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on Open Economy Macroeconomics |
| By: | Dąbrowski, Marek A.; Wróblewska, Justyna |
| Abstract: | We examine the insulating property of flexible exchange rate in CEE economies using the fact that they have adopted different regimes. A set of Bayesian structural VAR models with common serial correlations is estimated on data spanning 1998q1-2015q4. The long-term identifying restrictions are derived from a macroeconomic model. We find that irrespective of the exchange rate regime output is driven mainly by real shocks. Its reactions to these shocks, however, are substantially stronger under less flexible regimes, whereas the responses to nominal shocks are similar. Hence, the insulating property of flexible regimes can reduce the costs from economic shocks. |
| Keywords: | open economy macroeconomics; exchange rate regimes; real and nominal shocks; Bayesian structural VAR; common serial correlation |
| JEL: | C11 E44 F33 F41 |
| Date: | 2019–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93813&r=all |
| By: | Thierry Mayer; Walter Steingress |
| Abstract: | This paper shows that real effective exchange rate (REER) regressions, the standard approach for estimating the response of aggregate exports to exchange rate changes, imply biased estimates of the underlying elasticities. We provide a new aggregate regression specification that is consistent with bilateral trade flows micro-founded by the gravity equation. This theory-consistent aggregation leads to unbiased estimates when prices are set in an international currency as postulated by the dominant currency paradigm. We use Monte-Carlo simulations to compare elasticity estimates based on this new “ideal-REER” regression against typical regression specifications found in the REER literature. The results show that the biases are small (around 1 percent) for the exchange rate and large (around 10 percent) for the demand elasticity. We find empirical support for this prediction from annual trade flow data. The difference between elasticities estimated on the bilateral and aggregate levels reduces significantly when applying an ideal-REER regression rather than a standard REER approach. |
| Keywords: | Econometric and statistical methods; Exchange rates; International topics |
| JEL: | F11 F12 F31 F32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-17&r=all |
| By: | Klug, Thorsten; Mayer, Eric; Schuler, Tobias |
| Abstract: | We investigate for the case of Germany the positive correlation between the corporate saving glut in the non-financial corporate sector and the current account surplus from a capital account perspective. By employing sign restrictions our findings suggest that mostly labor market, world demand and financial friction shocks account for the joint dynamics of excess corporate saving and the current account surplus. Household saving shocks, in contrast, cannot explain the correlation. We conclude that the corporate saving glut, explained through these factors, is the main driver of the current account surplus. |
| Keywords: | current account,corporate saving,macro shocks |
| JEL: | E32 F32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewep:100&r=all |
| By: | Salih Fendoglu; Eda Gulsen; Josè-Luis Peydro |
| Abstract: | We show that global liquidity limits the transmission of local monetary policy on credit markets. For identification, we exploit global liquidity shocks in conjunction with monetary policy changes and exhaustive loan-level data (the credit and international interbank market registers) from a large emerging market, Turkey. We show that softer global liquidity conditions —proxied by lower VIX or expansionary US monetary policy— attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks that borrow ex-ante more from international wholesale markets. Effects are also important for other credit margins and for bank risk-taking —especially for risky borrowers in FX loans. The mechanism at work is via a bank carry trade from international markets when local monetary conditions tighten. |
| Keywords: | Global liquidity, Global financial cycle, Monetary policy transmission, Emerging markets, Banks |
| JEL: | E52 F30 G01 G15 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1913&r=all |
| By: | Fischer, Christoph |
| Abstract: | Equilibrium real exchange rate and corresponding misalignment estimates differ tremendously depending on the panel estimation method used to derive them. Essentially, these methods differ in their treatment of the time-series (time) and the cross-section (space) variation in the panel. The study shows that conventional panel estimation methods (pooled OLS, fixed, random, and between effects) can be interpreted as restricted versions of a correlated random effects (CRE) model. It formally derives the distortion that arises if these restrictions are violated and uses two empirical applications from the literature to show that the distortion is generally very large. This suggests the use of the CRE model for the panel estimation of equilibrium real exchange rates and misalignments. |
| Keywords: | equilibrium real exchange rate,panel estimation method,correlated random effects model,productivity approach,BEER,price competitiveness |
| JEL: | F31 C23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:142019&r=all |