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on Open Economy Macroeconomics |
| By: | Claudio Borio; Enisse Kharroubi; Christian Upper; Fabrizio Zampolli |
| Abstract: | We investigate the link between credit booms, productivity growth, labour reallocations and financial crises in a sample of over twenty advanced economies and over forty years. We produce two key findings. First, credit booms tend to undermine productivity growth by inducing labour reallocations towards lower productivity growth sectors. A temporarily bloated construction sector stands out as an example. Second, the impact of reallocations that occur during a boom, and during economic expansions more generally, is much larger if a crisis follows. In other words, when economic conditions become more hostile, misallocations beget misallocations. These findings have broader implications: they shed light on the recent secular stagnation debate; they provide an alternative interpretation of hysteresis effects; they highlight the need to incorporate credit developments in the measurement of potential output; and they provide a new perspective on the medium- to long-run impact of monetary policy as well as its ability to fight post-crisis recessions. |
| Keywords: | Labour reallocation, productivity, credit booms, financial crises, hysteresis |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:534&r=opm |
| By: | Boris Hofmann; Ilhyock Shim; Hyun Song Shin |
| Abstract: | Currency appreciation against the US dollar is associated with the compression of emerging market economy (EME) sovereign yields. We find that this yield compression is due to reduced risk premiums rather than expectations of interest rates already priced into forward rates. We explore a model which ties together dollar credit to EME corporates, sovereign tail risks and global investor portfolio adjustments driven by economic capital constraints. Consistent with our model, we find no empirical association between currency appreciation and sovereign spreads when we use the trade-weighted effective exchange rate that is unrelated to the US dollar. |
| Keywords: | bond spread, capital flow, credit risk, emerging market, exchange rate |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:538&r=opm |
| By: | Ha Trong Nguyen (Bankwest Curtin Economics Centre, Curtin University); Alan Duncan (Bankwest Curtin Economics Centre, Curtin University) |
| Abstract: | In this paper we provide the first solid empirical evidence that improvements in home countries’ macroeconomic conditions, as measured by a higher GDP per capita and lower price levels, increase immigrants’ subjective well-being. We demonstrate this using 12 years of data from the Household Income and Labour Dynamics in Australia panel, as well as macroeconomic indicators for 59 countries of origin, and exploiting exogenous changes in macroeconomic conditions across home countries over time. Controlling for immigrants’ observable and unobservable characteristics we also find the positive GDP impact is statistically significant and economically large in size. Furthermore, the GDP and price impact erodes when immigrants get older, or when they stay in the host country beyond a certain period of time. However, home countries’ unemployment rates and exchange rate fluctuations have no impact on immigrants’ well-being. |
| Keywords: | GDP, Unemployment, Inflation, Exchange Rate, Well-being, Immigrants, Australia |
| JEL: | I31 J15 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1502&r=opm |
| By: | Haltmaier, Jane (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Global value chains (GVCs) have grown rapidly over the past several decades. Over the same period, the aggregate value of current account imbalances has risen substantially. This paper looks at whether these developments are related. While there is a sizable literature that has documented the rise of global production networks, there have been few attempts to assess the potential effect on global imbalances. The paper uses measures of GVCs developed in the literature in panel regressions to assess the effect on global imbalances over the period 1995-2011. It is argued that these variables should be entered as a product rather than individually and that they should be lagged, not contemporaneous with the change in current account balances. The results suggest that GVC position weighted by participation and trade share is negatively related to a country's current account balance, i.e., moving upstream in the production process is negative for a country's current account. However, the effects on global imbalances over the period studied appear to be small. |
| Keywords: | Global value chains; current account balances |
| JEL: | F1 F4 |
| Date: | 2015–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1154&r=opm |
| By: | Odhiambo, Nicholas M.; Njindan Iyke , Bernard |
| Abstract: | In this paper, we have examined the validity of the PPP hypothesis for two Southern African countries, namely: Lesotho and Zambia. We have utilized four econometric tests to examine the existence of the PPP hypothesis in Lesotho and Zambia. These tests include two unit root tests without structural breaks???the DF-GLS test and the Ng-Perron test; and two unit root tests with structural breaks???the Perron test and the Zivot-Andrews test. We extracted the data on the real exchange rate for Lesotho, and for Zambia, from the Penn World Tables, version 7.1, which is compiled by Heston et al. (2012). We found that the PPP hypothesis was supported in the case of Lesotho, but rejected in the case of Zambia. The implication of this finding is that Lesotho is unlikely to profit immensely from trade and investment arbitrages, whereas Zambia is more likely to profit immensely from trade and investment arbitrages, by trading with the US. |
| Keywords: | Exchange Rates, Purchasing Power Parity, Lesotho and Zambia |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:18980&r=opm |
| By: | Catullo, Ermanno; Gallegati, Mauro |
