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on Open Economy Macroeconomics |
| By: | Sergio de Ferra; Kurt Mitman; Federica Romei |
| Abstract: | We study the role of heterogeneity in the transmission of foreign shocks. We build a Heterogeneous-Agent New-Keynesian Small Open Model Economy (HANKSOME) that experiences a current account reversal. Households' portfolio composition and the extent of foreign currency borrowing are key determinants of the magnitude of the contraction in consumption associated with a sudden stop in capital inflows. The contraction is more severe when households are leveraged and owe debt in foreign currency. In this setting, the revaluation of foreign debt causes a larger contraction in aggregate consumption when debt and leverage are concentrated among poorer households. Closing the output gap via an exchange-rate devaluation may therefore be detrimental to household welfare due to the heterogeneous impact of the foreign debt revaluation. Our HANKSOME framework can rationalize the observed "fear of floating" in emerging market economies, even in the absence of contractionary devaluations |
| JEL: | E21 F32 F41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26402&r=all |
| By: | Cécile Couharde; Anne-Laure Delatte; Carl Grekou; Valérie Mignon; Florian Morvillier |
| Abstract: | This guidance note outlines the construction and contents of RPROD. This new database developed by CEPII complements the EQCHANGE database, by providing additional measures of the Balassa-Samuelson effect. RPROD delivers the following indicators computed for each country included in the database, and relative to its main trading partners: (i) GDP per capita, (ii) labor productivity, (iii) consumer-price-to-producer-price ratio, (iv) three-sectors' value-added deflator, and (v) six-sectors' value-added deflator. These different measures are publicly available (http://www.cepii.fr/CEPII/fr/bdd_modele/presentation.asp?id=34), with the aim to contribute to the investigation of the Balassa-Samuelson hypothesis, and to the comparison of estimated equilibrium real exchange rates and currency misalignments across alternative proxies of this effect. |
| Keywords: | Balassa-Samuelson;Relative Productivity;Tradables;Non-tradables |
| JEL: | F31 F41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2019-11&r=all |
| By: | Giovannini, Massimo; Hohberger, Stefan; Ratto, Marco; Vogel, Lukas |
| JEL: | E32 F41 F44 F45 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203548&r=all |
| By: | Klug, Thorsten; Mayer, Eric; Schuler, Tobias |
| JEL: | E32 F32 F45 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203523&r=all |
| By: | Colin Davis; Ken-ichi Hashimoto |
| Abstract: | We study the effects of import competition on industry locations patterns in a small open economy with two regions. Domestic productivity growth converges to the international rate through firm-level investment in process innovation. With firms locating production and innovation in their lowest cost locations, the concentration of industry in the larger region is linked with firm-level innovation through an import competition effect that is increasing in the market share of imported goods and the productivity differential of domestic firms with the rest of the world. We show that increased import competition, through either a larger number of imported goods or a faster international rate of productivity growth, leads to greater industry concentration by reducing domestic market entry and decreasing the relative productivity of domestic firms. We also consider the implications of improved regional and international economic integration. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1066&r=all |
| By: | SASAKI Yuri; YOSHIDA Yushi; Piotr Kansho OTSUBO |
| Abstract: | Against the background of the two percent inflation target set in Japan that started in 2013, we investigate the impediments in the process of passing exchange rate fluctuations to the core consumer price index. To this end, we construct industry-level nominal effective exchange rate and industry-level producer price indices, which are matched with the industry classifications used for import price indices. Time-varying parameter vector autoregression analysis reveals that, in general, exchange rate pass-throughs increased, especially after the global financial crisis. Among the pass-throughs that occur at the import price, domestic producer price, and consumer price stages, we find that the weakest link exists between the import price and domestic producer price. However, the impact on the industry is not negligible; the small spillover effect on other industries at the producer price stage prevents consumer prices from rising after depreciation. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19078&r=all |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric R. Young |
| Abstract: | There is a new and now extensive literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses often build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used optimally by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. We establish this in the context of a well-known model economy, but the result is relevant whenever the policy instrument that is assigned to the planner can affect the market price that determines the value of collateral in the borrowing constraint. The result implies that a robust normative analysis in this model class requires explicit computations of the Ramsey optimal policy problem. |
| JEL: | E61 F38 F41 G01 G18 H23 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26397&r=all |
| By: | Prein, Timm |
| JEL: | E44 E62 F34 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203654&r=all |
| By: | Habermeyer, Simone; Egger, Hartmut |
| JEL: | F12 F16 D11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203531&r=all |
| By: | Schön, Matthias |
| JEL: | F21 H55 J11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203527&r=all |
| By: | Gräbner, Claudius; Heimberger, Philipp; Kapeller, Jakob; Schütz, Bernhard |
| JEL: | E14 E6 F15 F4 L52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203487&r=all |
| By: | Alberto Cavallo; Gita Gopinath; Brent Neiman; Jenny Tang |
| Abstract: | We use micro data collected at the border and at retailers to characterize the effects of recent changes in US trade policy -- particularly the tariffs placed on imports from China -- on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to total prices paid by importers, suggesting that incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of China’s renminbi is unlikely to alter this conclusion. Next, using product-level data from several large retailers, we demonstrate that the tariffs’ impact on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers' imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods. |
| JEL: | F01 F13 F14 F4 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26396&r=all |
| By: | Weiske, Sebastian |
| JEL: | E32 E37 E6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203604&r=all |
| By: | Kohl, Miriam; Richter, Philipp |
| JEL: | F12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203581&r=all |
| By: | Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sciences Po., OFCE); Duc Thi Luu (University of Kiel); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School) |
| Abstract: | We propose a novel approach to investigate the synchronization of business cycles and we apply it to a Eurostat database of manufacturing industrial production time-series in the European Union (EU) over the 2000-2017 period. Our approach exploits Random Matrix Theory and extracts the latent information contained in a balanced panel data by cleaning it from possible spurious correlation. We employ this method to study the synchronization among different countries over time. Our empirical exercise tracks the evolution of the European synchronization patterns and identifies the emergence of synchronization clusters among different EU economies. We find that synchronization in the Euro Area increased during the first decade of the century and that it reached a peak during the Great Recession period. It then decreased in the aftermath of the crisis, reverting to the levels observable at the beginning of the 21st century. Second, we show that the asynchronous business cycle dynamics at the beginning of the century was structured along a East-West axis, with eastern European countries having a diverging business cycle dynamics with respect to their western partners. The recession brought about a structural transformation of business cycles co-movements in Europe. Nowadays the divide can be identified along the North vs. South axis. This recent surge in asynchronization might be harmful for the European Union because it implies countries’ heterogeneous responses to common policies. |
| Keywords: | Business Cycle Synchronization, Random Matrix Theory, European Union |
| JEL: | E32 F44 F45 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2019-30&r=all |