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on Open Economy Macroeconomics |
| By: | Carlos Carvalho; Andrea Ferrero; Felipe Mazin; Fernanda Nechio |
| Abstract: | We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country's real interest rate depend on its own and other countries' demographic factors, given a certain degree of financial integration. The more financially integrated a country is, the higher the sensitivity of its real interest rate to global developments is, and the less its own real rate determinants matter. We then estimate panel error correction models relating real interest rates to many of its possible determinants-demographics included-imposing some restrictions motivated by lessons from our structure model. Results corroborate the importance of accounting for time-varying financial integration, and show global factors and life expectancy are relevant determinants of real interest rates. |
| Keywords: | life expectancy; population growth; demographics; real interest rates; neutral rate; capital flows; secular stagnation |
| JEL: | E52 E58 J11 A11 |
| Date: | 2023–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97243&r=opm |
| By: | Beckmann, Joscha; Czudaj, Robert L. |
| Abstract: | This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding gross domestic product (GDP) growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with, a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule. |
| Keywords: | disagreement, expectations, foreign exchange, survey data, Taylor rule, Turkish lira, uncertainty |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:279397&r=opm |
| By: | Mahmood, Asif; Asif, Hashaam |
| Abstract: | Pakistan is largely considered as having balance of payments constrained economy. These constraints become more intense when external shocks hit, such as unfavorable changes in the country’s external terms-of-trade. In this paper, we attempt to document the cost to the economy when sailing through such shocks. Empirical estimates show substantial external adjustment takes place after the terms-of-trade bust in case of Pakistan. These adjustments largely work through income effect as the role of expenditure switching effect is estimated to be lower, though overtime increasing. Our main finding is about the cost to the domestic output when such shocks hit, which we call a sacrifice ratio. We find this impact is quite large, albeit decreasing overtime. We also find that the role of exchange rate policy is an important determinant of how large that sacrifice ratio will be. From the policy perspective, including monetary policy, these are important findings as they provide insights to policymakers about choices they can make during the stress times. |
| Keywords: | Pakistan, Terms-of-trade, External adjustment, Growth |
| JEL: | E32 E65 F41 |
| Date: | 2023–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118726&r=opm |
| By: | Mr. Serhan Cevik |
| Abstract: | Are we really witnessing the death of globalization? A multitude of shocks over the past three years has unsettled the conventional wisdom on economic integration and fueled widespread calls for protectionist and nationalist policies. Using an extensive dataset with more than 4 million observations, I develop an augmented gravity model of bilateral trade flows among 59, 049 country-pairs over the period 1948–2021 and find that the much-debated geopolitical alignment between countries has contradictory and statistically insignificant effects on trade, depending on the level of economic development. Moreover, the economic magnitude of this effect is not as important as income or geographic distance and it diminishes significantly when extreme outliers are removed from the sample. The empirical analysis presented in this paper also confirms that the level of income in both origin and destination countries has a positive impact on trade, while the greater the distance between countries, the smaller the flow of bilateral trade due to higher trade costs. Cultural similarities and historical ties are also important in shaping trade flows, just like trade agreements that tend to lead to higher level of international trade. |
| Keywords: | Globalization; international trade; gravity model; geopolitics |
| Date: | 2023–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/225&r=opm |
| By: | Lidia Smitkova |
| Abstract: | This paper investigates the role of trade in driving structural change. First, I develop a decomposition that attributes change in manufacturing shares to adjustments along three margins: international sourcing decisions, sectoral expenditure shares, and aggregate trade deficits. Using a structural model, I interpret these as endogenous responses to exogenous shocks. Applying the decomposition to data from twenty economies between 1965 and 2011, I find that 40% of the observed change in manufacturing shares was due to specialization subject to comparative advantage and compositional effects arising from international borrowing. Moreover, these mechanisms were key in driving the cross-country heterogeneity and changes in the composition of aggregate manufacturing. Finally, I use counterfactual analysis to inspect two popular narratives that link trade and industrialization. My results show that the competition with China has resulted in a world-wide squeeze in manufacturing shares, and that in South Korea, trade specialization was responsible for both its rapid industrialization, and the shift towards high-technology manufacturing. |
| Date: | 2023–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1017&r=opm |
| By: | Lodge, David; Manu, Ana-Simona; Van Robays, Ine |
| Abstract: | Using daily data since 2017, we disentangle China-specific structural shocks driving Chinese financial markets and examine spillovers across global markets. The novelty of this paper consists of simultaneously identifying China shocks with shocksemanating from the United States and shocks to global risk sentiment – two major forces driving global financial markets – to ensure that China spillover estimates do not reflect common factors. Our results show that shocks originating in China havematerial impacts on global equity markets, although spillovers are much smaller than those following shocks in the United States, or those triggered by shifts in global risk sentiment. By contrast, shocks from China account for a significant proportion of variation in global commodity prices, more on a par with those of the United States. Nevertheless, spillovers from China can be significantly amplified in an environment of heightened global volatility, or when the shocks are large. JEL Classification: E44, E52, G15 |
| Keywords: | China shocks, commodities, global financial markets, spillovers |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232861&r=opm |
| By: | Felix Bracht; Jeroen Mahieu; Steven Vanhaverbeke |
| Abstract: | We examine if a startup's legal form choice is used as a signal by credit providers to infer its risk to default on a loan. We propose that choosing a legal form with low minimum capital requirements signals higher default risk. Arguably, small relationship banks are more likely to use legal form as a screening device when deciding on a loan. Using data from Orbis and the IAB/ZEW Start-up Panel for a sample of German firms, we find evidence consistent with our hypotheses but inconsistent with predictions of several competing explanations, including differential demand for debt or growth opportunities. |
| Keywords: | Legal form, Minimum Capital Requirements, Signaling, Access to Debt, Financial Constraint |
| Date: | 2022–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:052&r=opm |