|
on Open Economy Macroeconomic |
| By: | Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti |
| Abstract: | We study the short- and long-run implications of offshoring on innovation, technology adoption, wage and income inequality in a Ricardian model with directed technical change. A unique final good is produced by combining a skilled and an unskilled product, each produced from a continuum of intermediates (tasks). Some of these tasks can be transferred from a skill-abundant West to a skill-scarce East. Profit maximization determines both the extent of offshoring and technological progress. offshoring induces technical change with an ambiguous factor bias. When the initial level of offshoring is low, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. As the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change biased in favor of the unskilled because offshoring closes the gap between unskilled wages in the West and the East, and this limits the power of the price effect fueling skill-biased technical change. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run. Finally, though offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on elasticities and the equilibrium growth rate. |
| Keywords: | directed technical change, offshoring, skill premium, growth and productivity |
| JEL: | F43 O31 O33 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:735&r=opm |
| By: | Gauti Eggertsson; Andrea Ferrero; Andrea Raffo |
| Abstract: | Structural reforms that increase competition in product and labor markets are often indicated as the main policy option available for peripheral Europe to regain competitiveness and boost output. We show that, in a crisis that pushes the nominal interest rate to its lower bound, these reforms do not support economic activity in the short run, and may well be contractionary. Absent the appropriate monetary stimulus, reforms fuel expectations of prolonged deation, increase the real interest rate, and depress aggregate demand. Our findings carry important implications for the current debate on the timing and the design of structural reforms in Europe. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1092&r=opm |
| By: | Prasad, Eswar (Cornell University) |
| Abstract: | Distributional consequences typically receive limited attention in economic models that analyze the effects of monetary and financial sector policies. These consequences deserve more attention since financial markets are incomplete, imperfect, and economic agents' access to them is often limited. This limits households' ability to insure against household-specific (or sector-specific) shocks and magnifies the distributional effects of aggregate macroeconomic fluctuations and associated policy responses. These effects are likely to be even larger in emerging market and low-income economies beset by financial frictions. The political economy surrounding distributional consequences can sometimes lead to policy measures that reduce aggregate welfare. I argue that it is important to take better account of distributional rather than just aggregate consequences when evaluating specific policy interventions as well as the mix of different policies. |
| Keywords: | income and wealth distribution, inequality, emerging markets, financial frictions, monetary policy, macroeconomic policies |
| JEL: | E5 E6 F4 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7777&r=opm |
| By: | Urban J. Jermann; Vivian Z. Yue |
| Abstract: | This paper studies firms' usage of interest rate swaps to manage risk in a model economy driven by aggregate productivity shocks, inflation shocks, and counter-cyclical idiosyncratic productivity risk. Consistent with empirical evidence, firms in the model are fixed-rate payers, and swap positions are negatively correlated with the term spread. In the model, swaps affect firms' investment decisions and debt pricing very moderately, and the availability of swaps generates only small economic gains for the typical firm. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1090&r=opm |
| By: | Fernando Broner; Aitor Erce; Alberto Martin; Jaume Ventura |
| Abstract: | In 2007, countries in the euro periphery were enjoying stable growth, low deficits, and low spreads. Then the financial crisis erupted and pushed them into deep recessions, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly, so did the share of the debt held by domestic creditors. Credit was reallocated from the private to the public sectors, reducing investment and deepening the recessions even further. To account for these facts, we propose a simple model of sovereign risk in which debt can be traded in secondary markets. The model has two key ingredients: creditor discrimination and crowding-out effects. Creditor discrimination arises because, in turbulent times, sovereign debt offers a higher expected return to domestic creditors than to foreign ones. This provides incentives for domestic purchases of debt. Crowding-out effects arise because private borrowing is limited by financial frictions. This implies that domestic debt purchases displace productive investment. The model shows that these purchases reduce growth and welfare, and may lead to self-fulfilling crises. It also shows how crowding-out effects can be transmitted to other countries in the euro zone, and how they may be addressed by policies at the European level. |
| JEL: | F32 F34 F36 F41 F43 F44 G15 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19676&r=opm |
| By: | Fromlet, Pia (National Institute of Economic Research) |
