nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2009‒12‒05
five papers chosen by
Martin Berka
Massey University

  1. The historical connection between short term output and prices in a small open economy By ola Grytten; Arngrim Hunnes
  2. Export-led growth, real exchange rates and the fallacy of composition By Robert A. Blecker; Arslan Razmi
  3. Evidence of the role of the real exchange rate in the growth of the GDP in Argentina (1989-2007) By Saidón, Mariana
  4. International spillover effects and monetary policy activism By Lipinska, Anna; Spange, Morten; Tanaka, Misa
  5. Equilibrium sovereign default with endogenous exchange rate depreciation By Popov, Sergey V.; Wiczer, David G.

  1. By: ola Grytten (Norwegian School of Economics and Business Administration (NHH)); Arngrim Hunnes (University of Agder (UiA))
    Abstract: According to a Keynesian view, short term output fluctuations are normally demand side led. Since prices reflect demand, they should mirror output fluctuations. Thus, prices and output are expected to move in the same direction in the short run. The present paper investigates the historical co-movements of output and prices for a small open raw material based economy, in this case Norway 1830-2006. We find little evidence of a positive relationship. On the contrary, we rather find negative correlations between the two variables, indicating that supply side shocks through the foreign sector were more important for historical business cycles in Norway than assumed hitherto.
    Keywords: Business cycles; Output; Small open economy; Price fluctuations.
    JEL: E31 E32 N10 N13 N14
    Date: 2009–10–29
  2. By: Robert A. Blecker; Arslan Razmi
    Keywords: exports, exchange rates
    Date: 2009–03
  3. By: Saidón, Mariana
    Abstract: This paper analyzes the impact of the real exchange rate on the behavior of the GDP in Argentina in the period that goes from 1989 to 2007. In this paper, an econometric model based on the Vector Error Correction method, which proves the (lack of) relevance of different predictions made by alternate schools of domestic macroeconomic thought is proposed. The model links four non-stationary and cointegrated variables: the two mentioned variables are: the gross domestic product and the real exchange rate, and a liquid monetary aggregate (excluding time deposits) and the terms of trade. The responses of GDP to real exchange rate shocks and the terms of trade showed a similar behavior towards both the generalized impulses and other impulses arising from a Cholesky decomposition: initially, a real exchange rate shock has a negative impact on the activity that gradually decreases, and after six months it becomes positive, when it begins to gradually recover strength. The terms of trade have a positive impact after the shock and that impact loses strength over the time until it becomes negative and, cumulatively, explosive. Money- Supply shocks have a positive impact initially but there is no strong evidence regarding medium and long-term effects.
    Keywords: real exchange rate; GDP; Gross Domestic Product; VEC; Vector Error Correction; Argentina; generalized impulses
    JEL: N1 N16 B22 C1 C32 B2
    Date: 2009–03–31
  4. By: Lipinska, Anna (Bank of England); Spange, Morten (Danmarks Nationalbank); Tanaka, Misa (Bank of England)
    Abstract: This paper examines how the preferences of a large economy’s central bank affect the trade-off between output and inflation volatility faced by the central bank of a small open economy by analysing the impact of a global cost-push shock. We demonstrate that under the assumption of producer currency pricing, the trade-off faced by the small open economy is likely to worsen as the foreign central bank becomes more focused on output stabilisation relative to inflation stabilisation; but the opposite is true in the case of local currency pricing.
    Keywords: Open economy; policy trade-offs; producer versus local currency pricing
    JEL: E58 F41 F42
    Date: 2009–11–27
  5. By: Popov, Sergey V.; Wiczer, David G.
    Abstract: Sovereign default is often associated with disturbances in a country’s trade relations. Often the defaulter’s currency depreciates while trade volume falls drastically. This paper develops a model to incorporate real depreciation along with sovereign bankruptcy. The exchange rate is determined in equilibrium as the relative price of imports. We demonstrate that a default episode can imply up to a 30% real depreciation. This matches the depreciations observed in crisis events for developing countries. We argue that much of the exchange rate movement is explained by market clearing adjustments to trade disruptions in the aftermath of default.
    Keywords: Endogenous default; endogenous exchange rate; trade balance.
    JEL: F34 F11 F17
    Date: 2009–11–24

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