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on Open MacroEconomics |
| By: | Frederic S. Mishkin |
| Abstract: | This paper discusses what recent economic research tells us about exchange rate pass-through and what this suggests for the control of monetary policy. It first focuses on exchange rate pass-through from a macroeconomic perspective and then examines the microeconomic evidence. In light of this evidence, it then discusses the implications of exchange rate movements on the conduct of monetary policy. |
| JEL: | E52 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13889&r=opm |
| By: | Ellen R. McGrattan; Edward C. Prescott |
| Abstract: | The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. We develop a multicountry general equilibrium model with an essential role for FDI and apply the BEA's methodology to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns. |
| JEL: | F32 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13983&r=opm |
| By: | Aurora Gómez Galvarriato; Jeffrey G. Williamson |
| Abstract: | Brazil, Mexico and a few other Latin American republics enjoyed faster industrialization after 1870 than did the rest of Latin America and even faster than the rest of the poor periphery (except East Asia). How much of this economic performance was due to more accommodating institutions and greater political stability, changes that would have facilitated greater technology transfer and accumulation? That is, how much to changing fundamentals? How much instead to a cessation in the secular rise in the net barter terms of trade which reversed de-industrialization forces, thus favoring manufacturing? How much instead to cheaper foodstuffs coming from more open commercial policies ('grain invasions'), and from railroad-induced integration of domestic grain markets, serving to keep urban grain prices and thus nominal wages in industry low, helping to maintain competitiveness? How much instead to more pro-industrial real exchange rate and tariff policy? Which of these forces contributed most to industrialization among the Latin American leaders, long before their mid 20th century adoption of ISI policies? Changing fundamentals, changing market conditions, or changing policies? |
| JEL: | F1 N7 O2 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13990&r=opm |
| By: | Michael P. Dooley; David Folkerts-Landau; Peter M. Garber |
| Abstract: | We identify incentives generated by the Bretton Woods II system that may have contributed to the sub-prime liquidity crisis now working its way through the international monetary system. We then evaluate the persistent conjecture that the liquidity crisis is or will become a balance of payments crisis for the United States. Given that it happens, the additional costs associated with a sudden stop of net capital flows to the United States could be quite substantial. But we observe that emerging market governments have continued to acquire US assets even as yields have fallen, and the incentives for continuing to do so remain strong. Moreover, the Bretton Woods II system, which has clearly been the most resilient of the forces driving current markets, continues to generate low real interest rates in industrial countries and growth in emerging markets that will help limit the damage from the liquidity crisis. |
| JEL: | F02 F32 F33 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13978&r=opm |
| By: | Nicholas C.S. Sim (Department of Economics, Boston College, USA); Kong-Weng Ho (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore) |
| Abstract: | We extend the model of Nishimura and Shimomura (2002) to consider a two-country framework where under autarky indeterminacy arises in one country but determinacy in the other, and show that indeterminacy could be eliminated when trade takes place between the two. |
| Keywords: | Indeterminacy, Trade, Two-Country Framework. |
| JEL: | E32 F00 F11 F43 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:nan:wpaper:0706&r=opm |
| By: | Kerstin Gerling (University of Mannheim, Department of Economics) |
| Abstract: | This paper studies the mechanisms through which financial integration affects the pattern of international capital flows and the domestic economic performances when explicitly accounting for wealth inequality on imperfect capital markets. Balancing the impact of a firm size and a credit rationing effect on the net credit position and on aggregate production will help predicting the distribution of gains and losses among and within countries on the basis of a country’s aggregate wealth and its distribution. Altogether, the results contribute new explanations for some empirical puzzles. They also bear important implications for policy making, supranational treaty design and financial stability. |
| Keywords: | international financial integration, inequality, imperfect capital markets and allocative efficiency |
| JEL: | D24 D31 D61 E44 F36 |
| Date: | 2008–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:141&r=opm |
| By: | Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | In this paper, we use a general equilibrium overlapping generations monetary endogenous growth model of a small open economy, to analyze whether financial repression, measured via the "high" mandatory reserve-deposit requirements of financial intermediaries, is an optimal response of a consolidated government following an increase in the degree of currency substitution. We find that higher currency substitution can yield higher reserve requirements, but, the result depends crucially on how the consumer weighs money in the utility function relative to domestic and foreign consumptions, and also the size of the government. |
