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on Open MacroEconomics |
| By: | Matsuyama, Kiminori |
| Abstract: | This paper considers a model of the world economy with a finite number of ex-ante identical countries and a continuum of tradeable goods. Productivity differences across countries arise endogenously through free entry to the local differentiated producer service sector in each country. It is shown that, in any stable equilibrium, the countries sort themselves into specializing in different sets of tradeable goods and that a strict ranking of countries in income, TFP, and the capital-labor ratio emerge endogenously. The equilibrium Lorenz curve is characterized by a second-order nonlinear difference equation with the two terminal conditions. As the number of countries increases, this equation converges to a differential equation whose unique solution can be solved analytically and depends on a few parameters in a tractable manner. This enables us to show when the equilibrium distribution obeys a power-law and how various forms of globalization affect inequality among countries and to study the welfare effects of trade. |
| Keywords: | Endogenous Comparative Advantage, Endogenous Inequality, Globalization and Inequality, Dornbusch-Fischer-Samuelson model, Dixit-Stiglitz model of monopolistic competition, Symmetry-Breaking, Lorenz-dominant shifts, Log-submodularity, Power-law distributions |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:35&r=opm |
| By: | Fernando Broner; Tatiana Didier; Aitor Erce; Sergio L. Schmukler |
| Abstract: | This paper analyzes the behavior of international capital flows by foreigners and domestic agents, especially during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile, especially relative to net capital flows. This is because when foreigners invest in a country domestic agents tend to invest abroad and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This is especially true during severe crises and during systemic crises. The evidence can shed light on the nature of shocks driving international capital flows. It seems to favor shocks that affect foreigners and domestic agents asymmetrically –e.g. sovereign risk and asymmetric information– over productivity shocks. |
| Keywords: | capital flows, domestic investors, foreign investors, crises. |
| JEL: | F21 F32 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1227&r=opm |
| By: | Sami Alpanda (Amherst College); Uluc Aysun (University of Connecticut) |
| Abstract: | The literature typically finds that the development of financial markets has decreased the ability of central banks to affect the real economy. This paper shows that this negative relationship does not hold for the balance sheet channel of monetary transmission and bank globalization -- one aspect of financial development. The reason is that global banks are more sensitive to borrowers' leverage. By affecting this leverage, monetary policy has a larger impact on global banks' lending and aggregate economic activity. We use bank-level, Call Report data to obtain this disparity between more and less global banks. We then use this data in the estimation of a general equilibrium model and find that the balance sheet channel of monetary policy operates mainly through more global banks. |
| Keywords: | balance sheet channel, bank globalization, financial accelerator |
| JEL: | E44 F31 F41 O16 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2010-20&r=opm |
| By: | Calista Cheung; Davide Furceri; Elena Rusticelli |
| Abstract: | Global external imbalances widened persistently over the last several years and have narrowed abruptly over the course of the financial crisis. Understanding the extent to which structural or cyclical factors may have driven these patterns is important to assess the likely evolution of global imbalances going forward, as well as the potential adjustment that can be achieved through changes in policy. This paper assesses the link between structural and cyclical factors and current-account balances using a panel of 94 countries from 1973 to 2008. We find that the medium-term evolution of global external imbalances can be related in large part to structural factors including cross-country differences in demographics, fiscal deficits, oil dependency and intensity, stage of economic development, financial market development, and institutional quality. Part of the narrowing in current-account balances since the financial crisis appears to be related to various cyclical factors including changes in output growth, oil prices, and exchange rates, and may be expected to reverse alongside the economic recovery.