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on Open Economy Macroeconomic |
| By: | Sheen, Jeffrey; Wang, Ben Z. |
| Abstract: | We estimate small open economy models with involuntary unemployment using Australian data from 1993 to 2007, focusing on hiring costs and real wage rigidity. We find a strong preference for models with hiring costs, which account for 0.97% of GDP. The data favour models with real over nominal wage rigidity. Impulse responses to technology shocks reveal no productivity-employment puzzle for the preferred model. In the short run, technology shocks, operating through hiring costs via labour demand, explain most unemployment variance, while labour preference shocks explain most real wage variance. Demand shocks dominate supply shocks in explaining output variance. In the long run, these contributions reverse. Out-of-sample conditional forecasts perform well but cannot predict the confidence effects of the crisis. |
| Keywords: | DSGE; Hiring cost; Wage rigidities; Bayesian estimation; Small open economy |
| JEL: | C11 C13 E32 F41 J64 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:035&r=opm |
| By: | Horioka, Charles Yuji (School of Economics, University of the Philippines); Nomoto, Takaaki (Asian Development Bank); Terada-Hagiwara, Akiko (Asian Development Bank) |
| Abstract: | In this paper, we analyze data on trends since 2000 in foreign holdings of government securities and other debt securities, with emphasis on Japan and developing Asia. We find that foreign residents generally increased their holdings of Asian debt securities during the sample period and in particular during the post-global financial crisis (GFC) period. Meanwhile, foreign holdings of debt securities have been declining in the eurozone. Foreign holdings of short-term debt securities were very volatile during the GFC period (2009–11), with a sharp drop in foreign holdings of short-term Asian debt securities that was followed by a renewed surge. Our empirical analysis suggests that despite the increase in foreign holdings of debt securities its share is still far lower than the optimal portfolio warranted by the capital asset pricing market theory. In other words, foreign investors’ home bias is still strong. The overall increase in foreign holdings of Asian debt securities appears to be driven by relatively stable exchange rates and the higher risk-adjusted returns on the debt securities of the region. Additionally, we find that investors were more “home-biased” during the GFC period and invested less in the markets of the major industrialized economies. |
| Keywords: | Government debt; government securities; government bonds; government bills; government notes; debt securities; debt financing; debt holdings; foreign debt holdings; international capital flows; short-term capital movements; cross-border portfolio investments; safe haven; home bias; capital asset pricing model; optimal portfolios; global financial crisis; eurozone; Japan; developing Asia |
| JEL: | F32 F34 G15 O53 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbrei:0124&r=opm |
| By: | Gehringer, Agnieszka; Martínez-Zarzoso, Inmaculada; Nowak-Lehmann Danzinger, Felicitas |
| Abstract: | This paper examines the development and drivers of total factor productivity (TFP) in the manufacturing sector for a panel of 17 EU countries over the period of 1995-2007. Recent panel data estimation techniques are used in a twofold approach. First, we estimate aggregated and sectoral TFP for 17 EU countries by means of the augmented mean group estimator to control for endogeneity, cross-section dependence and heterogeneous production technology. Second, we investigate the relative importance of the drivers of predicted TFP, namely Foreign Direct Investment (FDI), investment in Information and Communication Technologies (ICT), human capital, R&D, trade openness and rationalization efforts. The results confirm that rationalization, human capital and ICT are the main drivers of TFP. -- |
| Keywords: | sectoral TFP,heterogeneous production functions,common dynamic process,European Union |
| JEL: | C26 F43 O47 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:189&r=opm |
| By: | Zuzana Brixiova; Balázs Égert; Thouraya Hadj Amor Essid |
| Abstract: | Egypt, Morocco and Tunisia face challenges competing on the global markets, as shown by their relatively low and stagnant export shares. The limited export competitiveness has hampered external demand, growth and employment. Applying, for the first time to North Africa, the stock-flow approach to the real equilibrium exchange rate, this paper evaluates the countries’ real exchange rate misalignments during the past three decades. While Egypt experienced periods of substantial misalignment, including in recent years, the exchange rates in Morocco and Tunisia have broadly reflected the underlying fundamentals. In all three countries structural factors are key to boosting exports, alongside of avoiding sizeable future misalignments. Intra-regional trade – both with North Africa and the rest of the continent – together with greater orientation to fast growing emerging markets could also raise countries’ external competitiveness. |
| Keywords: | real exchange rate misalignment, stock-flow model, competitiveness, trade, Africa |
| JEL: | F3 F41 C5 O1 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2014-1068&r=opm |
| By: | Luis-Gonzalo Llosa (AFP Profuturo) |
| Abstract: | This paper analyzes how terms of trade affect aggregate productivity using a two-country monopolistic competitive business cycle model driven by aggregate technology shocks. The inefficiency of the equilibrium implies that each country’s productivity is affected by the terms of trade. This introduces a novel mechanism for business cycle synchronization. Moreover, for each country, foreign technology shocks have almost the same effects as domestic technology shocks. The paper also shows how terms of trade movements can lead to excess volatility of consumption and highly persistent productivity. On the quantitative side, the model delivers a degree of business cycle synchronization that is close to the actual comovement of the U.S. economy with the rest of the world. The model also implies that for some small open economies, specially emerging economies, foreign shocks can outperform domestic shocks in explaining their business cycles. Finally, the paper provides a quantification of the influence of the terms of trade on emerging countries’ productivity and finds that it can be large. |
