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on Open Economy Macroeconomics |
| By: | Miriam Braig (University of Erfurt); Sebastian K. Rüth (University of Erfurt); Wouter Van der Veken (National Bank of Belgium, Economics and Research Department and Ghent University) |
| Abstract: | We solve a canonical, estimated, medium-sized, open-economy New Keynesian model, cast it into a small-scale population vector autoregression, and assess whether best-practice structural identifications detect textbook “overshooting” after a monetary policy hike—i.e., an instant real appreciation that monotonically reverts. Our results include “delayed overshooting, ” “exchange rate puzzles, ” “forward discount puzzles, ” and model-consistent overshooting. Identifications that regularly indicate open-economy anomalies in empirics likewise produce them in our controlled setup. Vice versa, identifications that prompt theory-conform conclusions in actual data do so in our experimental data. We infer that less empirical evidence may contradict canonical international macro theory than previously understood. |
| Keywords: | New open economy macroeconomics, population vector autoregression, invertibility, structural identification, exchange rate, overshooting. |
| JEL: | C32 E32 E52 F41 F42 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202409-455 |
| By: | Taiyo Yoshimi; Uraku Yoshimoto; Takatoshi Ito; Kiyotaka Sato; Junko Shimizu; Yushi Yoshida |
| Abstract: | This study utilizes the granular Japanese customs data from 2014 to 2020 to examine the exchange rate pass-through (ERPT) to Japanese import prices. It mainly focuses on the impact of the invoicing currency choice on ERPT. The ERPT elasticity in products invoiced in the exporter’s currency is greater than those invoiced in yen. In the full sample analysis, the ERPT elasticity was 0.75 for products invoiced in the exporter’s currency, compared to about 0.19 for yen-invoiced products. We find the same tendency for imports from two Asian powerhouses: China and Thailand. There is no significant difference in the ERPT elasticity between products invoiced in the exporter’s currency and those invoiced in a third currency (i.e., a currency other than yen or the exporter’s currency). In addition, an asymmetric pass-through is found, namely the ERPT during the appreciation phase of the yen is higher than during the depreciation phase. This finding is interpreted that foreign exporters strengthen their pricing-to-market behavior during the yen depreciation phase to maintain their market share. |
| JEL: | F1 F31 F33 F39 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32910 |
| By: | Joshua Aizenman; Jamel Saadaoui |
| Abstract: | We investigate the resilience of CESEE countries during ECB monetary cycles after the entrance of ten countries to the EU in 2004. Undeniably, these countries have experienced a ‘miracle’ growth during the 2000s decade. However, several obstacles appeared following the global financial crisis and the euro crisis. In many CESEE countries, the quality of institutions has stalled, or even worse, has known a deterioration. Our investigation examines how fundamental and institutional variables influence cross-country resilience regarding exchange rates, interest rates, stock prices, inflation, and growth during the subsequent monetary cycles. Specifically, we focus on five ECB tightening and easing cycles observed during 2005-2023. Cross-sectional regressions reveal that limiting inflation, active management of precautionary buffers of international reserves, current account surpluses, better financial development, and institution quality are important predictors of resilience in the next cycle. The panel regressions show that the US shadow rate strongly influences resilience during the ECB monetary cycles. Besides, various asymmetries are discovered for current account balances, international reserves, and fuel import shares during tightening cycles. Panel quantile regressions detect asymmetries along the distribution of the dependent variables for financial development, central bank independence, and the inflation rate preceding the cycles. These findings may provide guidelines that are useful for returning to the trajectory observed before the euro crisis by identifying the main fundamental and institutional variables that enhance the resilience of CESEE. |
| JEL: | E50 F32 F36 F42 F65 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32957 |
| By: | Junko Shimizu (Faculty of Economics, Gakushuin University, Japan / Policy Research Institute, Ministry of Finance, Japan); Kiyotaka Sato (Department of Economics, Yokohama National University, Japan / Policy Research Institute, Ministry of Finance, Japan); Takatoshi Ito (School of International and Public Affairs, Columbia University, USA / NBER / National Graduate Institute for Policy Studies, Japan); Yushi Yoshida (Faculty of Economics, Shiga University, Japan / Policy Research Institute, Ministry of Finance, Japan); Taiyo Yoshimi (DFaculty of Economics, Chuo University, Japan / Policy Research Institute, Ministry of Finance, Japan); Uraku Yoshimoto (Policy Research Institute, Ministry of Finance, Japan) |
