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on Open Economy Macroeconomics |
| By: | Cole, Alexandre Lucas; Guerello, Chiara; Traficante, Guido |
| Abstract: | We build a two-country New-Keynesian DSGE model of a Currency Union to study the effects of fiscal policy coordination, by evaluating the stabilization properties and welfare implications of different fiscal policy scenarios. Our main findings are that a government spending rule which targets the net exports gap rather than the domestic output gap produces more stable dynamics and that consolidating government budget constraints across countries with symmetric tax rate movements provides greater stabilization. A key role is played by the trade elasticity which determines the impact of the terms of trade on net exports. In fact, when goods are complements, the stabilization properties of coordinating fiscal policies are no longer supported. These findings point out to possible policy prescriptions for the Euro Area: to coordinate fiscal policies by reducing international demand imbalances, either by stabilizing trade flows across countries or by creating some form of Fiscal Union or both. |
| Keywords: | Fiscal Policy, International Policy Coordination, Monetary Union, New Keynesian |
| JEL: | E12 E62 E63 F42 F45 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97380&r=all |
| By: | Luisito Bertinelli; Olivier Cardi; Romain Restout |
| Abstract: | Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition effects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a permanent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the increase in traded TFP are those where capital relative to labor efficiency increases. |
| Keywords: | Sectoral technology shocks, factor-augmenting efficiency, Open economy, Labor reallocation across sectors, CES production function, Labor income share |
| JEL: | E22 F11 F41 F43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:283847880&r=all |
| By: | Breinlich, Holger (University of Surrey); Leromain, Elsa (UC Louvain); Novy, Dennis (University of Warwick and CAGE, Department of Economics); Sampson, Thomas (London School of Economics) |
| Abstract: | This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after there ferendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions. |
| Keywords: | Brexirt ; Exchange Rate Pass-through ; Import Costs ; Inflation |
| JEL: | E31 F15 F31 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1234&r=all |
| By: | Alam, Kazi Ashraful; Uddin, Gazi Salah; Alam, Md. Mahmudul (Universiti Utara Malaysia) |
| Abstract: | The paper examines the existence of the Purchasing Power Parity (PPP) theory for both Bangladesh and its two important trading partners- India and China. The PPP theory is an attempt to explain and perhaps more importantly measure statistically, the equilibrium rate of exchange and its variation by means of the price levels and their variations in different countries. The main purpose of the study is to get a comparative picture of trade balance between Bangladesh (home country) and two major trade partners, i.e. India and China (foreign countries) over a given period of time by using the PPP . The empirical results of the study provides an explanation of how relative inflation rates (changes of price level) between two countries can influence an exchange rate and also critically focuses on the degree of deviation between countries which may help to draw a forecast long-run movements in exchange rates. Finally the results also specify about the trade patterns among the countries and fairly conclude the efficient and beneficial trade partner in respect of Bangladesh with India and China. |
| Date: | 2019–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:4rcgw&r=all |
| By: | Soyoung Kim; Aaron Mehrotra |
| Abstract: | In this paper, we provide empirical evidence about the broader macroeconomic effects of macroprudential policies and the underlying transmission mechanism, as well as the response of macroprudential policy to financial risks. To this end, we use structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies. We show that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. Moreover, while positive credit shocks are generally met with tighter macroprudential policy, macro-financial country characteristics such as the exchange rate regime and the level of financial development affect the policy response. |
| Keywords: | macroprudential policy, monetary policy, credit, macroeconomic effect, macroprudential policy response |
| JEL: | E58 E61 G28 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:825&r=all |
| By: | Coman, Andra; Lloyd, Simon P. |
| Abstract: | We examine whether emerging market prudential policies help to reduce the macrofinancial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Loan-to-value ratio limits and reserve requirements appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs. JEL Classification: E52, E58, E61, F44 |
| Keywords: | international spillovers, local projections, monetary policy, policy interactions, prudential policy |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192339&r=all |
| By: | Chen, Natalie (University of Warwick and CAGE, Department of Economics); Juvenal, Luciana (International Monetary Fund) |
| Abstract: | We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality. |
| Keywords: | Distance ; export unit values ; heterogeneity ; markups ; quality; tariffs ; trade costs ; wine. |
| JEL: | F12 F14 F31 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1233&r=all |
| By: | Niels-Jakob H Hansen; Signe Krogstrup |
| Abstract: | Koreas cross border capital flows have tended to respond negatively in global risk-off episodes, resulting in volatility in the foreign exchange market and occasional policy responses in the form of foreign exchange interventions. We study the relationship between Korean capital flows and global volatility up to 2018. The response of capital flows during risk-off episodes have become more muted over time, and occasional safe-haven type flows into Korean bond markets have helped counterbalance the tendency for portfolio investors to leave. We describe these changing patterns and relate them to shifts in Korea’s domestic investor base. We discuss whether they reflect a sustained shift in the sensitivity of Koreas capital flow pressures to global risk-off episodes, and implications for monetary and exchange rate policies. |
| Date: | 2019–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/262&r=all |
| By: | Kamel Malik Bensafta (Université de Hassiba Ben Bouali Chlef) |
| Abstract: | In this paper, we are interested in estimating the exchange-rate pass-through impact of the US dollar on Algerian imports; an impact of particular importance when it comes to imports emanating from the Eurozone. In 2015, half of the Algerian imports from the euro area were denominated in the European currency. In contrast, Algerian foreign exchange earnings emanate exclusively from hydrocarbon exports, and are hence denominated in US dollars. Our estimates show that a depreciation of the US dollar vis-à-vis the euro results in a significant and proportionate increase in Algerian imports from the Eurozone. This impact is greater in the case of imports emanating from Spain, Germany and Belgium. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01771863&r=all |
| By: | Beatrice D. Scheubel; Livio Stracca; Tille Cedric |
| Abstract: | We add to the literature on the influence of the global financial cycle (GFC) and gyrations in capital flows. First, we build a new measure of the GFC based on a structural factor approach, which incorporates theoretical priors in its definition. This measure can also be decomposed in a price-based and quantity-based version of the GFC, which is novel in the literature. Second, we compare our measure to other common existing indicators of the GFC. Third, we estimate the influence of the fluctuations in the GFC on capital flow episodes (sudden stops, flights, retrenchments, surges) and currency crises, also testing for its stability and linearity. We find that the nexus between the GFC and capital flow episodes is generally consistent and not very wobbly. In line with theoretical priors, we find some evidence that the GFC is more important for sudden stops when it is more negative, i.e. the relationship is (mildly) convex, in keeping with a role for occasionally binding constraints, but the evidence for this feature is not strong. |
| Keywords: | capital flows, global financial cycle, push factors, structural factor analysis |
| JEL: | F32 F33 F36 F42 F44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7967&r=all |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This paper discusses some macro links that are missing from trade models. A multicountry macroeconometric model is used to analyze the effects on the United States of increased import competition from China, an experiment that is common in the recent trade literature. In the macro story a fall in Chinese export prices is stimulative. Domestic prices fall, which increases real wage rates and real wealth, which increases household expenditures. In addition, the Fed may lower the interest rate because of the lower prices, which is stimulative. Trade models do not have these channels, and they likely overestimate the negative effects or underestimate the positive effects on total output and employment from increased Chinese import competition. They lack some important aggregate demand channels, which are not likely second order. |
| Keywords: | Trade models, Macroeconomics |
| JEL: | F1 F4 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2214&r=all |