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on Open Economy Macroeconomics |
| By: | Raphael Auer; Ariel Burstein; Sarah M Lein; Jonathan Vogel |
| Abstract: | What are the unequal effects of changes in consumer prices on the cost of living? In the context of changes in import prices, most analyses focus on variation across households in initial expenditure shares on imported goods. However, the unequal welfare effects of non-marginal foreign price changes also depend on differences in how consumers substitute between imported and domestic goods, on which there is scant evidence. Using data from Switzerland surrounding the 2015 appreciation of the Swiss franc, we provide evidence that lower income households have higher price elasticities. These differences in elasticities contribute significantly to the unequal welfare effects of large import price changes. |
| Keywords: | expenditure switching, large exchange rate shocks, gains from trade. |
| JEL: | E3 F1 F41 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1001&r= |
| By: | Deniz Igan; Alexandre R. Lauwers; Damien Puy |
| Abstract: | Does foreign capital improve the quality of domestic institutions? Consistent with an institutional quality channel of capital flows, we show that industries that are more dependent on "good" institutions to operate grow more than others after foreign capital flows into the private sector. The effects are stronger in countries that are further away from the institutional frontier (e.g., emerging markets), but they disappear and even turn negative in countries with very low initial institutional quality, suggesting that foreign capital inflows can exacerbate the ex-ante institutional deficit. We also find that institution-dependent industries grow less when capital flows to the official sector. Our findings support the view that foreign investors can be, under certain conditions, a catalyst for institutional reform and that the relaxation of government budget constraints generally weakens structural reform incentives. |
| Keywords: | capital flows, institutions, manufacturing, institutional dependence. |
| JEL: | F33 F60 G15 E02 O43 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:994&r= |
| By: | Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto |
| Abstract: | We study how capital controls and domestic macroprudential policy tame credit supply booms, respectively targeting foreign and domestic bank debt. For identification, we exploit the simultaneous introduction of capital controls on foreign exchange (FX) debt inflows and an increase of reserve requirements on domestic bank deposits in Colombia during a strong credit boom, as well as credit registry and bank balance sheet data. Our results suggest that first, an increase in the local monetary policy rate, raising the interest rate spread with the United States, allows more FX-indebted banks to carry trade cheap FX funds with more expensive peso lending, especially toward riskier, opaque firms. Capital controls tax FX debt and break the carry trade. Second, the increase in reserve requirements on domestic deposits directly reduces credit supply, and more so for riskier, opaque firms, rather than enhances the transmission of monetary rates on credit supply. Importantly, different banks finance credit in the boom with either domestic or foreign (FX) financing. Hence, capital controls and domestic macroprudential policy complementarily mitigate the boom and the associated risk-taking through two distinct channels. |
| Keywords: | Capital controls; macroprudential and monetary policy; carry trade; credit supply; risk-taking |
| JEL: | E52 E58 F34 F38 G21 G28 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1816&r= |
| By: | Edouard Mien (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); M Goujon (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This paper surveys the literature on the "Dutch disease" caused by natural resources revenues in developing countries. It describes the original model of Dutch disease and some important extensions proposed in the theoretical literature, focusing on the ones that meet the developing countries' conditions. It then reviews the main empirical studies that have been conducted since the 1980s, aiming to understand the methodological issues and to highlight the current gaps in the literature. There is evidence that the Dutch disease is still a topical issue for many developing countries, particularly in Africa. However, there remains large gaps in the theoretical and empirical literature in the understanding of the most adequate policy instruments to cope with, specifically in the least developed countries that are new producers of commodities. |
| Keywords: | Dutch disease,Natural resources,Resource curse,Structural transformations,Real exchange rate |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cdiwps:hal-03256078&r= |
| By: | Muysken, Joan (UNU-MERIT, SBE Maastricht University, and CofFEE-Europe); Meijers, Huub (UNU-MERIT, SBE Maastricht University) |
| Abstract: | The Dutch economy is a small open economy. Due to its persistent large current account surplus, the Dutch net foreign assets have been increasing over time. The financial sector is dominated by special purpose vehicles created for tax reasons. The financial assets and liabilities of these vehicles are issued or held abroad, amounting to around 500 per cent of GDP. The remaining part of the financial sector has almost doubled in size relative to GDP over the past 25 years. While the growth of the banking sector stagnated since the financial crisis, the financial sector continued to grow because of the presence of a funded pension system. We analyse these developments using insights from stock flow consistent models for the Dutch economy that we have developed earlier. This analysis also enables us to highlight the role monetary policy played in facilitating and stimulating the growth of financialisation. |
| Keywords: | globalisation, financialisation, quantitative easing, stock-flow consistent modelling |
| JEL: | E44 B5 E6 F45 G21 G32 |
| Date: | 2022–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2022006&r= |