| Abstract: | In this study, we use microdata from Japanese customs declarations and calculate semiannual invoice currency shares by country, both on a value and transaction basis. From country-level data, we can confirm the following: First, the impression that Japan’s trade is biased toward the U.S. dollar (USD) is mainly due to choices in the U.S., China, and resource-rich countries with large trade volumes. Second, the yen invoicing is selected on a value basis and an even larger transaction number basis, and the local currency invoicing is also used on a bilateral country basis. Third, the choice of invoice currency has changed in recent years. From 2014 to 2020, the USD lost the most shares, falling in 23 of the 34 countries. By conducting an empirical analysis exploring the determinants of invoice currency, our main findings confirm that the intermediate goods trade share has the effect of reducing Yen and increasing USD invoicing in export, while the higher the inflation gap, the more likely one is to use USD invoicing, which suggests that Japanese firms will be further exposed to foreign exchange risk in the future. |
| Keywords: | Invoice currency share, Customs data, Trading partner |
| JEL: | F23 F31 F33 |
| URL: | https://d.repec.org/n?u=RePEc:mof:wpaper:ron374 |
| By: | Domenico Delli Gatti; Tommaso Ferraresi; Filippo Gusella; Lilit Popoyan; Giorgio Ricchiuti; Andrea Roventini |
| Abstract: | We extend the multi-country, multi-sector agent-based model in Dosi et al. (2019, 2021) by incorporating an exchange rate market where heterogeneous chartist and fundamentalist financial traders exchange foreign currencies. This introduces complex interactions between the real and financial side of the economies that reverberate on the dynamics of the exchange rate, which acts both as a transmission channel of endogenous fluctuation and as a source of shocks. Simulation results show that model is able to account for a rich ensemble of stylized facts (e.g., fat tails, volatility clustering, fluctuations and contagion among others) concerning the exchange market and its interactions with the real economy dynamics at different level of aggregation. Moreover, our findings reveal that speculative behavior in the exchange rate market substantially increases financial turbulence and contributes to real economic fluctuations. On the policy side, we highlight the power and limitations of central bank interventions in the exchange rate market. |
| Keywords: | agent-based model, exchange rate dynamics, financial crises, endogenous business cycles, heterogeneous traders, central bank interventions |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:ssa:lemwps:2024/24 |
| By: | Gilles Paché (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon) |
| Abstract: | It is now widely recognized that geopolitical tensions disrupt global supply chains, complicating trade flows and increasing the risk associated with logistics operations. The South China Sea, a strategic and disputed region of the world, is a perfect illustration of the stakes involved in these disruptions. Situated between several Asian countries, the region is crucial to world trade, but is subject to territorial conflicts, notably between China and Taiwan. Its increasing militarization and abundance of natural resources exacerbate geopolitical tensions, given that the South China Sea is vital for the transportation of goods, linking Asian, European and American markets. My speculative paper looks at the possible collapse of certain global value chains under the pressure of geopolitical tensions, leading to the emergence of a logistically multipolar planet. |
| Keywords: | Economic history, Geopolitics, Global supply chains, Logistical disruptions, South China Sea, Territorial disputes, Economic history Geopolitics Global supply chains Logistical disruptions South China Sea Territorial disputes |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04683314 |
| By: | Costa, Rui; Dhingra, Swati; Machin, Stephen |
