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on Open Economy Macroeconomics |
| By: | Chu, Angus C.; Furukawa, Yuichi; Peretto, Pietro; Xu, Rongxin |
| Abstract: | Is agricultural productivity conducive to economic development? We develop a two-country open-economy Schumpeterian growth model with endogenous takeoff. With agricultural trade and a subsistence requirement, higher domestic agricultural productivity has ambiguous effects on the economy's takeoff and its transitional growth rate if domestic and imported agricultural goods are substitutes. Without the subsistence requirement, higher domestic agricultural productivity delays industrialization and lowers transitional growth by increasing domestic demand for agricultural labor. This specialization force works in the opposite direction of the change in domestic consumption pattern governed by the subsistence requirement, which tends to release labor from agriculture. Without agricultural trade, the specialization force is absent and the subsistence requirement on agricultural consumption implies that higher domestic agricultural productivity reallocates labor from agriculture to industry, hastening industrialization and raising transitional growth. Using cross-country panel-data, we find that agricultural productivity has a direct positive effect on economic growth but this positive effect weakens and even becomes negative when reliance on agricultural imports is sufficiently high. Simulating the calibrated model, we find that improvement in domestic agricultural productivity accounts for about one-third of the changes in TFP growth in China and Japan, respectively, and more so for their main trading partner, the US. |
| Keywords: | international trade; agricultural productivity; innovation; endogenous takeoff |
| JEL: | F43 O3 O4 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122630 |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Eswar S. Prasad |
| Abstract: | Conventional empirical models of monetary policy transmission in emerging market economies produce puzzling results: monetary tightening often leads to an increase in prices (the price puzzle) and depreciation of the currency (the FX puzzle). We show that incorporating forward-looking expectations into standard open economy structural VAR models resolves these puzzles. Specifically, we augment the models with novel survey-based measures of expectations based on consumer, business, and professional forecasts. We find that the rise in prices following monetary tightening is related to currency depreciation, so eliminating the FX puzzle helps solve the price puzzle. |
| JEL: | E31 E32 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33133 |
| By: | Christopher M. Meissner; Kensuke Molnar-Tanaka |
| Abstract: | Over the last 200 years, economies have accumulated significant experience in managing capital flows in the face of globalization. This study examines management of capital flows since the 1800s with an eye towards providing historical lessons for Southeast Asia today. We start with the global sterling/gold standard regime of the late 19th century globalization and then discuss the tumultuous inter-war period. We then examine policies in Southeast Asian countries since the 1950s. In the 1980s and 1990s, many economies faced increasing financial instability related to the resumption of global capital flows, most noticeably in Southeast Asia during the Asian Financial Crisis. The paper examines the historical importance of exchange rate policies for capital flow stability. Capital flow management in the 21st century faces various challenges such as enhanced state-intervention and digital currencies. |
| JEL: | F21 F33 F36 N20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33145 |
| By: | Xuning Ding; Zhengyang Jiang |
| Abstract: | Monetary and fiscal policies require coordination to achieve desired macroeconomic outcomes. The literature since Leeper (1991) has focused on two regimes: monetary dominance and fiscal dominance. In both cases, one policy is active while the other is passive and accommodates the former. We study this coordination problem in an international economy, and find a third regime—hegemon dominance. In this case, one country (the hegemon)'s monetary and fiscal authorities can pursue separate policy goals, while the other country's monetary and fiscal policies are both accommodative. For example, the hegemon can pursue a monetary policy unbacked by its fiscal policy. When this happens, the foreign monetary authority has to take the same stance as the hegemon, the foreign fiscal authority has to provide fiscal backing for the monetary stance undertaken by both countries, and the exchange rate adjusts to equilibrate the economy. Our result suggests that the U.S. fiscal policy's independence from its own monetary policy can be made possible by accommodative foreign policies, and that the Fed's effort to fight inflation can succeed despite the high level of public debt which would have required enormous fiscal backing in a closed economy. |
| JEL: | E52 E63 F33 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33123 |
| By: | Ritam Chaurey; Ryan Kim; Pravin Krishna |
| Abstract: | This paper examines how liquidity shocks caused by currency shortages impact exports. We explore this in the context of India’s 2016 currency demonetization, a sudden and unexpected policy announcement by the government that large-denomination currency notes—comprising 86% of the country’s currency in circulation—would cease to be legal tender within hours. Our analysis uses novel data, including high-frequency customs transaction records matched with exporting firms and their balance sheets, as well as with inter-district domestic trade. We develop direct measures of exporting firms’ exposure to cash shortages and indirect measures that act through domestic supply chain networks. While the cash shortages do not directly affect exporting firms, we find a significant and immediate decline in real exports for firms whose domestic customers experience liquidity shocks. These findings underscore the critical role of domestic supply chains in transmitting liquidity shocks to exports. |
| JEL: | E50 F1 F14 O16 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33142 |