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on Open MacroEconomics |
| By: | Söderberg, Johan (Department of Economics) |
| Abstract: | Staggered prices are a fundamental building block of New Keynesian dynamic stochastic general equilibrium models. In the standard model, prices are uniformly staggered but recent empirical evidence suggest that deviations from uniform staggering are common, This paper analyzes how synchronization of price changes affects the response to monetary policy shocks. I find that even large deviations from uniform staggering have small effects on the response in output. Aggregate dynamics in a model of uniform staggering may serve well as an approximation to a more complicated model with some degree of synchronization in price setting. |
| Keywords: | Price setting; Staggering; Synchronization; Persistence |
| JEL: | E31 E32 |
| Date: | 2010–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2009_019&r=opm |
| By: | Malin Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Klaus Masuch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marc Schiffbauer (University of Bonn, Regina-Pacis-Weg 3, D-53113 Bonn, Germany.) |
| Abstract: | This paper analyses the determinants of inflation differentials and price levels across the euro area countries. Dynamic panel estimations for the period 1999-2006 show that inflation differentials are primarily determined by cyclical positions and inflation persistence. The persistence in inflation differentials appears to be partly explained by administered prices and to some extent by product market regulations. In a cointegrating framework we find that the price level of each euro area country is governed by the levels of GDP per capita. JEL Classification: E32, E52, E43, F2. |
| Keywords: | inflation differentials, inflation persistence, price level, convergence. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091129&r=opm |
| By: | Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | This paper computes welfare levels under different degree of capital controls and compares them with the welfare level under perfect capital mobility by using the methodology of Schmitt-Grohe and Uribe (2007). We show that perfect capital mobility is not always optimal and that capital controls may enhance an economy's welfare level. There exists an optimal degree of capital-account restriction that achieves a higher level of welfare than that under perfect capital mobility, if the economy has a distortion due to financial intermediaries such as inefficient banks. The results of our analysis imply that as the domestic financial intermediaries are less efficient, the government should impose stricter capital controls in the form of a tax on foreign borrowing. |
| Keywords: | Jcapital controls, welfare, DSGE, small open economy |
| JEL: | F41 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2010-01&r=opm |
| By: | Irineu E. Carvalho Filho; Rudolfs Bems |
| Abstract: | Are the current account fluctuations in oil-exporting countries "excessive"? How should their real exchange rate respond to the evolution of external (and domestic) fundamentals? This paper proposes methodologies tailored to the specific features of oil-exporting countries that help address these questions. Price-based methodologies (based on the time series of real effective exchange rates) identify a strong link between the real exchange rate and the terms of trade, but have relatively limited explanatory power. On the other hand, an empirical model of the current account, which fits oil exporting countries' data well, and an intertemporal model that takes into account the stock of oil reserves provide useful benchmarks for oil exporters' external balances. |
| Keywords: | Commodity price fluctuations , Current account , Economic models , Exchange rates , Fiscal policy , Oil exporting countries , Oil prices , Oil revenues , Real effective exchange rates , |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/281&r=opm |
| By: | Pablo A. Guerron-Quintana |
| Abstract: | Inference about common international stochastic trends and interest rates is gained using a small open economy model, data from seven developed countries, and Bayesian methods. Shocks to these common factors explain up to 17 percent of the variability of output in several economies. Country-specific preference and premium disturbances account for the bulk of the volatility observed in the data. There is substantial heterogeneity in the estimated structural parameters as well as stochastic processes for the countries in the sample. This diversity translates into a rich array of impulse responses across countries. According to the model, the recent low international interest rates might have initially deepened the decline of GDP in several developed economies. |
| Keywords: | Econometric models ; Recessions ; Business cycles ; International economic relations |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:10-4&r=opm |
| By: | Pablo Astorga (Latin American Centre, St. Antony's College, Oxford and Instituto Figuerola Universidad Carlos III, Marid, Spain.) |
| Abstract: | This paper analyses stability in real multilateral exchange rates in six leading Latin-American economies during the XXth century using a new data set. A univariate approach is complemented by an error-correction model including key fundamentals. Unit-root testing shows a very slow process of mean reversion – if any – in the series in levels; however, mean reversion is found after allowing for trends and structural breaks with half-life values ranges from 0.8 to 2.5 years. We also found reversion to a conditional mean defined by the co-integrating relationship, and that the equilibrium path is largely explained by fundamentals - especially terms of trade and trade openness. Exchange rate policy proved to have only a transitory effect in generating real depreciation. |
| Keywords: | Real Exchange Rates, Purchasing Power Parity, Economic Development, Latin America |
| JEL: | F41 N16 O11 |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:esohwp:_080&r=opm |
| By: | Josef T. Yap (Philippine Institute for Development Studies) |