| Keywords: | Imperfect Competition, Input-Output Linkages, Terms of Trade, Business Cycles, Total Factor Productivity |
| JEL: | C67 E23 F12 F41 F43 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-007&r=opm |
| By: | Hein, Eckhard; Dodig, Nina |
| Abstract: | In this paper we review the empirical and theoretical literature on the effects of changes in the relationship between the financial sector and the non-financial sectors of the economy associated with 'financialisation' on distribution, growth, instability and crises. We take a macroeconomic perspective and examine four channels of transmission of financialisation to the macroeconomy: first, the effect on income distribution, second, the effects on investment in capital stock, third, the effects on household debt and consumption, and fourth, the effects on net exports and current account balances. For each of these channels we briefly review some empirical and econometric literature supporting the presumed channels, some theoretical and modelling literature examining the macroeconomic effects via these channels, and finally, we present small models generating the most important macroeconomic effects. We show that, against the background of redistribution of income at the expense of the labour income share and depressed investment in capital stock, each a major feature of financialisation, short- to medium-run dynamic 'profits without investment' regimes may emerge, which can be driven by flourishing consumption demand or by rising export surpluses, compensating for low or falling investment in capital stock. However, each type of these regimes, the 'debt-led consumption boom' type and the 'export-led mercantilist' type, contains internal contradictions, with respect to household debt in the first regime and with respect to foreign debt of the counterpart current account deficit countries in the second regime, which finally undermine the sustainability of these regimes and lead to financial and economic crises. -- |
| Keywords: | financialisation,distribution,growth,instability,financial and economic crisis,Kaleckian models,current account imbalances |
| JEL: | E12 E22 E24 E44 F41 G01 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:352014&r=opm |
| By: | Rajmund Mirdala |
| Abstract: | Responsiveness of exchange rates to external price shocks as well as their ability to serve as a traditional vehicle for a transmission of these shocks to domestic prices is affected by exchange rate arrangement adopted by monetary authorities. As a result, exchange rate volatility determines the overall dynamics of pass-through effects and associated absorption capability of exchange rate. Ability of exchange rates to transmit external (price) shocks to the national economy represents one of the most discussed areas relating to the current stage of the monetary integration in the European single market. The problem is even more crucial when examining crisis related redistributive effects. In the paper we analyze exchange rate pass-through to domestic prices in the European transition economies. We estimate VAR model to investigate (1) responsiveness of exchange rate to the exogenous price shock to examine the dynamics (volatility) in the exchange rate leading path followed by the unexpected oil price shock and (2) effect of the unexpected exchange rate shift to domestic price indexes to examine its distribution along the internal pricing chain. To provide more rigorous insight into the problem of exchange rate pass-through to the domestic prices in countries with different exchange rate arrangements we estimate models for two subsequent periods 2000-2007 and 2000-2012. Our results suggest that there are different patterns of exchange rate pass-through to domestic prices according to the baseline period as well as the exchange rate regime diversity. |
| Keywords: | exchange rate pass-through, inflation, VAR, Cholesky decomposition, impulse-response function |
| JEL: | C32 E31 F41 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2014-1070&r=opm |
| By: | Katarina Juselius (Department of Economics, Copenhagen University); Abdulaziz Reshid (Linnaeus University); Finn Tarp (Department of Economics, Copenhagen University) |
| Abstract: | A recent study of 36 Sub Saharan African countries found a positive impact of aid in the absolute majority of these countries. However, for Tanzania and Ghana, two major aid recipients, aid did not seem to have been equally beneficial. This paper singles out these two countries for a more detailed empirical investigation. The focus is now on the effect of aid when allowing external and nominal factors to play a role in the macroeconomic transmission mechanism. We conclude that aid played a significantly positive - but very different - role in the two countries. Due in part to generous aid inflows Tanzania experienced positive investment and GDP growth from the late 1960s to 2007. But, until the mid-1980s, the impact of aid on growth was well below its potential as the large inflows of aid facilitated a serious over-appreciation of the real exchange rate. In Ghana, declining aid in the 1970s was associated with lacking growth while the reactivation of aid flows in the 1980s supported an economic rebound. When monetary and external factors are properly accounted for, we find that aid has been pivotal to growth in both real GDP and investment. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1402&r=opm |