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on Open MacroEconomics |
| By: | Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania); Pablo Guerron-Quintana (Department of Economics, North Carolina State University); Juan F. Rubio-Ramírez (Department of Economics, Duke University); Martin Uribe (Department of Economics, Columbia University) |
| Abstract: | This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of time-varying volatility in the real interest rates faced by a sample of four emerging small open economies: Argentina, Ecuador, Venezuela, and Brazil. We postulate a stochastic volatility process for real interest rates using T-bill rates and country spreads and estimate it with the help of the Particle filter and Bayesian methods. Then, we feed the estimated stochastic volatility process for real interest rates in an otherwise standard small open economy business cycle model. We calibrate eight versions of our model to match basic aggregate observations, two versions for each of the four countries in our sample. We find that an increase in real interest rate volatility triggers a fall in output, consumption, investment, and hours worked, and a notable change in the current account of the economy. |
| Keywords: | Small Open Economy, DSGE Models, Stochastic Volatility |
| JEL: | C32 C63 F32 F41 |
| Date: | 2009–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:09-013&r=opm |
| By: | Arslan Razmi (University of Massachusetts Amherst) |
| Abstract: | Several studies have commented on the emergence of a new interna- tional monetary system in the post-Asian crisis years. The current inter- national financial crisis has, however, put the so-called Bretton Woods II under considerable strain. This paper analyzes the sustainability of the pre-Lehman Brothers international monetary system from an emerging country perspective. A simple framework in which agents have a choice between financial and real assets is constructed in order to explore possi- ble consequences of some of the shocks that emerging economies are cur- rently experiencing. Stock and flow implications are analyzed. Assuming that recent events would have reinforced monetary authorities' desire to maintain an adequate cushion of reserves while preventing exchange rate volatility, we find that the response to most shocks would involve running continuous current account surpluses, that is, a continuation of a crucial aspect of Bretton Woods II. Given political and economic constraints, is such a continuation feasible? A preliminary exploration raises serious doubts and skims alternatives. JEL Categories: F02, F32, F36, |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2009-02&r=opm |
| By: | Lavan Mahadeva; Javier Gómez Pineda |
| Abstract: | The objective of this paper is to analyze how international cycles affect the real GDP cycle and so monetary policy decisions in Colombia. We estimate that cycles in world GDP, export prices and capital inflows are strongly associated with the Colombian business cycle both on impact and even during the first year. We find evidence that, because of inefficiencies in the domestic financial sector, external gains are channelled into nontradable spending through credit expansions. This creates large appreciations during booms. The reverse happens during world slowdowns. These swings in the Exchange rate restrict the scope for a countercyclical monetary policy. |
| Date: | 2009–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:005406&r=opm |
| By: | Malgorzata Sulimierska (Economics Department, University of Sussex) |
| Abstract: | The paper investigates theoretical background if countries with unregulated capital flows are more vulnerable to currency crises. In order to solve this question properly the paper considers sequence, precondition of the Capital Account Liberalization process and different generation of currency crisis models. Furthermore, theoretical studies pointed that the speed and sequence of the CAL process needs to be adequate for the country financial development and financial liberalization. This paper was presented May 22, 2008, at the 18th International Conference of the International Trade and Finance Association meeting at Universidade Nova de Lisboa in Lisbon, Portugal. |
| Date: | 2008–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:bep:itfapp:1111&r=opm |
| By: | Wilfried Altzinger; Jože P. Damijan |
| Abstract: | In this paper we revise the empirical tests of the Ricardian model by testing properly the Ricardian hypotheses on bilateral trade flows. Our tests are based on NACE 2-digit industry aggregation of productivity and of bilateral trade flows between 21 EU member states for the period 1994-2004. We compare the matchings between relative bilateral sectoral productivity rankings and bilateral sectoral exports-to-imports ratio rankings for each of 21 x 20 country pairs. We find that the Ricardian hypothesis is surprisingly good at predicting the static pattern of bilateral trade between individual EU member states even after controlling for the Heckscher-Ohlin type of capital-to-labor ratios. Long-term changes in the bilateral trade patterns, however, do not seem to be explained consistently neither by the variation in changes of relative productivity nor by the variation in changes of capital-to-labor ratios. Furthermore, we find quite a strong autoregressive impact of initial trade patterns on the long-term comparative advantages in the bilateral trade among countries. This implies that comparative advantages are structural by nature and that Ricardian differences in relative productivity can account for a good part of their static representation. Explaining their dynamic evolution over time, however, requires further research. |
| Keywords: | international trade, productivity, Ricardian hypothesis, empirical tests |
| JEL: | D24 F14 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:23509&r=opm |
