nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2010‒07‒17
seven papers chosen by
Martin Berka
Massey University

  1. Costly Investment, Complementarities, International Technological-Knowledge Diffusion and the Skill Premium By Óscar Afonso; Pedro Neves; Maria João Ribeiro Thompson
  2. Financial Globalization, Financial Frictions and Optimal Monetary Policy By Ester Faia; Eleni Iliopulos
  3. The Great Depression in Belgium: an Open-Economy Analysis By Luca PENSIEROSO
  4. Does Inflation Targeting decrease Exchange Rate Pass-through in Emerging Countries ? By Dramane Coulibaly; Hubert Kempf
  5. How Expensive is Norway? New International Relative Price Measures By Volodymyr Tulin; Kornélia Krajnyák
  6. Current Account Imbalances in the Southern Euro Area By Piyaporn Sodsriwiboon; Florence Jaumotte
  7. Asynchronous Business Cycles in the E.U.: the Effect of the Common Currency By Gogas, Periklis; Kothroulas, George

  1. By: Óscar Afonso (Universidade do Porto); Pedro Neves (Universidade do Porto); Maria João Ribeiro Thompson (Universidade do Minho)
    Abstract: We examine the behaviour of the skill premium in a two-country general equilibrium growth model assuming (i) technological-knowledge diffusion; (ii) internal costly investment in both physical capital and R&D; and (iii) complementarities between intermediate goods in production. We find that these three economic features affect the steady-state growth rate in both countries. However, only in the imitator country do they influence the skill premium. We also find that the steady-state skill premium in the innovator country is affected by its relative labor productivity rather than by its relative labor endowments. This result contrasts with most skill-biased technological change models and suggests that the sustained increase in the skill premium observed in several developed countries over the last three decades may have been due to increases in the relative productive advantage of skilled labor.
    Keywords: technological-knowledge bias, skill premium, complementarities, costly investment, technological-knowledge diffusion
    JEL: F43 J31 O31 O33 O47
    Date: 2010
  2. By: Ester Faia (Goethe University Frankfurt - Department of Money and Macroeconomics, CEPREMAP - Centre pour la recherche économique et ses applications); Eleni Iliopulos (CEPREMAP - Centre pour la recherche économique et ses applications, 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)
    Abstract: How should monetary policy be optimally designed in an environment with high degrees of financial globalization ? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement. Borrowing is secured by collateral in the form of durable goods whose accumulation is subject to adjustment costs. We demonstrate that, although this economy can generate persistent current account deficits, it can also deliver a stationary equilibrium. The comparison between different monetary policy regimes (floating versus pegged) shows that the impossible trinity is reversed : a higher degree of financial globalization, by inducing more persistent and volatile current account deficits, calls for exchange rate stabilization. Finally, we study the design of optimal (Ramsey) monetary policy. In this environment the policy maker faces the additional goal of stabilizing exchange rate movements, which exacerbate fluctuations in the wedges induced by the collateral constraint. In this context optimality requires deviations from price stability and calls for exchange rate stabilization.
    Keywords: Globales imbalances, collateral constraints, monetary regimes.
    Date: 2010–06
  3. By: Luca PENSIEROSO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper studies the Great Depression in Belgium within the open-economy dynamic general equilibrium approach. Results from the simulations show that a two-good model with total factor productivity shocks and nominal exchange rate shocks can account for most of the 1929-1934 output drop. The data mimicking ability of the model is good along other dimensions as well, most notably hours worked, the consumption price index and the terms of trade. The model is also able to catch some of the dynamics of imports and exports.
    Keywords: Great Depression, Belgium, Dynamic Stochastic General Equilibrium, Open Economy
    JEL: N14 F41 E13
    Date: 2010–05–31
  4. By: Dramane Coulibaly (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Hubert Kempf (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, Banque de France - Direction de la Recherche)
    Abstract: In this paper, we empirically examine the effect of inflation targeting on the exchange rate pass-through to prices in emerging countries. We use a panel VAR that allows us to use the larger data set on twenty-seven emerging countries (fifteen inflation targeters and twelve inflation nontargeters). Our evidence suggests that inflation targeting in emerging countries has helped to reduce the pass-through to various price indexes (import prices, producer prices and consumer prices) from a higher level to a new level that is significantly different from zero. The variance decomposition shows that the contribution of exchange rate shocks to prices fluctuations is more important in emerging targeters compared to nontargeters, and the contribution of exchange rate shocks to price fluctuations in emerging targeters declines after adopting inflation targeting.
    Keywords: Inflation targeting, exchange rate pass-through, panel VAR.
    Date: 2010–05
  5. By: Volodymyr Tulin; Kornélia Krajnyák
    Abstract: In this paper, we derive two new measures of international relative prices for Norway. Developments in these new measures follow rather closely movements in the CPI-based real effective exchange rate through the 1990s, but diverge after 2000—suggesting that the costs of living in Norway relative to its trading partners have risen in the recent years more than the real effective exchange rate would indicate.
    Keywords: Consumer price indexes , Cost of living , Norway , Price structures , Prices , Real effective exchange rates ,
    Date: 2010–06–04
  6. By: Piyaporn Sodsriwiboon; Florence Jaumotte
    Abstract: The paper examines the causes, consequences, and potential cures of the large current account deficits in the Southern Euro Area (SEA). These were mostly driven by a decline in private saving rates. But it was the European Monetary Union and the Euro, which enabled these countries to maintain investment rates, and thus run larger current account deficits, by improving their access to the international pool of saving. The paper finds that the deficits in SEA in 2008 were larger than can be explained by fundamentals, though the situation varies substantially across countries. It also finds that although the global financial crisis has started to force some unwinding, the current account deficits are expected to remain high in the medium run, though again with substantial variation across countries. The paper argues these large external deficits pose risks to the economy and therefore matter, even in a currency union, and discusses some policy options to reduce them.
    Date: 2010–06–11
  7. By: Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Kothroulas, George (Democritus University of Thrace, Department of International Economic Relations and Development)
    Abstract: The purpose of this paper is to examine the effectiveness of the policies and procedures towards economic convergence between the countries that participated in the European Exchange Mechanism I and which are now members states of the Eurozone. The question posed is whether the introduction of the common currency has strengthened the synchronisation of the business cycles of the member states or it has acted as the monetary ground for the creation of a multi-speed Europe that includes economies that bear little resemblance in terms of their basic economic features and figures and especially with respect to the fluctuations in their Gross Domestic Product. The empirical analysis is done through the use of linear regressions, the estimation of the correlation coefficient, and also a proposed sign concordance index (SCI). The results provide evidence that the synchronisation of the cycles seems to become weaker since the adoption of the new currency. Especially for G6, the group of the smaller regional economies, the results are consistent throughout all three methodologies used and for both groups of countries’ cycles used as a comparison base, the broad EU15 and the narrow G3.
    Keywords: Business Cycle; Synchronisation; Eurozone
    JEL: E32
    Date: 2010–07–04

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