<P>Les facteurs structurels et cycliques derrière l’évolution des comptes courantsGlobal external imbalances widened persistently over the last several years and have narrowed abruptly over the course of the financial crisis. Understanding the extent to whic<BR>Des déséquilibres externes mondiaux se sont élargis constamment au cours des dernières années et puis se sont réduits abruptement au cours de la crise financière. Comprendre dans quelle mesure des facteurs structurels ou cycliques ont conduit ces évolutions est important pour évaluer l'évolution probable des déséquilibres mondiaux à l’avenir, ainsi que l'ajustement potentiel qui peut être réalisé par des changements de la politique. Cette étude évalue les facteurs structurels et cycliques qui influencent des balances courantes en utilisant un panneau de 94 pays de 1973 à 2008. Nous constatons que l'évolution à moyen terme des déséquilibres externes mondiaux a été conduite en grande partie par des facteurs structurels comprenant des différences internationales dans la démographie, les déficits publics, la dépendance et l'intensité en pétrole, le niveau de développement économique, le développement des marchés financiers, et la qualité institutionnelle. Une partie du rétrécissement des équilibres de compte courant depuis la crise financière semble être liée à de divers facteurs cycliques comprenant des changements dans la croissance de la production, le prix du pétrole, et les taux de change, et pourrait s’inverser avec la reprise économique.c |
| Keywords: | current account, global imbalances, compte courant, déséquilibres mondiaux |
| JEL: | F32 F41 L |
| Date: | 2010–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:775-en&r=opm |
| By: | Marcin Kolasa (National Bank of Poland, Economic Institute, ul. Swietokrzyska 11/21, 00-919 Warsaw and Warsaw School of Economics, Department of Applied and Theoretical Economics, Al. Niepodleglosci 162, 02-554 Warsaw, Poland.) |
| Abstract: | This paper uses the EAGLE, a multi-country dynamic general equilibrium model, to illustrate dynamic adjustments in a small open economy undergoing real convergence. We consider the effects of productivity catch-up and misperceptions about future productivity developments. Our results indicate that even if real convergence takes the form of a gradual process, the dynamic responses of key macrovariables can be far from smooth. We also find that overly optimistic expectations about productivity shifts can generate sizable boom-bust cycles and so be relevant in accounting for cyclical deviations from a sustainable real convergence path. Our comparisons across alternative monetary regimes reveal that a flexible exchange rate helps to smooth real convergence processes and misperceptions associated with tradable sector productivity, while the opposite usually holds true for scenarios based on nontradable sector developments. JEL Classification: D58, E32, F41. |
| Keywords: | Real convergence, Boom-bust cycles, Dynamic general equilibrium models. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101231&r=opm |
| By: | Maria Christidou (Department Of Economics, University Of Macedonia, Thessaloniki, Greece); Theodore Panagiotidis (Department Of Economics, University Of Macedonia, Thessaloniki, Greece; The Rimini Centre for Economic Analysis (RCEA), Italy) |
| Abstract: | The effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit root tests reject PPP and the highest half-lives are observed after the introduction of the single currency. Panel unit root (Pesaran, 2007) and stationarity tests (Hadri and Kurozumi, 2008) that take into account cross-sectional dependence are also estimated. The results remain inconclusive as panel stationarity tests fail to support PPP whereas panel unit root tests fail to reject PPP for the whole sample and for the period before the introduction of the single currency. |
| Keywords: | Purchasing Power Parity, half-life, nonlinear unit roots, panel unit roots, heterogeneity, cross-section dependence |
| JEL: | F31 F33 G15 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:19_10&r=opm |
| By: | Luiz de Mello; Pier Carlo Padoan |
| Abstract: | This paper assesses the sustainability of global imbalances by testing for the presence of unit roots in the current account positions (measured in relation to GDP) of the United States, China, Japan, Germany and the oil-exporting countries using a methodology that allows for structural breaks in levels and trends. We find that the external positions of these major countries/regions are stationary around structural breaks, which define episodes of current account reversals. On the basis of an event analysis of past reversals, it appears that structural breaks are associated with shifts in the fiscal stance, exchange rate parities and potential output growth, a finding that underscores the scope for macroeconomic and structural policies to ensure the sustainability of external positions while avoiding potentially disruptive reversals. These findings have implications for long-term capital flows after the crisis.<P>Les déséquilibres mondiaux sont-ils soutenables ? : Les scénarios d’après la crise<BR>Cette étude évalue la soutenabilité des déséquilibres globaux par des tests de racines unitaires dans le solde de la balance courante (mesurée par rapport au PIB) des États-Unis, de la Chine, du Japon, de l’Allemagne et des pays exportateurs de pétrole en utilisant une méthodologie qui permet des ruptures structurelles dans les niveaux et les tendances des séries statistiques. Nous constatons que les soldes de la balance courante de ces grands pays ou régions sont stationnaires autour de ruptures structurelles qui définissent les épisodes de retournement du solde de la balance courante. Sur la base d’une analyse des situations qui ont conduit aux retournements précédents, il semble que les ruptures structurelles soient associées à des changements de politique budgétaire, de parités de taux de change et de croissance potentielle, une constatation qui souligne la portée des politiques macroéconomiques et structurelles pour assurer la soutenabilité de la balance courante tout en évitant des retournements potentiellement perturbateurs. Ces résultats ont des implications pour les flux de capitaux à long terme après la crise. |