| Abstract: | We developed a multi country agent based simulation model with endogenous incremental technological change. Macroeconomic dynamics derive from simple behavioral and interacting rules defining the actions of adaptive firms, banks and households (Delli Gatti et al., 2008; Riccetti et al., 2014; Caiani et al., 2015). Countries join a currency union with a perfectly integrated good market, while labor and capital are not ex- changed across countries. We observe that credit dynamics are strictly associated to business cycle: phases of credit growth are associated with increasing leverage and connectivity that creates the conditions for crisis. Moreover, we tested the effects of different fiscal regimes on output dynamics, showing that in a common currency area restrictive fiscal regimes may increase country inequality and systemic vulnerability. Inequality between countries derives from differences in technological progress patterns which open competitiveness gaps. Conversely, in fiscal regimes where public deficits are excessively high the public debt burden tends to increase transferring risk from the private sector to the public one. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:50&r=opm |
| By: | Fratianni, Michele; Giri, Federico |
| Abstract: | The great depression of 1929 and the great financial crisis of 2008 have been the two big events of the last 75 years. Not only have they produced serious economic consequences but they also changed our view of economics and policymaking. The aim of this work is to compare these two great crises and highlight similarities as well as differences. Monetary policy, the exchange rate system and the role of the banks are our fields of investigation. Our findings are that two big events have more similarities than dissimilarities. |
| Keywords: | Great Depression,Great Financial Crisis,gold standard,Eurozone,money multiplier,shadow banking |
| JEL: | E5 E31 E42 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:51&r=opm |
| By: | Njindan Iyke, Bernard |
| Abstract: | We assess the robust macro determinants of the real exchange rate in Mauritius under model uncertainty by utilizing Bayesian Model Averaging (BMA). We introduce a broader range of potential macro determinants of the real exchange rate in Mauritius. Then we tackle the issue of model uncertainty when identifying these macro determinants of the real exchange rate by exploring the impact of different priors on the model size, and different priors on model coefficients on the posterior estimates. We identify the real money supply, and the real productivity to be the robust macro determinants of the real exchange rate in Mauritius. Their coefficient signs are also theoretically consistent. The real money supply impact on the real exchange rate negatively, whereas the real productivity impact on it positively. Our results remain robust to different priors on the model size, and to different priors on model coefficients. |
| Keywords: | Model Uncertainty, Bayesian Model Averaging (BMA), Macro Determinants, Real Exchange Rate, Mauritius |
| JEL: | C11 C63 F31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68968&r=opm |
| By: | Davide Romelli (Essec Business School, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - Université de Cergy Pontoise); Cristina Terra (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - Université de Cergy Pontoise, Essec Business School); Enrico Vasconcelos (Banco Central do Brasil) |
| Abstract: | This article investigates the impact of trade openness on the relationship between current account and real exchange rates, during episodes of sudden stops and of abrupt exchange rate depreciations. Using data for developed and emerging economies for the period 1970-2011, we nd that more open economies are associated with lower exchange rate depreciations during sudden stops. We also provide evidence that, during abrupt exchange rate depreciation episodes, economies that are more open to trade experience a larger change in current account and trade balance. In other words, our results indicate that improvements in current account and trade balance are accompanied by a smaller exchange rate depreciation in more open economies. These fi ndings are robust to di fferent measures of openness to trade and methodologies of identifying sudden stops and abrupt exchange rate depreciations. |
| Keywords: | trade openness, sudden stops, exchange rate depreciation |
| Date: | 2015–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01247628&r=opm |
| By: | Orazio P. Attanasio; Andrea Bonfatti; Sagiri Kitao; Guglielmo Weber |
| Abstract: | This paper studies the effect of demographic transitions on the economy of Latin America and the Caribbean (LAC). The paper builds a model of multi-regions of the world and derives the path of macroeconomic variables including aggregate output, capital, labor and the saving rate as economies face a rapid shift in demographics. The timing and the extent of the demographic transition differ across regions. The model is simulated under both closed economy and open economy assumptions to quantify the roles played by factor mobility across regions in shaping capital accumulation and equilibrium factor prices. |
| Keywords: | Economic Development & Growth, Income, Consumption & Saving, Interest rates, Wages, Social Security, Capital flows, Capital flows, Demographic trends, Latin America and the Caribbean (LAC) |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:89358&r=opm |
| By: | Florian Huber (Department of Economics, Vienna University of Economics and Business); Daniel Kaufmann (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | We estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. The estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered. The model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment. |
| Keywords: | Exchange rate models, trend inflation, natural rate of unemployment, Taylor rule, unobserved components stochastic volatility model |
| JEL: | F31 E52 F41 C5 E31 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp214&r=opm |