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on Open Economy Macroeconomics |
| By: | Thiel, Luzie; Schwanebeck, Benjamin |
| JEL: | E50 E52 E58 E61 F41 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302405 |
| By: | Bernoth, Kerstin; Herwartz, Helmut; Trienens, Lasse |
| Abstract: | Using a data-driven identification approach of structural vector autoregressive models, we analyse the factors driving the US dollar exchange rate for a sample of eight advanced countries over the period 1980M1 to 2022M6. We find that the exchange rates are significantly affected not only by US monetary policy, but also by shocks to inflation expectations associated with shifts in fiscal sustainability concerns. In addition, external shocks related to global risk aversion and the convenience yield that investors are willing to give up to hold US dollar assets have a significant impact on the US dollar exchange rate. All three shocks considered make an important contribution to explaining US dollar exchange rate changes, with external shocks being the most impactful on average. Moreover, we find evidence that the monetary policy response to shocks to long-run inflation expectations has changed over time, suggesting shifts in monetary policy reaction functions. |
| JEL: | E52 C32 E43 F31 G15 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302351 |
| By: | Pablo Aguilar Perez |
| Abstract: | This paper examines the global spillovers of US monetary policy through the remittance channel. We use Jordà (2005) local projections to assess the effects of a US monetary policy tightening on 8 major remittance-sending countries and 41 recipient countries over the period from January 1997 to December 2017. Our findings reveal that such monetary tightening significantly impacts not only the US economy but also key remittance-sending nations, resulting in a global contractionary effect. The impact on recipient countries varies based on their reliance on remittances, underscoring the dual role of these personal transfers as both an amplifier and a mitigator of the global business cycle. Specifically, countries with high dependency on remittances experience heightened pro-cyclicality, leading to declines in both output and inflation, while those with moderate or low reliance exhibit counter-cyclical behavior. |
| Keywords: | Global spillovers, Remittances, US monetary policy |
| JEL: | F24 E52 F41 F44 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-27 |
| By: | Moonhee Cho (Korea Institute for International Economic Policy); Hyungseok Joo (University of Surrey) |
| Abstract: | This paper investigates the effect of sovereign debt default on foreign direct investment (FDI) transactions by US firms into Argentina following the Argentine sovereign default in 2019–20. Using the synthetic control approach, we find that the number of FDI transactions decreased by approximately 60% after the Argentine default with a particularly pronounced decline in the non-manufacturing sector. By examining the changes in the number of transactions, we provide a more precise picture of the cost of sovereign default, capturing the FDI activity of small firms better. |
| JEL: | F13 F21 F34 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0324 |
| By: | Mariam Camarero (University Jaume I and INTECO); Josep Lluís Carrión-i-Silvestre (University of Barcelona and AQR-IREA); Cecilio Tamarit (University of Valencia and INTECO) |
| Abstract: | This paper investigates the determinants of external imbalances for a group of 26 developed and emerging countries over the period 1972-2021. In addition to traditional factors, the model incorporates the impact of external imbalances in third countries. The empirical evidence highlights the importance of accounting for parameter instabilities in modeling external imbalances, with countries exhibiting heterogeneous behavior in terms of the estimated break dates. The results underscore the critical role of external drivers, such as oil shocks, and the growing influence of third-country imbalances in an increasingly globalized world. Additionally, demographic trends emerge as a significant long-run internal driver. Finally, the paper calculates regime-specific short-run multipliers. |
| Keywords: | current account, global factors, breaks, dynamic multipliers |
| JEL: | F02 F32 C32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2410 |
| By: | Natalie Dvorakova; Tomas Sestorad |
| Abstract: | This paper examines the drivers of the post-pandemic surge in inflation in four small open economies: Czechia, Hungary, Poland, and Slovakia. For this purpose, a Bayesian structural vector autoregressive model with sign-zero restrictions and block exogeneity is employed. The results show that both foreign demand and foreign supply shocks have contributed significantly to inflation in the post-2020 period across countries, alongside notable contributions from domestic factors explaining differences among economies. Specifically, supply-side shocks are identified as the primary domestic factor across all countries, whereas domestic demand shocks were much less influential. Exchange rate shocks were pronounced in Hungary only, while monetary policy shocks have had a minimal impact on inflation since 2022 in all the countries considered. Additionally, we provide decompositions of core inflation, highlighting the predominance of domestic factors. |
| Keywords: | Bayesian VAR, extraordinary events, inflation, sign-zero restrictions, small open economies |
| JEL: | C32 E31 E32 E52 F41 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2024/5 |
| By: | Sebastián Horn (Banco Mundial); David Mihaly (Banco Mundial); Philipp Nickol (UDE-RGS); César Sosa-Padilla (University of Notre Dame) |
| Abstract: | How reliable are public debt statistics? This paper quantifies the magnitude, characteristics, and timing of hidden debt by tracking ex post data revisions across a comprehensive new database of more than 50 vintages of World Bank debt statistics. In a sample of debt data covering 146 countries and 53 years, we establish three new stylized facts: (i) debt statistics are systematically under-reported; (ii) hidden debt accumulates in boom years and tends to be revealed in bad times, often during IMF programs and sovereign defaults; and (iii) in debt restructurings, higher hidden debt is associated with larger creditor losses. We use our novel data to numerically discipline a quantitative sovereign debt model with hidden debt accumulation and an endogenous monitoring decision that triggers revelations. Our model simulations show that hidden debt has adverse effects on default risk, debt-carrying capacity and asset prices. While overall welfare costs of hidden debt are large, only countries in comparatively strong financial positions benefit from greater debt transparency. |
| Keywords: | hidden debt, sovereign debt, sovereign default |
| JEL: | F34 H63 G01 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:338 |
| By: | Alvaro Silva (Federal Reserve Bank of Boston) |
| Abstract: | This paper studies inflation in small open economies with production networks. I show that the production network alters the elasticity of the consumer price index (CPI) to changes in sectoral technology, factor prices, and import prices. Sectors can import and export directly but also indirectly through domestic intermediate inputs. Indirect exporting dampens the inflationary pressure from domestic forces, while indirect importing increases the inflation sensitivity to import price changes. Computing these CPI elasticities requires knowledge of the production network structure as these do not coincide with typical sufficient statistics used in the literature, such as sectoral sales-to-GDP ratios, factor shares, or imported consumption shares. Using input-output tables, I provide empirical evidence that adjusting CPI elasticities for indirect exports and imports matters quantitatively for small open economies. I use the model to illustrate the importance of production networks during the recent COVID-19 inflation in Chile and the United Kingdom. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.00705 |