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on Open MacroEconomics |
| By: | Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper analyses the effect of equity price shocks on current account positions for the G7 industrialized countries in 1974-2007. It uses a Bayesian VAR with sign restrictions for the identification of asset price shocks and to test empirically for their effect on current accounts. Such shocks are found to exert a sizeable effect, with a 10 percent equity price increase for instance in the United States relative to the rest of the world worsening the US trade balance by 0.9 percentage points after 16 quarters. However, the response of the trade balance to equity price shocks varies substantially across countries. The evidence suggests that the channels accounting for this hetero-geneity function both through wealth effects on private consumption and to some extent through the real exchange rate of countries. JEL Classification: E2, F32, F40, G1. |
| Keywords: | asset prices, current account, identification, Bayesian VAR, financial markets, industrialized economies. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901014&r=opm |
| By: | Domenico Giannone (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Michele Lenza (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Lucrezia Reichlin (London Business School, Regent's Park, London NW1 4SA, United Kingdom.) |
| Abstract: | This paper shows that the EMU has not affected historical characteristics of member countries’ business cycles and their cross-correlations. Member countries which had similar levels of GDP per-capita in the seventies have also experienced similar business cycles since then and no significant change associated with the EMU can be detected. For the other countries, volatility has been historically higher and this has not changed in the last ten years. We also find that the aggregate euro area per-capita GDP growth since 1999 has been lower than what could have been predicted on the basis of historical experience and US observed developments. The gap between US and euro area GDP per capita level has been 30% on average since 1970 and there is no sign of catching up or of further widening. JEL Classification: E32, E33, C5, F2, F43. |
| Keywords: | Euro area, International Business Cycle, European Monetary Union, European integration. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901010&r=opm |
| By: | Julian di Giovanni (International Monetary Fund); Andrei A. Levchenko (University of Michigan and International Monetary Fund) |
| Abstract: | This paper proposes a new channel through which international trade affects macroeconomic volatility. We study a multi-country model with heterogeneous firms that are subject to idiosyncratic firm-specific shocks. When the distribution of firm size follows a power law with exponent sufficiently close to -1, the idiosyncratic shocks to large Þrms have an impact on aggregate volatility. Opening to trade increases the importance of large Þrms to the economy, thus raising macroeconomic volatility. We next explore the quantitative properties of the model calibrated to data for the 50 largest economies in the world. Our simulation exercise shows that the contribution of trade to aggregate ßuctuations depends strongly on country size: in an economy such as the U.S., that accounts for one-third of world GDP, international trade increases volatility by about 3.5%. By contrast, trade increases aggregate volatility by some 30% in a small open economy, such as Belgium or Poland. The model performs well in matching the elasticity of macroeconomic volatility with respect to country size observed in cross-country data. |
| Keywords: | Macroeconomic Volatility, Firm-SpeciÞc Idiosyncratic Shocks, Large Firms, International Trade |
| JEL: | F12 F15 F41 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:585&r=opm |
| By: | Christian Saborowski |
| Abstract: | This paper argues that, in improving the efficient allocation of resources, financial sector development could dampen the appreciation effect of capital inflows. Using dynamic panel data techniques, the paper finds that the exchange rate appreciation effect of FDI inflows is indeed attenuated when financial and capital markets are larger and more active. The main implication of these results is that one of the main dangers associated with large capital inflows in emerging markets-the destabilization of macroeconomic management due to a sizeable appreciation of the real exchange rate-can be mitigated partly by developing a deep financial sector. |
| Keywords: | Capital inflows , Real effective exchange rates , Capital markets , Emerging markets , Financial sector , Economic models , Cross country analysis , Statistical annexes , |
| Date: | 2009–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/20&r=opm |