| Abstract: | This paper studies consequences of the large exchange rate depreciation occurring when the UK electorate unexpectedly voted to leave the European Union. Sterling plummeted, recording the biggest one-day depreciation of any of the world's four major currencies since Bretton Woods. The prospect of Brexit happening generated sizable differences in how much sterling depreciated against different currencies. Coupled with pre-referendum cross-country trade patterns, this generated variations in exchange rates facing businesses in different industries. The paper offers evidence of a cost shock from the prices of intermediate imports rising by more in higher depreciation industries, but with no revenue offset from exports. Workers were impacted by these increased cost pressures, not in terms of job loss but through relative real wage declines in higher depreciation, larger cost shock industries. This resulted in an aggregate fall in real wage growth of 3 to 3.6% cumulatively over the three years after the referendum. |
| Keywords: | Brexit; exchange rate depreciation; trade prices; Labour outcomes |
| JEL: | J1 |
| Date: | 2024–11–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:124542 |
| By: | Beckmann, Joscha; Czudaj, Robert L.; Murach, Michael |
| Abstract: | The objective of this paper is to analyze the macroeconomic effects of media coverage related to the trade conflict between China and the U.S. for selected countries of the European Union. Our main aim is to evaluate whether media coverage constitutes a relevant transmission channel for macroeconomic effects. We evaluate the response of survey-based macroeconomic expectations, stock prices, and realized industrial production. Our analysis focuses on Germany, France, Italy, and Spain in order to allow for heterogeneous effects across major EU countries. We find significant effects on expectations, stock prices, and industrial production. Especially, a significantly negative effect on current account expectations is observed for three of the four considered EU countries (Germany, Italy, and Spain). |
| Keywords: | China, Current account, EU, Expectations, Trade war |
| JEL: | F32 F41 F43 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121751 |
| By: | Carlos Canizares Martinez (National Bank of Slovakia); Arne Gieseck (European Central Bank) |
| Abstract: | This paper estimates the effects of uncertainty shocks on a large set of economic and financial variables in the euro area. For this purpose, we first build a large monthly macro dataset with euro area-wide data, which we summarize by principal components. Second, we estimate a heteroskedastic factor-augmented vector autoregressive (FAVAR) model using a survey-based measure of macroeconomic uncertainty and a large dataset. Third, we identify five shocks by employing a new identification scheme based on sign restrictions exploiting our large dataset, including uncertainty shocks, financial shocks, standard monetary policy shocks, aggregate demand shocks, and supply shocks. Fourth, we show more than one hundred impulse responses to an uncertainty shock. In this setup, we find that an uncertainty shock has a significantly negative effect on economic activity measures in the euro area, but has no significant effect on savings and inflation. Moreover, uncertainty shocks trigger a contractionary effect on several measures of financial stability. Finally, we discuss the results and possible policy implications |
| JEL: | C55 D80 D81 E32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1109 |
| By: | Bondarenko, Yevheniia; Lewis, Vivien; Rottner, Matthias; Schüler, Yves |
| Abstract: | Geopolitical risk cannot be measured in a universal way. We develop new geopolitical risk indicators relying on local newspaper coverage to account for different perceptions. Using Russia as a case study, we demonstrate that geopolitical risk shocks identified from local news sources have significant adverse effects on the Russian economy, whereas geopolitical risk shocks identified from English-language news sources do not. We control for restricted press freedom by analyzing state-controlled and independent media separately. Employing a novel Russian sanctions index, we illustrate that geopolitical risk shocks propagate beyond the sanctions channel. Still, sanctions worsen the inflationary impact of geopolitical risk shocks substantially. |
| Keywords: | geopolitical risk, risk perceptions, Russia, sanctions, shock transmission |
| JEL: | E32 E44 E71 F44 F51 G41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:302558 |
| By: | Christensen, Jens H. E. (Federal Reserve Bank of San Francisco); Mirkov, Nikola (Belgrade Banking Academy); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have affected the supply of safe assets by buying quasi-safe bonds in exchange for truly safe reserves. We examine the pricing effects of the European Central Bank’s bond purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to an important international spillover channel of QE programs to bond safety premia that operates by increasing the amount of truly safe assets. |
| Keywords: | term structure modeling; convenience yields; unconventional monetary policy; European Central Bank |
| JEL: | E43 E47 F42 G12 G13 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0440 |