| Keywords: | Currency Substitution, Endogenous Growth Models, Financial Repression, Small Open Economy, Public Finance |
| JEL: | E31 E44 E63 F43 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200806&r=opm |
| By: | Hwee Kwan Chow (School of Economics and Social Sciences, Singapore Management University, Singapore); Keen Meng Choy (Department of Economics, Nanyang Technological University, Singapore) |
| Abstract: | We apply multivariate statistical methods to a large dataset of Singapore’s macroeconomic variables and global economic indicators with the objective of forecasting business cycles in a small open economy. The empirical results suggest that three common factors are present in the time series at the quarterly frequency, which can be interpreted as world, regional and domestic economic cycles. This leads us to estimate a factor-augmented vector autoregressive (FAVAR) model for the purpose of optimally forecasting real economic activity in Singapore. By taking explicit account of the common factor dynamics, we find that iterative forecasts generated by this model are significantly more accurate than direct multi-step predictions based on the identified factors as well as forecasts from univariate and vector autoregressions. |
| Keywords: | business cycles; principal components; dynamic factor model; factor-augmented VAR; forecasting; Singapore |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:nan:wpaper:0802&r=opm |
| By: | Mehmet Guclu (Department of Economics, Ege University) |
| Abstract: | The choice of exchange rate regime has become one of the most important issues one more time in many economies after the financial crises in recent years. In the wake of the financial crises, many countries, especially emerging market economies, opted for floating exchange rate regimes by forsaking the pegged regimes. Consequently, an old debate on the choice and determinants of exchange rate regimes has been triggered. Economists have started to debate what appropriate exchange rate regime for an economy is. When the tendency in recent years is taken into consideration, the choice of exchange rate regime of countries, especially emerging economies, needs to be analyzed. To do this, in this paper, we attempt to uncover how emerging market economies choose their exchange rate regimes. In other words, we try to find the economic and political factors underlying the choice of exchange rate regimes. The study includes 25 emerging market economies over the period 1970-2006. We use random effect ordered probit model in order to find the long run economic and political determinants of exchange rate regimes for emerging economies. The determinants of both the de jure and de facto exchange regimes are empirically analyzed in the paper. |
| Keywords: | Exchange Rate Regime, Emerging Market |
| JEL: | E42 F31 F33 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ege:wpaper:0806&r=opm |
| By: | Kolasa, Marcin |
| Abstract: | This paper presents a two-country model linking Poland and the euro area and applies it for assessment of heterogeneity across these two regions. Overall, our results can be seen as rather inconclusive about the differences in parameters describing agents' decision-making in Poland and in the euro area. On the contrary, we find strong evidence for heterogeneity in terms of volatility and synchronization of shocks hitting both economies. Our results may be viewed as a step towards estimating the costs of Poland's entry to the European Monetary Union, associated with giving up the monetary autonomy and losing benefits from stabilizing movements of the exchange rate. |
| JEL: | E32 D58 F41 C11 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8750&r=opm |
| By: | Yap, Josef T. |
| Abstract: | <p>During the past five years or so, most East Asian economies including the Philippines experienced a rising level of foreign exchange reserves and rapidly appreciating currencies both in nominal and real terms. One cause has been the resurgence of capital flows, which makes the issue of how to manage them relevant. However, the experience with regard to capital flows among East Asian economies is mixed and the level of capital flows to the region is proportionally less than that prior to the 1997 crisis.</p> <p>Another reason is the rise in current account surpluses. The Philippines has experienced both a return of capital inflows and a more favorable current account balance, with the latter largely due to remittances from overseas workers. However, like many other regional currencies, the appreciation of the peso is not commensurate to movements of the BOP accounts. Currencies in the region are reacting primarily to the general weakness of the US dollar, and global uncertainties have contributed to weak investment which in turn is another major reason behind the current account surplus of several economies including the Philippines. Policy measures at the domestic level can focus on reviving private investment, particularly channeling overseas remittances to more productive investment. Meanwhile, East Asian financial and monetary cooperation can also result in a unified front aimed at overhauling the unipolar global financial system.</p> |
| Keywords: | foreign exchange inflows, currency appreciation, unipolar global financial system |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2008-04_(revised)&r=opm |