| By: | Julián Messina (University of Girona, Plaça Sant Domènec, 3, E-17071 Girona, Spain.); Chiara Strozzi (Università degli Studi di Modena e Reggio Emilia,Via Università 4, I - 41100 Modena, Italy.); Jarkko Turunen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We study differences in the adjustment of aggregate real wages in the manufacturing sector over the business cycle across OECD countries, combining results from different data and dynamic methods. Summary measures of cyclicality show genuine cross-country heterogeneity even after controlling for the impact of data and methods. We find that more open economies and countries with stronger unions tend to have less pro-cyclical (or more counter-cyclical) wages. We also find a positive correlation between the cyclicality of real wages and employment, suggesting that policy complementarities may influence the adjustment of both quantities and prices in the labour market. JEL Classification: E32, J30, C10. |
| Keywords: | real wages, business cycle, dynamic correlation, labour market institutions. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901003&r=opm |
| By: | Jean Imbs (HEC, Lausanne - Department of Economics, Center for Economic Research - CEPR, Swiss Finance Institut - Swiss Finance Institut); Isabelle Méjean (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X) |
| Abstract: | Estimates of the elasticity of substitution between domestic and foreign varieties are small in macroeconomic data, and substantially larger in disaggregated studies. This may be an artifact of heterogeneity. We use disaggregated multilateral trade data to structurally identify elasticities of substitution in US goods. We spell out a partial equilibrium model to aggregate them adequately at the country level. We compare aggregate elasticities that impose equality across sectors, to estimates allowing for heterogeneity. The former are similar in value to conventional macroeconomic estimates; but they are more than twice larger -up to 7- with heterogeneity. The parameter is central to calibrated models in most of international economics. We discuss the difference our corrected estimate makes in various areas of international economics, including the dynamics of external balances, the international transmission of shocks, international portfolio choice and optimal monetary policy. |
| Keywords: | Trade Elasticities, Aggregation, Calibration, Global Imbalances, International Transmission, International Portfolio, Monetary Policy. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00362403_v1&r=opm |
| By: | Hanan Morsy |
| Abstract: | The paper aims at characterizing the main determinants of the medium-term current account balance for oil-exporting countries using dynamic panel estimation techniques. Previous studies included a very limited number of oil-exporting countries in their samples, raising concerns about the applicability of the estimated coefficients for oil countries. Furthermore, current approaches are not specifically tailored to oil-producing countries because they fail to capture the effects of oil wealth and the degree of maturity in oil production. This paper explores the underlying determinants of the current account balance for a large sample of oilexporting countries, and extends the specifications commonly used in the literature to include an oil wealth variable, as well as a proxy for the degree of maturity in oil production. The paper therefore contributes to the existing literature both in terms of the sample studied as well as the variables considered. The results reveal that factors that matter in determining the equilibrium current account balance of oil-exporting counties are the fiscal balance, the oil balance, oil wealth, age dependency, and the degree of maturity in oil production. |
| Keywords: | Current account balances , Oil exporting countries , Oil production , Oil revenues , Economic growth , Economic models , Cross country analysis , |
| Date: | 2009–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/28&r=opm |
| By: | Sandra Eickmeier (Deutsche Bundesbank, Economic Research Center, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.); Katharina Moll (Goethe-Universität Frankfurt am Main, D-60054 Frankfurt am Main, Germany.) |
| Abstract: | We examine the global dimension of inflation in 24 OECD countries between 1980 and 2007 in a traditional Phillips curve framework. We decompose output gaps and changes in unit labor costs into common (or global) and idiosyncratic components using a factor analysis and introduce these components separately in the regression. Unlike previous studies, we allow global forces to affect inflation through (the common part of) domestic demand and supply conditions. Our most important result is that the common component of changes in unit labor costs has a notable impact of inflation. We also find evidence that movements in import price inflation affect CPI inflation while the impact of movements in the common component of the output gap is unclear. A counterfactual experiment illustrates that the common component of unit labor cost changes and non-commodity import price inflation have held down overall inflation in many countries in recent years whereas commodity import price inflation has only raised the short-run volatility of inflation. In analogy to the Phillips curves, we estimate monetary policy rules with common and idiosyncratic components of inflation and the output gap included separately. Central banks have indeed reacted to the global components. JEL Classification: E31, F41, C33, C50. |
| Keywords: | Inflation, globalization, Phillips curves, factor models, monetary policy rules. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901011&r=opm |