nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2009‒11‒14
nine papers chosen by
Martin Berka
Massey University

  1. Oil Stock Discovery and Dutch Disease By John Hartwick; Kirk Hamilton
  2. The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence By Laura Povoledo
  3. External imbalances and collateral constraints in a two-country world By Eleni Iliopulos
  4. Real Convergence, Capital Flows, and Competitiveness in Central and Eastern Europe By Ansgar Belke; Gunther Schnabl; Holger Zemanek
  5. International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence By Guglielmo Maria Caporale; Thouraya Hadj Amor; Christophe Rault
  6. International Portfolio Balance – Modeling the External Adjustment Process By Holinski Nils; Kool Clemens; Muysken Joan
  7. On the GCC Currency Union By Weshah Razzak
  8. Determination of the real exchange rate of rouble and assessment of long-rum policy of real exchange rate targeting By Sossounov, Kirill; Ushakov, Nikolay
  9. Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession. By Escaith, Hubert

  1. By: John Hartwick (Queen's University); Kirk Hamilton
    Abstract: We set out a model of a two-good, small open economy exporting a traditional exportable in order to …finance capital goods rental payments. We observe that the traditional export sector declines with an exogenous increase in the country's oil export earnings, while the local goods sector expands. For input price effects to emerge, land is needed as a third input. For the "large land" case, we can have imports of capital steadily decline as oil earnings expand. Earnings from oil sales are stationary under our annuitization construction.
    Keywords: Dutch disease, resource discovery, invariant earnings
    JEL: F43 Q33 Q32
    Date: 2009–11
  2. By: Laura Povoledo
    Abstract: This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a “New Open Economy” model having prices sticky in the producer’s currency can re¬produce the observed fluctuations qualitatively. The answer is positive: both in the model and in the data the standard deviations of tradeable inflation, out¬put and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.
    Keywords: New Open Economy Macroeconomics, Tradeable and Nontradeable Sectors, Business Cycles.
    JEL: F41 E32
    Date: 2009–02
  3. By: Eleni Iliopulos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPREMAP - Centre pour la recherche économique et ses applications)
    Abstract: In this article, we focus on current account dynamics in large open economies characterized by debt-constrained heterogeneous agents and endogenous monetary policies. We incorporate three key features that have bulked large in the New Open Macroeconomics literature : i) home bias in trade, ii) price rigidities, and iii) durable goods (real properties). In order to limit agents' willingness to consume and to (partially) insure creditors against the risk of default, we incorporate collateral constraints. We show that the impatience of collateral-constrained agents can be at the roots of permanent external imbalances. Indeed our model has a unique and dynamically determinate steady state, which is characterized by a positive level of debt. Our framework allows us to analyze the linkage between exchange rates, real assets and international capital flows. We focus on this mechanism so as to track the (international) transmission of shocks and the implications for the monetary policy. We show how developments hitting the house market can affect current account and exchange rate dynamics.
    Keywords: Open economy ; durable goods ; collateral constraints ; sticky prices ; simple monetary rules
    Date: 2009–10
  4. By: Ansgar Belke; Gunther Schnabl; Holger Zemanek
    Abstract: The paper scrutinizes the role of wages and capital flows for competitiveness in the new EU member states in the context of real convergence. For this purpose it extends the seminal Balassa-Samuelson model by international capital markets. The augmented Balassa-Samuelson model is linked to the monetary overinvestment theories of Wicksell and Hayek in order to trace cyclical deviations of real exchange rates from the productivity-driven equilibrium path. Panel estimations for the period from 1993 to 2008 reveal mixed evidence for the role of capital markets for both the economic catch-up process and international competitiveness of the Central and Eastern European countries.
    Keywords: Exchange rate regime, wages, Central and Eastern Europe, EMU accession, panel model
    JEL: E24 F16 F31 F32
    Date: 2009
  5. By: Guglielmo Maria Caporale; Thouraya Hadj Amor; Christophe Rault
    Abstract: The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.
