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on Open MacroEconomics |
| By: | de Blas, Beatriz (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | This paper analyzes the international transmission of shocks in economies with financial frictions. In a two-country flexible price monetary model with distribution costs in the imported good I study the transmission of shocks to productivity, money supply, government spending and to entrepreneurs' net worth. Financial frictions amplify the effects of shocks both at the domestic and at the international level. In the model, international business cycle comovement, measured as cross-country output correlations, is increasing in the degree of openness and distribution costs, and as in previous literature, decreasing in the degree of financial frictions. Finally, fiscal shocks play an important role in international business cycle comovement in the presence of financial frictions. First, because the crowding out effect is stronger on private consumption and weaker on investment if there are financial frictions, and second, because fiscal shocks may reduce the cross-country correlation of output. |
| Keywords: | international business cycles; distribution costs; financial frictions; flexible prices |
| JEL: | E32 E44 F41 F42 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:200801&r=opm |
| By: | Romain Restout (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | This paper explores the consequences of introducing a monopolistic competition in an intertemporal two-sector small open economy model which produces traded and non traded goods. It is assumed that the non traded sector is the locus of the imperfectly competition. Our analysis shows that markup depends on the composition of aggregate non traded demand and is therefore endogenously determined in the model. Calibrating the model with OECD parameters, the effects of fiscal and technological shocks are simulated. Our findings are as follows. First, the model is consistent with the observed saving-investment correlations found in the data. Second, unlike the perfectly framework and in accordance with empirical studies, fiscal shocks cause real appreciation of the relative price of non traded goods, which in turn enlarges the responses of current account and investment. Third, the model is consistent with the empirical report that technological shocks result in current account deficits and investment rises. Fourth, the strength of the relative price appreciation following sector productivity differentials, i.e. the Balassa-Samuelson effect, is affected by the monopolistic competition hypothesis. Assume perfect competition when it is not, biases upward estimates of the Balassa-Samuelson effect. |
| Keywords: | fiscal policy ; monopolistic competition ; productivity |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00260868_v1&r=opm |
| By: | Juan Pablo Medina; Anella Munro; Claudio Soto |
| Abstract: | This paper uses an open economy DSGE model with a commodity sector and nominal and real rigidities to ask what factors account for current account developments in two small commodity exporting countries. We estimate the model, using Bayesian techniques, on Chilean and on New Zealand data, and investigate the structural factors that explain the behaviour of the two countries' current accounts. We find that foreign financial conditions, investment-specific shocks, and foreign demand account for the bulk of the variation of the current accounts of the two countries. In the case of New Zealand fluctuations in commodity export prices have also been important. Monetary and fiscal policy shocks (deviations from policy rules) are estimated to have relatively small e ects on the current account.We find interesting differences in Chilean and New Zealand responses to some shocks, despite similarities between the two economies and the common structural model employed. |
| Keywords: | current account, commodity price, small open economy, DSGE model |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:247&r=opm |
| By: | Tarr, David G.; Rutherford, Thomas F.; Balistreri, Edward J. |
| Abstract: | This paper employs a 55 sector small open economy computable general equilibrium model of the Kenyan economy to assess the impact of the liberalization of regulatory barriers against foreign and domestic business service providers in Kenya. The model incorporates productivity effects in both goods and services markets endogenously, through a Dixit-Stiglitz framework. It estimates the ad valorem equivalent of barriers to foreign direct investment based on detailed questionnaires completed by specialists in Kenya. The authors estimate that Kenya will gain about 11 percent of the value of Kenyan consumption in the medium run (or about 10 percent of gross domestic product) from a full reform package that also includes uniform tariffs. The estimated gains increase to 77 percent of consumption in the long-run steady-state model, where the impact on the accumulation of capital from an improvement in the productivity of capital is taken into account. Decomposition exercises reveal that the largest gains to Kenya will derive from liberalization of costly regulatory barriers that are non-discriminatory in their impacts between Kenyan and multinational service providers. |
| Keywords: | Transport Economics Policy & Planning,Economic Theory & Research,Banks & Banking Reform,Emerging Markets,Debt Markets |
| Date: | 2008–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4544&r=opm |
| By: | Delfim Gomes Neto (Universidade de Vigo and RGEA); Francisco José Veiga (Universidade do Minho - NIPE) |
| Abstract: | We provide evidence that the composition of foreign capital, measured by the ratio foreign direct investment over total liabilities, a.ects growth directly and through the speed of convergence. Developing countries benefit relatively more as their initial GDP is smaller. The dataset comprises the period 1970-2004 and 96 countries, and the results are robust to di.erent measures of the composition of foreign capital, restricted time period, developing countries, and alternative explanations of convergence and growth. These results are consistent with the neoclassical growth model with credit constraints presented in this paper, in which the composition of foreign capital a.ects the transition dynamics through a positive e.ect on the speed of convergence and steady state GDP. |
