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on Open MacroEconomics |
| By: | Jean-Philippe Cayen; Donald Coletti; Rene Lalonde; Philipp Maier |
| Abstract: | We use a novel approach to identify economic developments that drive exchange rates in the long run. Using a panel of six quarterly U.S. bilateral real exchange rates – Australia, Canada, the euro, Japan, New Zealand and the United Kingdom – over the 1980-2007 period, a dynamic factor model points to two common factors. The first factor is driven by U.S. shocks, and cointegration analysis points to a long-run statistical relationship with the U.S. debt-to-GDP ratio, relative to all other countries in our sample. The second common factor is driven by commodity prices. Incorporating these relationships directly into a state-space model, we find highly significant coefficients. Then, we decompose the historical variation of each exchange rate into U.S. shocks, commodities, and a domestic component. We find a strong role for economic fundamentals: Changes in the two common factors, which are driven by the (relative) U.S. debt-to-GDP ratio and commodity prices, can explain between 36 and 96 per cent of individual countries' exchange rates in our panel. |
| Keywords: | Exchange rates; Econometric and statistical methods |
| JEL: | J31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-5&r=opm |
| By: | Macdonald, Ryan |
| Abstract: | This paper uses Organization for Economic Co-operation and Development (OECD) data to examine changes in labour productivity, real gross domestic product (GDP), real gross domestic income (GDI), economic aggregates and relative economic growth over time. Real GDI combines changes in production (real GDP), with a trading gain derived from relative price changes. The paper considers two sources of trading gains: the terms of trade and the real exchange rate. For OECD countries, the terms of trade is the more important price ratio, making a contribution to real income growth that is, on average, an order of magnitude larger than the real exchange rate. Over long time periods, the most important source of real income growth is changes in production. Over shorter time horizons, however, the trading gain can make noteworthy contributions. Changes in aggregates, like real private consumption or the relative economic performance of nations, are shown to be particularly dependent on the trading gain during the large swings in resource prices that occurred after 2002. |
| Keywords: | Economic accounts, Gross domestic product, Productivity accounts |
| Date: | 2010–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2010059e&r=opm |
| By: | Arturo Galindo; Alejandro Izquierdo; Liliana Rojas-Suarez |
| Abstract: | This paper explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integration—captured through the participation of foreign banks—in propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates. |
| Keywords: | Foreign Banks, Credit, Interest Rates, Financial Shocks |
| JEL: | F36 G0 G21 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4651&r=opm |
| By: | Philippe Andrade; Marios Zachariadis |
| Abstract: | We exploit the panel dimension of a price levels dataset for more than one hundred product items across 140 cities in 90 countries for the period from 1990 to 2009 in order to improve our understanding of international price dispersion and the evolution of prices over time. We consider a panel data model with exchangeable units that allows for the possibility of common components for different dimensions of the panel. This allows one to gauge the contribution of each dimension of the data to total variation and to disentangle the sources of potential non-stationarity. It also allows us to identify differences in the speed of convergence for different time-varying components in response to location-specific, product-specific, and idiosyncratic shocks. Finally, we proceed to identify the economic determinants of different components to show that particular dimensions of the data are more suited for examining particular theories. |
| Keywords: | Price levels, Variance decomposition, Convergence, Non-stationarity, International price dispersion |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:2-2010&r=opm |