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on Open Economy Macroeconomics |
| By: | Philippe Bacchetta; Kenza Benhima |
| Abstract: | In this paper, we examine theoretically how corporate saving in emerging markets is contributing to global rebalancing. We consider a two-country dynamic general equilibrium model, based on Bacchetta and Benhima (2014), with a Developed and an Emerging country. Firms need to save in liquid assets to finance their production projects, especially in the Emerging country. In this context, we examine the impact of a credit crunch in the Developed country and of a growth slowdown in both countries. These three shocks imply smaller global imbalances and a positive output comovement, but have a different impact on interest rates. Contrary to common wisdom, a slowdown in the Emerging market implies a trade balance improvement in the Developed country. |
| Keywords: | Capital Flows; Credit Constraints; Global Imbalances; Financial Crisis |
| JEL: | E22 F21 F41 F44 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:14.03&r=opm |
| By: | Laurence M. Ball |
| Abstract: | This paper estimates the long-term effects of the global recession of 2008-2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4%. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the level of lost potential is growing over time. |
| JEL: | E32 E65 E66 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20185&r=opm |
| By: | Kawai, Masahiro (Asian Development Bank Institute); Pontines, Victor (Asian Development Bank Institute) |
| Abstract: | With the rise of the People's Republic of China (PRC) as the world's largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange rate flexibility in July 2005, and in the wake of the global financial crisis has been pursuing a policy to internationalize its currency, the renminbi (RMB). Clearly the exchange rate policy of the PRC has significant implications for exchange rate regimes in emerging East Asia. This paper examines the behavior of the RMB exchange rate and the impact of RMB movements on those of other currencies in emerging East Asia during the period 2000–2014. We apply the Frankel–Wei regression model to identify changes in the RMB exchange rate regime over time and a modified version of the model, developed by the authors in their earlier paper, to estimate the RMB weight in an emerging East Asian economy's currency basket. We find that the US dollar continues to be the dominant anchor currency in the region, while the RMB has taken on increasing importance in the currency baskets of many East Asian economies in recent years. The paper also explores how monetary and currency cooperation—led by the PRC and Japan—can promote intra-East Asian exchange rate stability under the pressure of rising financial market openness in the PRC. |
| Keywords: | renminbi internationalization; prc; emerging economies; east asia; frankel-wei model |
| JEL: | F15 F31 F36 F41 O24 |
| Date: | 2014–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0484&r=opm |
| By: | Daniel Gros; Cinzia Alcidi; Ansgar Belke; Leonor Coutinho; Alessandro Giovannini |
| Abstract: | Two of the four macroeconomic adjustment programmes, Portugal and Ireland’s, can be considered a success in the sense that the initial expectations in terms of adjustment, both fiscal and external, were broadly fulfilled. A rebound based on exports has taken hold in these two countries, but a full recovery will take years. In Greece the initial plans were insufficient. While the strong impact of the fiscal adjustment on demand could have been partially anticipated at the time, the resistance to structural reforms was more surprising and remains difficult to cure. The fiscal adjustment is now almost completed, but the external adjustment has not proceeded well. Exports are stagnating despite impressive falls in wage costs. In Cyprus, the outcome has so far been less severe than initially feared. It is still too early to find robust evidence in any country that the programmes have increased the long-term growth potential. Survey-based evidence suggests that structural reforms have not yet taken hold. The EU-led macroeconomic adjustment programmes outside the euro area (e.g. Latvia) seem to have been much stricter, but the adjustment was quicker and followed by a stronger rebound. |
| Keywords: | Current account imbalance; Euro area; fiscal multiplier; investment; macroeconomic adjustment programme |
| JEL: | E22 E62 F32 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0482&r=opm |