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on Open Economy Macroeconomics |
| By: | Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean |
| Abstract: | This paper uses a data set covering the universe of French firm-level sales, imports, and exports over the period 1993-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix 2011), and most likely to be internationally connected. This implies that foreign shocks are transmitted to the domestic economy primarily through the largest firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level, heterogeneity across firms predominates: 40-85 percent of the impact of foreign fluctuations on French GDP is accounted for by the “foreign granular residual”—the term capturing the fact that larger firms are more affected by the foreign shocks. At the macro level, firm heterogeneity dampens the impact of foreign shocks, with the GDP responses 10-20 percent larger in a representative firm model compared to the baseline model. |
| Keywords: | granularity; shock transmission; aggregate fluctuations; input linkages; international trade |
| JEL: | E32 F15 F23 F44 F62 L14 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89060&r=all |
| By: | Ayobami E. Ilori; Juan Paez-Farrell; Christoph Thoenissen |
| Abstract: | The domestic and international transmission mechanism of fiscal policy shocks are analysed in large developed economies. Using a Bayesian VAR approach, we find that fiscal expansions are associated with increases in output, private consumption and, in many cases, with an increase in private investment. The terms of trade, which affect the international transmission of fiscal policy shocks, are found to depreciate in response to a fiscal expansion, thus transferring some of the increased domestic purchasing power abroad. A US government spending shock is expansionary for all non-US G7 members. A German government spending shock is expansionary for most, but not all European economies, both within and outside the Euro Area. The dynamics of the BVAR are rationalise using a dynamics stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints. |
| Keywords: | Fiscal policy, Bayesian VAR, DSGE modelling, International business cycles, spillovers |
| JEL: | E62 F41 F42 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-95&r=all |
| By: | Chanelle Duley; Prasanna Gai |
| Abstract: | We extend the canonical global game model of currency crises to allow for macroeconomic tail risk. The exchange rate peg is attacked if fundamentals reach a critical threshold, or if there is a sufficiently large public shock. Large shocks generate doubt amongst investors about both the state of the world and about what others know, giving rise to multiple equilibria. We ï¬ nd a non-monotonic relationship between tail risk and the probability of (a fundamentals-based) crisis and show how this effect depends on the magnitude and direction of public shocks. Our analysis sheds new light on the way in which international ï¬ nancial contagion played a part in the sterling crisis of 1931. |
| Keywords: | Global games, currency crises, rank beliefs, inter-war gold standard, sterling crisis of 1931 |
| JEL: | F31 G01 E44 N24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:520&r=all |
| By: | Serdar Kabaca; Renske Maas; Kostas Mavromatis; Romanos Priftis |
| Abstract: | This paper explores the optimal allocation of government bond purchases within a monetary union, using a two-region DSGE model, where regions are asymmetric with respect to economic size and portfolio characteristics: the extent of substitutability between assets of different maturity and origin, asset home bias, and steady-state levels of government debt. An optimal quantitative easing (QE) policy under commitment does not only reflect different region sizes, but is also a function of these dimensions of portfolio heterogeneity. By calibrating the model to the euro area, we show that optimal QE favors purchases from the smaller region (Periphery instead of Core), given that the former faces stronger portfolio frictions. A fully optimal policy consisting of both the short-term interest rate and QE lifts the monetary union away from the zero lower bound faster than an optimal interest rate policy alone, which entails forward guidance. |
| Keywords: | Optimal monetary policy; quantitative easing; monetary union; DSGE model; portfolio rebalancing; zero lower bound |
| JEL: | E43 E52 E58 F45 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:697&r=all |
| By: | Edouard Mien (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Despite a large number of empirical studies on Dutch disease in developing countries and the evidence that oil revenues tend to appreciate the real exchange rate, there remains little discussion about the definition of real exchange rates. This article intends to fill this gap by using four different proxies of the real exchange rate, differentiating the internal and the external real exchange rates for agricultural and manufacturing sectors. Using Pooled-Mean-Group and Mean-Group estimates on a panel of nine African net oil-exporting countries, results show a clear appreciation of the RER generated by oil revenues except for the internal real exchange rate for manufacturing goods. This could imply that oil revenues more clearly affect agricultural compared to manufacturing competitiveness in these African countries. |
| Keywords: | Dutch disease,Africa,Equilibrium real exchange rate,Pooled Mean Group Estimator,Oil revenues |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03013571&r=all |
| By: | Kirchner, Markus; Rieth, Malte |
| Abstract: | This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilisation policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplication between default beliefs, exchange rate and inflation movements. We then use the estimated model to study the implications of sovereign risk for stability, fiscal and monetary policy, and their interaction. We find that a relatively strong fiscal feedback from deficits to taxes, some exchange rate targeting, or a monetary response to default premia are more effective and efficient stabilisation tools than hawkish inflation targeting. |
| Keywords: | small open economies,sovereign risk,monetary policy,exchange rates,business cycles,DSGE models |
| JEL: | E58 E63 F41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:222020&r=all |
| By: | Fratzscher, Marcel; Heidland, Tobias; Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik |
| Abstract: | We construct a novel database of monthly foreign exchange interventions for 49 countries over up to 22 years. We build on a text classification approach that extracts information about interventions from news articles and calibrate our procedure to data about actual interventions. Our new dataset allows us to document stylized facts about the use of foreign exchange interventions for countries that neither publish their data nor make them available to researchers. Moreover, we show that foreign exchange interventions are used in a complementary way with capital controls and macroprudential regulation. |
| Keywords: | foreign exchange intervention,capital controls,macroprudential regulation,international capital flows |
| JEL: | F31 F33 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2171&r=all |