| Keywords: | composition of foreign capital; speed of convergence; growth. |
| JEL: | F21 F36 F43 O47 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:07/2008&r=opm |
| By: | Park, Innwon |
| Abstract: | Searching for sustainable regional trade agreements (RTAs) for East Asia, we quantitatively evaluated the likely impact of proposed East Asian RTA strategies─(i) the AFTA (a being-left-alone strategy), (ii) an ASEAN Hub RTA (a hub-and-spoke type of overlapping RTA strategy), (iii) the AFTA vs a China-Japan-Korea RTA (a duplicating or competing RTA strategy), (iv) an ASEAN+3 RTA (an expansionary RTA strategy)─on the East Asian economies and the world economy with respect to consumption, production, volume of trade, and terms of trade effect by applying a multi-country and multi-sector CGE model. We found that there was no perfectly Pareto improving RTA strategy among the four different scenarios proposed for East Asia relative to the existing AFTA. However, the expansionary ASEAN+3 RTA can be a sustainable Pareto efficient policy option because the members’ gains were significantly positive enough with more evenly distributed gains between members. The effects on world welfare were also positive enough and the negative effect on nonmembers was not very significant. More interestingly, if the East Asian countries are willing to cooperate with their Pacific Basin partners to form an APEC level of RTA, the evolution toward a global trade bloc can be counted as a Pareto improvement for East Asian economies in every aspect we measure. |
| Keywords: | regional trade agreements; sustainability; Pareto efficiency; CGE model; East Asia |
| JEL: | C68 F15 O53 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5068&r=opm |
| By: | Sanghoon Ahn; Kyoji Fukao; Keiko Ito |
| Abstract: | This study describes the changing patterns of intermediate goods trade and foreign direct investment (FDI) in East Asia and investigates the impacts of international outsourcing on the Japanese and the Korean labour markets. The main findings of the paper are as follows. First, intra-regional trade in East Asia grew remarkably during the period 1990-2003. While overall trade with the rest of the world roughly doubled in this period, intra-regional trade in East Asia more than tripled. Second, the main factor behind increased intra-regional trade in East Asia was the trade in intermediate goods through outsourcing and the international fragmentation of production. Third, reflecting the fact that outsourcing to Asia (particularly to China) has a negative impact on the demand for workers with lower education and a positive impact on the demand for workers with higher education, relative wage shares of workers by educational attainment have changed substantially both in Japan and Korea. Fourth, our empirical analysis provides evidence of labour demand shift towards skilled labour in Japanese manufacturing as a result of outsourcing. For Korea, although the overall effects of outsourcing have been insignificant in Korea partly because a substantial part of Korean outsourcing remained directed towards Japan, our results imply that labour demand would shift away from less-skilled workers towards more-skilled workers if outsourcing to China increased and outsourcing to Japan decreased in the future. |
| Keywords: | Korea, Japan, manufacturing, outsourcing |
| JEL: | F14 F16 F23 |
| Date: | 2008–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:65-en&r=opm |
| By: | Inés Terra (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Carmen Estrades (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | In this paper we analyze the gender differentiated impacts of trade openness in Uruguay using a gender aware CGE model with endogenous labor supply and a home production function. We simulate complete trade liberalization and an increase in tariffs to the level of 1994. Trade liberalization increases female employment and wages, reducing the gender wage gap. These findings are consistent with Çagatay (2001) and Fofana et al (2003). The effect of trade openness on time distribution of workers is different by skills. Skilled workers, mainly women, reduce time spent in leisure and domestic work increasing labor supply. In contrast, unskilled workers increase leisure time, especially men. Trade openness leads to a more equitable distribution of time spent in domestic work. When there is a more imperfect substitution among genders in the home production function, women reduce more leisure time. The increase in tariff to the level of 1994 has the opposite results. |
| Keywords: | trade openness, gender, general equilibrium model, home production, leisure, wage curve |
| JEL: | D13 J16 J22 F16 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:2407&r=opm |
| By: | Tatjana Damjanovic; Vladislav Damjanovic; Charles Nolan |
| Abstract: | This paper establishes that one can generally obtain a purely quadratic approximation to the unconditional expectation of social welfare when the steady-state is distorted. A specific example is provided employing a canonical New Keynesian model. Unlike in the non-distorted steady state case, the approximate loss function is not defined simply over terms in inflation and output. Furthermore, optimal steady state inflation and the nominal interest rate are positive. |
| Keywords: | Unconditional expectations, Optimal monetary policy. |
| JEL: | E20 E32 F32 F41 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0804&r=opm |
| By: | Olli Castrén (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Stéphane Dées (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Fadi Zaher (Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom.) |