| By: | Kemal Turkcan (Department of Economics, Akdeniz University); Aysegul Ates (Department of Economics, Akdeniz University) |
| Abstract: | A distinctive feature of present globalization is the development of international production sharing activities, i.e. production fragmentation. The recent developments in transportation and communication technologies led to a surge in intermediate goods trade. However, intermediate goods trade is often neglected in the empirical studies of the exchange rate pass-through (ERPT). Using import unit values of 79 motor vehicle products and 245 auto-part, which are classified by the 10-digit level of Harmonized Tariff Schedule (HTS), this study examines the pass-through of exchange rate changes from 5 major trading partners for the period of 1998.01 to 2006.12 by using panel data cointegration techniques. Secondly, this study aims to compare the ERPT for the motor vehicle products (final goods) to the ERPT for the auto-parts (intermediate goods) in the U.S. The results suggest that import prices do not respond proportionately to the exchange rates and the degree of estimated pass through into import prices differs for motor vehicle products and auto parts.This paper was presented at the 18th International Conference of the International Trade and Finance Association, May 22, 2008, meeting at Universidade Nova de Lisboa, Lisbon, Portugal. |
| Date: | 2008–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:bep:itfapp:1132&r=opm |
| By: | Loic Batte; Agnes Benassy-Quere; Benjamin Carton; Gilles Dufrenot |
| Abstract: | We propose a two-country DSGE model of the Dutch disease in a monetary union, calibrated on Nigeria and WAEMU. Three monetary regimes are successively studied at the union level: a flexible exchange rate with constant money supply, a flexible exchange rate with an accommodating monetary policy, and a fixed exchange rate regime. We find that, in the face of oil shocks, the most stabilizing regime for Nigeria is a fixed money supply whereas it is a fixed exchange rate for WAEMU. However, the introduction of an oil stabilization fund can reduce the disagreement on the common policy rule. Furthermore, the two zones may agree on a fixed money-supply rule in the face of both oil and agricultural price shocks. |
| Keywords: | Dutch disease; DSGE; monetary union; optimal monetary policy |
| JEL: | E52 F41 Q33 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-07&r=opm |
| By: | Malgorzata Sulimierska (Economics Department, University of Sussex) |
| Abstract: | The dissertation investigates if Central and Eastern European countries with unregulated capital flows are more vulnerable to currency crises. In order to answer this question properly the paper considers two lines of analysis: single-country and multi-country. Single -country studies look into three cases: Russia, Poland and Latvia. The multi-country analysis is the simple adaptation of Glick, Guo and Hutchison's probit panel model (2004). The results suggest that countries with liberalized capital accounts experience a lower likelihood of currency crises. Moreover, the information from case studies pointed that the speed and sequence of the CAL process needs to be adequate for the country development.This paper, co-winner of the best student paper award, was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, May 22, 2008. |
| Date: | 2008–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:bep:itfapp:1140&r=opm |
| By: | Robert Shelburne (United Nations Economic Commission for Europe) |
| Abstract: | Many of the emerging market economies in Europe are presently running current account deficits which are quite high relative to any global or historical standard and are fundamentally unsustainable. This includes the three poorer European Union (EU) members of the old Europe (Greece, Portugal, and Spain), many of the EU's new member states (largely the former transition economies which have joined since 2004), most of those non-EU members in south-east Europe, and a number of the CIS economies in eastern Europe and the Caucasus. The unweighted average current account deficit for this group has more than doubled from under four percent of GDP in 2003 to well over eight percent in 2007. This trend is significantly different than what has evolved in many of the world's other emerging markets; these other economies have generally been running current account surpluses. This paper documents this development, describes the underlying factors that have brought it about, assesses the underlying vulnerability that has been created, and discusses the implications of this development for other emerging markets and global financial stability more generally. In addition, how these risks have evolved since the appearance of the global credit crisis beginning in the summer of 2007 is examined. This paper was presented May 22, 2008, at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal. |
| Date: | 2008–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:bep:itfapp:1130&r=opm |
| By: | Pablo Astorga (Abbey House, Carfax, Oxford and Universidad Carlos III, C/ Madrid, 126, 28903 Getafe, Madrid Espana) |
| Abstract: | This paper makes a contribution to the study of economic growth in developing countries by analysing the six largest Latin American economies over 105 years within a two-equation framework. Confirming previous findings, physical and human capital prove to be key determinants of GDP per capita growth. However, a more controver- sial result is an overall negative conditional correlation between trade openness and GDP per head growth – though openness has a positive link via investment. The evi- dence also shows that macroeconomic instability has been a drag on long-term growth in the region. |
| Keywords: | Economic Growth; Investment; Openness; Latin America |
| JEL: | F43 N26 O11 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:esohwp:_075&r=opm |