nep-ifn New Economics Papers
on International Finance
Issue of 2007‒10‒27
six papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Do Internet Converge Prices to the "Law of One Price"? Evidence from Transaction Data for Airline Tickets By Anirban Sengupta; ;
  2. Twin Deficits, Openness and the Business Cycle By Giancarlo Corsetti; Gernot J. Mueller
  3. Exchange rate variability, market activity and heterogeneity By Dagfinn Rime; Genaro Sucarrat
  4. Foreign Exchange Pressures in Latin America: Does Debt Matter? By Graham Bird; Alex Mandilaras
  5. Foreign capital in Latin America: A long-run structural Global VAR perspective By Melisso Boschi
  6. Fisher hypothesis: East Asian evidence from panel unit root tests By Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa

  1. By: Anirban Sengupta (Texas A&M University); ;
    Abstract: Internet presumably reduces search cost driving price to the competitive level. Evidence from empirical research quantifying dispersion in the electronic based markets has yield mixed results. More recent research has documented near zero dispersion in the electronic markets using transaction prices. This paper is one of only a handful of papers to examine the impact of internet on price dispersion using contemporaneous online and offline transaction data for airline ticket prices. The paper finds strong empirical evidence of lower dispersion in the electronic markets compared to the traditional markets, but fails to find evidence of near zero dispersion in the electronic markets, even with transaction prices. The results suggest that electronic markets exhibits significantly lower but positive dispersion, in contrary to the near zero dispersion as found in more recent empirical literature.
    Keywords: Price Dispersion, Search cost, Online, Offline, Transaction Prices
    JEL: L9
    Date: 2007–09
  2. By: Giancarlo Corsetti; Gernot J. Mueller
    Abstract: In this paper, we study the co-movement of the government budget balance and the trade balance at business cycle frequencies. In a sample of 10 OECD countries we find that the correlation of the two time series is negative, but less so in more open economies. Moreover, for the US the crosscorrelation function is S-shaped. We analyze these regularities taking the perspective of international business cycle theory. First, we show that a standard model delivers predictions broadly in line with the evidence. Second, we show that conditional on spending shocks the model predicts a perfect correlation of the budget balance and the trade balance. Yet, the effect of spending shocks on the trade balance is contained if an economy is not very open to trade.
    Keywords: Fiscal Policy, Twin deficits, Openness, Business Cycle
    JEL: F41 F42 E32
    Date: 2007
  3. By: Dagfinn Rime; Genaro Sucarrat
    Abstract: We study the role played by geographic and bank-size heterogeneity in the relation between exchange rate variability and market activity. We find some support for the hypothesis that increases in short-term global interbank market activity, which can be interpreted as due to variation in information arrival, increase variability. However, our results do not suggest that local short-term activity increases variability. With respect to long-term market activity, which can be interpreted as a measure of liquidity, we find that large and small banks have opposite effects. Specifically, our results suggest that the local group of large banks' liquidity increases variability, whereas the local group of small banks' liquidity reduces variability.
    Date: 2007–10
  4. By: Graham Bird (University of Surrey); Alex Mandilaras (University of Surrey)
    Abstract: Latin American countries have been in the eye of economic and ¯nancial storms several times in recent years. Advice from the International Monetary Fund has consistently highlighted the need for sound fiscal policies and lower debt levels. But is public debt relevant? Following a brief discussion of the theoretical issues involved, this paper examines empirically the relationship between public indebtedness and pressures in the foreign exchange market. Alternative measures are used to capture the latter and the analysis controls for a de facto classi¯cation of exchange rate regimes. Estimations of static and dynamic panels for 28 Latin American and Caribbean (LAC) countries report substantial fiscal effects.
    Keywords: currency crises, public debt, latin america
    JEL: F30
    Date: 2007
  5. By: Melisso Boschi
    Abstract: I study the determinants of capital .ows to Argentina, Brazil, and Mexico, assessing the relative importance of domestic and global factors. I estimate six VECM models, one for each Latin American country plus the Euro Area, Japan, and USA, and then embed them in a multi-country Global VAR. The cointegrating space is identified in terms of theoretical long-run relations linking net foreign assets (NFA) to the other variables of the model. The results show that in the long-run external prevail on domestic factors as determinants of the equilibrium behaviour of NFA, with the relative importance of each factor varying from one country to another. Generalized Impulse Response Functions (GIRF) and Forecast Error Variance Decomposition (GFEVD) provide overwhelming evidence that domestic shocks are predominantly responsible for the short-run dynamics of Latin American NFA. Although all previous studies focus on North-American economic influence, one striking result of this paper is that the US variables are by no means the main external factors affecting Latin American NFA. Quite on the contrary, Japanese and, to a lesser extent, European cyclical conditions explain a large proportion of Latin American NFA short-run behaviour.
    Date: 2007–10–19
  6. By: Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
    Abstract: This study provides evidence supportive of Fisher hypothesis in East Asian economies using panel unit root tests, which allow for cross-country variations in the estimation. Among others, one important implication is that monetary policy will be more effective in influencing long-term interest rates and long-run macroeconomic stability in these East Asian economies under regional collaboration.
    Keywords: Fisher hypothesis; panel unit root; univariate unit root; East Asian
    JEL: G10 E4
    Date: 2007–10–25

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