| Abstract: | Modelling the link between the global macro-financial factors and firms’ default probabilities constitutes an elementary part of financial sector stress-testing frameworks. Using the Global Vector Autoregressive (GVAR) model and constructing a linking satellite equation for the firm-level Expected Default Frequencies (EDFs), we show how to analyse the euro area corporate sector probability of default under a wide range of domestic and foreign macroeconomic shocks. The results show that, at the euro area aggregate level, the median EDFs react most to shocks to the GDP, exchange rate, oil prices and equity prices. There are some intuitive variations to these results when sector-level EDFs are considered. Overall, the Satellite-GVAR model appears to be a useful tool for analysing plausible global macrofinancial shock scenarios designed for financial sector stress-testing purposes. JEL Classification: C33, F47, G32, G33. |
| Keywords: | Credit risk, Global VAR, corporate default probability, macro stress testing. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080875&r=opm |
| By: | Carlos Garcia (ILADES-Georgetown University, Universidad Alberto Hurtado); Jorge Restrepo (Banco Central de Chile); Evan Tanner (IMF Institute, International Monetary Fund, Washington D.C.-USA) |
| Abstract: | We compare welfare levels under two alternative fiscal rules: a procyclical balanced budget policy and an acyclical structural surplus (government accumulates assets). We use a dynamic, stochastic, general equilibrium model. The acylical rule benefits households that do not enjoy access to capital markets. It provides a financial cushion that they themselves cannot provide, while also boosting their mean consumption. By contrast, households that enjoy full access to capital markets suffer under this rule. Effectively, the government usurps their previous role in smoothing consumption and accumulating assets. However, a policy in between these extremes may be preferred by all. |
| Keywords: | welfare, small open economy, fiscal rules, rule of thumb consumers, government spending. |
| JEL: | E32 E61 E62 E63 F41 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ila:ilades:inv199&r=opm |
| By: | Kugler, M., Verhoogen, E.A. (Wilfrid Laurier University) |
| Abstract: | This paper uses uniquely rich and representative data on the unit values of “outputs” (products) and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations – between output prices and plant size and between input prices and plant size – and for how those correlations vary across sectors. We then document three plant level facts: (1) output prices are positively correlated with plant size within industries, on average; (2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa. |
| Keywords: | Quality upgrading; plant capability; exports |
| JEL: | O30 F10 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:wlu:wpaper:eg0058&r=opm |
| By: | Kari E.O. Alho |
| Abstract: | ABSTRACT : The paper considers growth and fluctuations in the Finnish economy in the post-war period starting from her long-run dual strategy vis-à-vis export markets in Western Europe and Russia. Finland has wanted to utilise the more rapid growth based on deeper integration in the former, but has simultaneously wanted to reap the gains linked to her proximity to the latter. We build a theoretical open economy model based on export supply and demand and then for the whole economy and analyse the role of economic policies, notably exchange rate policies in this connection. Empirically, we estimate the relationships using the SVAR methodology identifying the relevant demand and supply shocks and shocks in policy responses. The results clearly show that shifts in competitiveness have played a key role in boosting both categories of exports. However, firms have been able to shift on their own in exports from the Russian market to the West when needed. Productivity gains have been linked to Western exports, but not to exports to Russia. From a macroeconomic point of view exchange rate policies have been roughly as important as fiscal policies to explain economic fluctuations, although the conclusion on this quite sensitively depends on the SVAR model used. However, economic policies have been less important than the aggregate demand and supply shocks. |
| Keywords: | exports, macro economy, economic policies, SVAR |
| JEL: | F41 F43 F12 |
| Date: | 2008–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1124&r=opm |
| By: | Hielke Buddelmeyer (Melbourne Institute of Applied Economic and Social Research and IZA, Contact address: Melbourne Institute of Applied Economic and Social Research, University of Melbourne, Alan Gilbert Building, 7th fl oor, 161 Barry Street, Carlton 3053 VIC, Australia.); Gilles Mourre (Corresponding author: European Commission, DG Economic and Financial Affairs (ECFIN) and Free University of Brussels (ULB, SBS, CEB), Contact address: BU-1 4/168, European Commission, Rue de la Loi 200, B-1049 Brussels, Belgium.); Melanie Ward (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This empirical paper seeks to determine the relative contribution of the business cycle and structural factors to the development of part-time employment in the EU-15 countries over the 1980s and 1990s, exploiting a panel of EU countries. In the short-run, the business cycle is found to exert a short-term negative effect on part-time employment developments, which is consistent with firms utilising part-time work to adjust their labour force to changing economic conditions. Institutions and other structural factors such as changes in legislation affecting part-time employment are found to be key drivers of the rate of part-time employment, significant in the longer run. Overall, although the role of individual factors differs in the 1980s and 1990s, a contribution analysis considering the most significant factors shows that the main structural and institutional variables generally well explain the development in the part-time employment rate in the EU countries, which is not the case in the United States. JEL Classification: J21, J22, J28, J68. |
| Keywords: | Part-time employment, working time organisation, the business cycle, labour supply, labour market policies, institutions, regulations. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080872&r=opm |