| Keywords: | capital flows, global imbalances, current account sustainability, flux de capitaux, déséquilibres globaux, soutenabilité de la balance courante |
| JEL: | F30 J08 O40 |
| Date: | 2010–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:795-en&r=opm |
| By: | Aristovnik, Aleksander; Djurić, Sandra |
| Abstract: | The paper’s main objective is to investigate the empirical link between the fiscal balance and the current account (i.e. the twin deficits phenomenon). The paper focuses on the EU member states and candidate countries which are according to their different (e.g. historical, political, economical and geographical) characteristics divided into two major groups, i.e. old EU member states (EU15) and new EU member states and candidate countries (EU12+3) in the 1995-2008 period. Additionally, the importance of the so-called Feldstein-Horioka puzzle in the considered countries is examined in order to draw some conclusions about the regions’ integration with international capital markets. The empirical results suggest that budget deficits in the EU member states and candidate countries have generally signaled relatively high level of substitutability between private and public savings, implying a relatively low correlation between fiscal and external imbalances. Thus, the empirical results in general reject the validity of the twin deficit hypothesis. Finally, the paper provides evidence of a relatively higher level of capital mobility, especially in the EU12+3 region in the second sub-period (2004-2008). |
| Keywords: | twin deficits; Feldstein-Horioka puzzle; capital mobility; EU member states; candidate countries; panel data analysis |
| JEL: | F15 F32 F41 C33 O52 |
| Date: | 2010–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24149&r=opm |
| By: | Andrea Vaona (Department of Economics (University of Verona)) |
| Abstract: | Considering a sample of 71 Italian metropolitan areas, this paper goes beyond the assumption that there exists a unique core inflationary process in a macroeconomy. We show that local long-run inflation rates can display remarkable variability. On the one hand they are negatively correlated with productivity growth, on the other the less competitive is the local retail sector and the higher is long-run inflation. |
| Keywords: | purchasing power parity, long-run inflation, Balassa-Samuelson model, Kaldor-Verdoorn model. |
| JEL: | R1 E31 F49 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:12/2010&r=opm |
| By: | Balázs Égert |
| Abstract: | This study analyses the impact of economic catching-up on annual inflation rates in the European Union with a special focus on the new member countries of Central and Eastern Europe. Using an array of estimation methods, we show that the Balassa-Samuelson effect is not an important driver of inflation rates. By contrast, we find that the initial price level and regulated prices strongly affect inflation outcomes in a nonlinear manner and that the extension of Engel’s Law may hold during periods of very fast growth. We interpret these results as a sign that price level convergence comes from goods, market and non-market service prices. Furthermore, we find that the Phillips curve flattens with a decline in the inflation rate, that inflation persistence increases and that commodity prices have a stronger effect on inflation in a higher inflation environment.<P>Rattrapage économique et inflation en Europe : Balassa-Samuelson, la loi d’Engel et d’autres explications<BR>Ce papier étudie l’influence du rattrapage économique sur l’inflation annuelle dans l’Union européenne avec un accent particulier sur les nouveaux pays membres de l’Europe central et orientale. Les résultats indiquent que l’effet Balassa-Samuelson n’est pas à même d’expliquer les taux d’inflation différents observés dans les pays étudiés. Par contre, le niveau général des prix et les prix règlementés ont un impact significatif et non-linéaire sur l’inflation et la loi d’Engel peut être vérifiée durant des périodes de forte croissance économique. Ces résultats suggèrent que la convergence des niveaux de prix provient de la convergence des niveaux de prix des biens échangeables, des biens non-échangeables marchands et non-marchands. Nos résultats montrent aussi que la courbe de Phillips devient plate avec des taux d’inflation plus faible et que la persistance de l’inflation augmente et les prix des matières premières ont une influence plus forte sur l’inflation lorsque l’inflation est plus élevée. |
| Keywords: | European Union, catching-up, inflation, Balassa-Samuelson effect, Bayesian model averaging, nonlinearity, Engel’s law, real convergence, politique budgétaire, pays membre de l'OCDE, procyclique, contracyclique |
| JEL: | C22 C33 E21 E32 E43 E50 E52 E62 G21 H30 H60 O52 |
| Date: | 2010–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:792-en&r=opm |