    Keywords: emerging economies, real exchange rate, financial integration, misalignment, second-generation panel unit-root and cointegration tests
    JEL: E31 F0 F31 C15
    Date: 2009
  6. By: Holinski Nils; Kool Clemens; Muysken Joan (METEOR)
    Abstract: Unprecedented growth in private cross-border asset trade and asymmetric internationalbalance sheets are well-documented stylized facts of financial integration. Moreover, weobserve that current accounts are no longer the number one determinant of external balances. Advancing the work of Blanchard et al. (2005), this paper develops a portfolio-balance model that recognizes these stylized facts and shows how they influence the joint dynamics of the current account, the exchange rate and relative asset prices. Calibrating the model to the external adjustment process of the US, the model produces results that are broadly consistent with recent empirical trends. In particular, we find that the composition of its international balance sheet helps the US to better cope with external shocks.
    Keywords: international economics and trade ;
    Date: 2009
  7. By: Weshah Razzak
    Abstract: Essentially, the impact of the currency union on member countries depends on whether the common currency area is optimal in the sense that the effect of the asymmetric shocks is small, Mundell (1961). Typically, researchers use VAR of different types to analyze the data. For robustness, we use different methodologies. First, we use different estimators to estimate a small textbook model for the panel of the Gulf Cooperation Council countries (GCC) from 1970 to 2006, where the short-run equilibrium real output and the real exchange rate are determined by the intersection of the assets and goods markets equilibrium schedules. And the central bank fixes the exchange rate by keeping the money supply at a level where the domestic interest rate is equal to the foreign interest rate. Then we test for symmetry using the nonparametric Triples test, Randles et al. (1980). Third, we introduce a nonparametric multivariate statistic to test whether the variances of the shocks (the conditional variance) are equal across countries.
    Keywords: Optimum Currency Area, asymmetrical shocks and conditional variance
    JEL: F31 P28 C13 C33
    Date: 2009–02–11
  8. By: Sossounov, Kirill; Ushakov, Nikolay
    Abstract: The equilibrium real exchange rate of Russian ruble is estimated for the period from the beginning of 1995 to the beginning of 2008. According to the methodological approach proposed by Edwards (1988) the equilibrium real exchange rate is a function of a set of fundamental variables (so-called “reduced form equation”). In order to estimate an equilibrium real exchange rate a set of fundamentals was selected: terms of trade, productivity differential, fiscal policy variable. Estimation was performed in a cointegrated VAR framework using the Johansen cointegration test. The speed of adjustment of the actual real exchange rate to the equilibrium real exchange rate as well as the influence of monetary policy and private capital flows on the short-run dynamics of real exchange rate is explored.
    Keywords: macroeconomics; real exchange rate; Russia
    JEL: C51 E00
    Date: 2009–05–01
  9. By: Escaith, Hubert
    Abstract: Global supply chains reshaped international trade since the end 1980s and their role in the trade collapse that followed the financial crisis of September 2008 was determinant. Because production is now internationally diversified, adverse external shocks affect firms not only through final demand, but also through a rupture in the flow of inputs received from their suppliers. The future of supply chain determines also the alternative exit scenarios from the Great Recession; as a result of global rebalancing, they will probably be smaller and more regional. Left unchecked, these centripetal forces may lead to a deterioration of global governance and to deglobalization. The reshaping of global effective demand is of particular importance for the labour abundant lesser advanced developing countries that where relying on the strength of the global supply chains to attract productive investments. On the other hand, because trade in goods for processing inflated artificially some bilateral trade deficit, rebalancing them will prove easier in the short term, while the technical factors that made possible the internationalization of production will still promote further "flattening of the Earth" in the longer term.
    Keywords: international trade; global supply chains; transmission channels; global rebalancing; trade and development
    JEL: F42 E32 F23 O24 O19
    Date: 2009–10–28

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