| Abstract: | In this paper, the effects on export prices (in the currency of the exporter) of shocks to the exchange rate, the exporting firms' costs and foreign prices are investigated. The theoretical analysis is done with alternative assumptions regarding the currency in which prices are set and the desired markup. After that, a VAR-framework is used to analyze which theory predicts actual outcome the best. The results indicate that export prices (in the currency of the exporter) respond strongly to exchange rate shocks and the effects seem to be in line with the theory of producer currency pricing and pricing to market. Wage shocks have insignificant effects. |
| Keywords: | Vector autoregression; exchange rates; export prices; local currency pricing; producer currency pricing; pricing to the market |
| JEL: | E31 F14 F31 |
| Date: | 2013–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0132&r=opm |
| By: | Minoas Koukouritakis (University of Crete); Athanasios P. Papadopoulos (University of Crete); Andreas Yannopoulos (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 economic interdependence among them is continuously evolving, we implemented a 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: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:163&r=opm |
| By: | Costantini, M.; Fragetta, M.; Melina, G. |
| Abstract: | In the light of the recent financial crisis, we take a panel cointegration approach that allows for structural breaks to the analysis of the determinants of sovereign bond yield spreads in nine economies of the European Monetary Union. While we find evidence for a level break in the cointegrating relationship, we do not find empirical support for a regime shift and hence for a change in the pricing of the determinants of sovereign spreads. Moreover, results show that (i) fiscal imbalances (namely expected government debt-to-GDP differentials) are the main long-run drivers of sovereign spreads; (ii) liquidity risks and cumulated inflation differentials have non-negligible weights; but (iii) all conclusions are ultimately connected to whether or not the sample of countries is composed of members of an Optimal Currency Area (OCA). In particular, we establish (i) that results are overall driven by those countries not passing the OCA test; and (ii) that investors closely monitor and severely punish the deterioration of expected debt positions of those economies exhibiting significant gaps in competitiveness. |
| Keywords: | European monetary union; sovereign bond yield spreads; optimal currency areas; competitiveness gaps; euro area |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:13/15&r=opm |
| By: | Karolina Konopczak (Warsaw School of Economics and Institute for Market, Consumption and Business Cycles Research) |
| Abstract: | The aim of the study is to estimate the magnitude of the Balassa-Samuleson effect as well as the effectiveness of the labour and the product market in its absorption in Poland, the Czech Republic, Hungary and Slovakia. The obtained results allowed to determine the magnitude of the systematic component of inflation differentials relative to the euro area, hence to assess the risk of common monetary policy inadequacy with respect to these economies. The obtained estimates suggest that the catching-up driven inflationary pressure is a non-negligible issue in the context of the CEECs integration with the euro area, since the systematic inflation differentials were comparable in size to those experienced by the so-called peripheral member states in the first decade after the introduction of the euro. Moreover, in the case of Poland none of the potential absorption mechanisms of the Balassa-Samuelson effect seemed to mitigate the convergence-induced inflationary pressure over the sample period. The outcomes suggest that ignoring the non-fulfilment of theoretical model assumptions regarding wages and markups, which is common in the literature, distorts estimation results. |
| Keywords: | Balassa-Samuelson hypothesis, monetary integration, real convergence, panel cointegration |
| JEL: | F41 E31 C33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:163&r=opm |
| By: | Gudmundur S. Gudmundsson (Universitat Pompeu Fabra); Gylfi Zoega (Department of Economics, Mathematics & Statistics, Birkbeck; University of Iceland) |
| Abstract: | We adjust current account surpluses and deficits of 57 countries in the period 2005-2009 for differences in the age structure of their populations and find that these differences can account for a significant part of the variation in the data. Among the large countries we find that the adjustment increases the surpluses of Germany and Japan while the surpluses of China, Singapore, Hong Kong, Korea, Thailand, Indonesia and Malaysia are significantly diminished. |
| Keywords: | Current account, age structure, life-cycle saving behavior. |
| JEL: | J1 E2 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1307&r=opm |
| By: | Eric M. Leeper; Xuan Zhou |
| Abstract: | We study how the maturity structure of nominal government debt affects optimal monetary and fiscal policy decisions and equilibrium outcomes in the presence of distortionary taxes and sticky prices. Key findings are: (1) there is always a role for current and future inflation innovations to revalue government debt, reducing reliance on distorting taxes; (2) the role of inflation in optimal fiscal financing increases with the average maturity of government debt; (3) as average maturity rises, it is optimal to tradeoff inflation for output stabilization; (4) inflation is relatively more important as a fiscal shock absorber in high-debt than in low-debt economies; (5) in some calibrations that are relevant to U.S. data, welfare under the fully optimal monetary and fiscal policies can be made equivalent to the welfare under the conventional optimal monetary policy with passively adjusting lump-sum taxes by extending the average maturity of bond. |
| JEL: | E31 E52 E62 E63 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19686&r=opm |