys, foreign direct investment data from Eurostat, infrastructure quality assessments from the Global Competitiveness Report, and credit availability from the World Development Indicators. It finds that among the 12 newest members of the European Union, country characteristics are most important for firm productivity growth, particularly the stock of inward foreign direct investment and the availability of credit. By contrast, among the more developed 15 elder European Union member countries, firm-level characteristics, such as industry, size, and international affiliation, are most important for growth. The quality of the regulatory environment, measured by Doing Business indicators, is importantly correlated with productivity growth in all cases. This finding suggests that European Union nations can realize significant benefits from improving regulations and encouraging inward and outward foreign direct investment. |
| Keywords: | E-Business,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Microfinance |
| Date: | 2013–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6425&r=opm |
| By: | Minoas Koukouritakis (Department of Economics, University of Crete, Greece); Athanasios Papadopoulos (Department of Economics, University of Crete, Greece); Andreas Yannopoulos (Department of Economics, University of Crete) |
| Abstract: | In this paper, we investigate the monetary transmission mechanism through interest rate and real effective exchange rate channels, for five South-Eastern European countries, namely Bulgaria, Croatia, Greece, Romania and Turkey. Recent unit root and cointegration techniques in the presence of structural breaks in the data have been used in the analysis. The empirical results validate the existence of a valid long-run relationship, with parameter constancy, for each of the five sample countries. Additionally, the estimated impulse response functions regarding the monetary variables and the real effective exchange rate converge and follow a reasonable pattern in all cases. |
| Keywords: | Monetary Transmission Mechanism, Structural Breaks, LM Unit Root Tests, Cointegration Tests, Impulse Responses. |
| JEL: | E43 F15 F42 |
| Date: | 2013–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1303&r=opm |
| By: | Minoas Koukouritakis (Department of Economics, University of Crete, Greece); Athanasios Papadopoulos (Department of Economics, University of Crete, Greece); Andreas Yannopoulos (Department of Economics, University of Crete) |
| Abstract: | In the present paper we assess the impact of the Eurozone�s economic policies on specific South-Eastern European countries, namely Bulgaria, Croatia, Cyprus, Greece, Romania, Slovenia and Turkey. Since these countries are connected to the EU or the Eurozone and the economic interdependence among them is evolving, we implemented the Global VAR model. Our results indicate that all sample countries, except Turkey, react in a similar manner to changes (a) in the macroeconomic policies of the Eurozone, and (b) in the nominal exchange rate of the euro against the US dollar. There is evidence of linkages among the EU or Eurozone members of the region, and between each of them and the Eurozone. |
| Keywords: | Monetary Transmission, Global VAR Model, Weak Exogeneity, Impact Elasticities, Generalised Impulse Responses. |
| JEL: | E43 F15 F42 |
| Date: | 2013–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1304&r=opm |
| By: | Aitor Erce |
| Abstract: | This paper studies the role played by the IMF during sovereign debt restructurings and extracts lessons for future official interventions. To do so, I compare twelve recent debt restructurings. I begin by detailing the main features (“restructuring strategies”) of each episode. I then analyze the involvement of the Fund and relate it to the above-cited strategies. Despite the wide heterogeneity both in restructuring strategies and in the scope of IMF’s involvement, the Fund exerted a substantial influence. This influence came, not only through the provision of official finance and by setting an adjustment path through conditionality, but also by providing independent information and influencing countries’ decisions to restructure by providing incentives both to creditors and debtors. My conclusion is that the flexibility that has characterized the role of the IMF so far might have exacerbated uncertainty and induced undesirable strategies from debtors and creditors alike. Thus, the international community could benefit from granting the IMF a more standardized operational role, reducing gambling for resurrection strategies and fostering fairness. Along these lines, I present ideas for reframing the IMF’s engagement in sovereign debt restructurings. |
| Keywords: | Debt management |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:143&r=opm |