| Abstract: | In response to the 1997 East Asian financial crisis many schemes were initiated to reform the international financial architecture. The proposed reforms had two wideranging objectives- (i) to prevent currency and banking crises and better manage them when they occur; and (ii) to support adequate provision of net private and public flows to developing countries, particularly low-income ones. Unfortunately the progress has been uneven, asymmetric, and patchy. This is largely because the structural problems related to the supply side of capital flows have not been addressed, particularly the unipolar character of the global financial system. As a result, many East Asian economies face many of the same conditions that prevailed immediately prior to the crisis- huge capital inflows heavily tilted towards hot money, rapid appreciation of currencies in real terms, surging stock prices, and little policy space to implement countercyclical measures in the event of a crisis. The difference is that many countries have accumulated a large amount of foreign exchange reserves but at the expense of domestic investment and economic growth. In order to resolve the problems that are posed by volatile capital flows it is important to accelerate East Asian cooperation and integration, particularly with regard to the objective of using regional savings for regional infrastructure projects. Political rapprochement between China and Japan is a necessary condition both to move regional cooperation and integration forward and to overhaul the unipolar global financial system. |
| Keywords: | international financial architecture, disaster myopia, capital flows, real effective exchange rate |
| JEL: | F42 F3 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1815&r=opm |
| By: | Andreas Benedictow and Pål Boug (Statistics Norway) |
| Abstract: | Previous studies on the relationship between exchange rates and traded goods prices typically find evidence of incomplete pass-through, usually explained by pricing-to-market behaviour. Although economic theory predicts that incomplete pass-through may also be linked to presence of non-tariff barriers to trade, variables reflecting such a link is rarely included in existing empirical models. In this paper, we estimate a pricing-to-market model for Norwegian import prices on textiles and wearing apparels, controlling explicitly for the removal of non-tariff barriers to trade and the shift in imports from high-cost to low-cost countries through a Törnqvist price index based measure of foreign prices. We show that this measure of foreign prices unlike standard measures used in the literature is likely to produce unbiased estimates of the degree of pass-through, and thereby also the extent of pricing-to-market behaviour. Finally, we demonstrate that the estimated import price equation is reasonably stable and exhibits no serious forecasting failures. These findings contradict the hypothesis that pass-through has changed alongside trade policy shifts during the second half of the 1990s and the monetary policy regime shift in 2001. |
| Keywords: | Trade liberalisation; import prices; pricing-to-market; exchange rate pass-through; vector autoregressive models. |
| JEL: | C22 C32 C43 E31 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:605&r=opm |
| By: | Jung Sik Kim; Yonghyup Oh (Yongsei University of Korea, Korea Institute for International Economic Policy) |
| Abstract: | This paper analyzes the validity of macroeconomic variables, such as exchange rate uncertainty, macroeconomic instability, and openness, in determining intra-FDI inflows in the ASEAN countries, China, Japan, and Korea. Our empirical results show that openness, exchange rates, exchange rate volatility, per capita GDP, and foreign reserve accumulation are statistically significant factors that determine regional intra-FDI inflows; other variables such as macroeconomic instability are not significant. Variables like openness and exchange rate volatility have direct implications for regional FTAs and regional common currency arrangements, and thus to East Asian economic integration. Our findings suggest that a regional FTA that would increase regional openness by 10 percent would increase intra-FDI inflows by almost 2 percent. A regional exchange rate arrangement that would reduce regional exchange volatility by half would increase intra-FDI inflows by around 10 percent. |
| Keywords: | FDI, Openness, Exchange Rate Uncertainty, Exchange Rate, Regional Economic Integration |
| JEL: | F21 F23 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:tradew:909&r=opm |
| By: | Pelin Berkmen; Robert Rennhack; James P Walsh; Gaston Gelos |
| Abstract: | We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables. |
| Keywords: | Credit expansion , Cross country analysis , Developing countries , Economic forecasting , Economic growth , Emerging markets , Financial crisis , Financial systems , Fiscal policy , Flexible exchange rates , Global Financial Crisis 2008-2009 , Trade , |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/280&r=opm |
| By: | Elvira Prades (BBVA Research Department); Katrin Rabitsch (Department of Economics, Central European University and Research Department, Magyar Nemzeti Bank.) |
| Abstract: | Differences in financial systems are often named as a prime candidate for the current state of global imbalances. This paper argues that the process of capital liberalization can explain a substantial fraction of the US net external liabilities. We present a simple two-country model with an internationally traded bond, in which capital controls are reflected in the presence of borrowing and lending constraints on that bond. In a US versus the rest of the world (RoW) scenario, we perform experiments that are largely consistent with countries’ liberalization experiences. A reduction in the RoW’s controls on capital outflows and/or a tightening in the RoW’s borrowing constraint enables the US economy to better insure against consumption risk relative to the rest of the world, and therefore decreases its motives for precautionary asset holdings relative to the rest of the world. As a result of these asymmetric shifts in countries’ barriers to capital mobility, the US runs a long run external deficit. |
| Keywords: | capital liberalization, external imbalances, net foreign asset position, precautionary savings, borrowing and lending constraints. |
| JEL: | F32 F34 F41 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2009/4&r=opm |