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on Open MacroEconomics |
| By: | Christopher Gust; Sylvain Leduc; Robert J. Vigfusson |
| Abstract: | The degree of exchange-rate pass-through to import prices is low. An average passthrough estimate for the 1980s would be roughly 50 percent for the United States implying that, following a 10 percent depreciation of the dollar, a foreign exporter selling to the U.S. market would raise its price in the United States by 5 percent. Moreover, substantial evidence indicates that the degree of pass-through has since declined to about 30 percent. ; Gust, Leduc, and Vigfusson (2010) demonstrate that, in the presence of pricing complementarity, trade integration spurred by lower costs for importers can account for a significant portion of the decline in pass-through. In our framework, pass-through declines solely because of markup adjustments along the intensive margin. ; In this paper, we model how the entry and exit decisions of exporting firms affect passthrough. This is particularly important since the decline in pass-through has occurred as a greater concentration of foreign firms are exporting to the United States. ; We find that the effect of entry on pass-through is quantitatively small and is more than offset by the adjustment of markups that arise only along the intensive margin. Even though entry has a relatively small impact on pass-through, it nevertheless plays an important role in accounting for the secular rise in imports relative to GDP. In particular, our model suggests that over 3/4 of the rise in the U.S. import share since the early 1980s is due to trade in new goods. ; Thus, a key insight of this paper is that adjustment of markups that occur along the intensive margin are quantitatively more important in accounting for secular changes in pass-through than adjustments that occur along the extensive margin. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2010-23&r=opm |
| By: | Katerina SmÃdková; Jan Babecky; Ales Bulir |
| Abstract: | The Great Recession affected export and import patterns in our sample countries, and these changes, coupled with a more volatile external environment, have profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries with pegged exchange rates and excessive external liabilities widened relative to earlier estimates. While countries with balanced net trade positions are expected to continue to experience appreciation during 2010-2014, several currencies are likely to require real depreciation to maintain sustainable net external debt. Our estimates point to somewhat larger disequilibria than those of IMF country teams, however, any estimates of equilibrium exchange rates are subject to sizable uncertainty. |
| Keywords: | Bilateral trade , Currencies , Economic models , Economic recession , European Economic and Monetary Union , Exchange rate regimes , Exports , Foreign direct investment , Imports , Price elasticity , Real effective exchange rates , |
| Date: | 2010–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/198&r=opm |
| By: | Leandro Medina |
| Abstract: | The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly data set-which includes unique country-specific commodity price indices and a comprehensive measure of public expenditures-this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for eight commodity-exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions react strongly to shocks to commodity prices, yet there are marked differences across countries. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. At the other end of the spectrum, in Chile expenditure reacts very little to commodity price fluctuations, and the dynamic responses of its fiscal indicators are very similar to those seen in high-income commodity-exporting countries. This distinct behavior across countries may relate to institutional arrangements, which in some cases include the efficient application of fiscal rules amid political commitment and high standards of transparency. |
| Keywords: | Business cycles , Chile , Commodities , Commodity price fluctuations , Commodity prices , Cross country analysis , Exports , External shocks , Fiscal policy , Fiscal sector , Latin America , Venezuela, República Bolivariana de , |
| Date: | 2010–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/192&r=opm |
| By: | Pau Rabanal; Juan F. Rubio-Ramirez; Federico S. Mandelman; Diego Vilan |
| Abstract: | In this paper, we first introduce investment-specific technology (IST) shocks to an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses the "quantity", "international comovement", "Backus-Smith", and "price" puzzles. Second, we use OECD data for the relative price of investment to build and estimate these IST processes across the U.S and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error correction model (VECM). Finally, we demonstrate that when we fit such estimated IST processes in the model instead of the calibrated ones, the shocks are actually not as powerful to explain any of the four montioned puzzles. |
| Keywords: | Business cycles , Consumption , Cross country analysis , Demand , Economic models , External shocks , International trade , Investment , Productivity , United States , |
| Date: | 2010–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/207&r=opm |
| By: | Pancaro, Cosimo |
| Abstract: | What are the equilibrium effects of trade and capital liberalization on consumption smoothing? This question is addressed by studying the response to productivity shocks in a baseline two country, two goods, incomplete market model, where foreign borrowing is secured by collateral. The paper shows that international financial integration, modeled by relaxing a borrowing constraint a la Kiyotaki in the domestic country, worsens consumption smoothing; international trade integration, modeled by a reduction of non linear iceberg transportation costs, improves it. As a measure of consumption smoothing, the analysis uses the ratio between the simulated standard deviation of consumption growth and the simulated standard deviation of output growth. These results are qualitatively consistent with the empirical evidence provided by Kose, Prasad and Terrones (2003). |
| Keywords: | Emerging Markets,Economic Theory&Research,Free Trade,Debt Markets,Trade Policy |
| Date: | 2010–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5441&r=opm |
| By: | M. Ege Yazgan (Department of Economics, Istanbul Bilgi University); Hakan Yilmazkuday (Department of Economics, Temple University) |
| Abstract: | This paper tests the bilateral price-level convergence among 52 U.S. cities at the good level. We employ a new approach which is free of problems that arise when using an arbitrary benchmark, cross-section dependence, and heterogeneity. We find quite strong evidence in favor of convergence with significantly quick rates. This finding is surprising as the estimated median half lives are far below the half lives found in the corresponding studies for the U.S. |
| Keywords: | Convergence, Micro-Level Prices, PPP Puzzle. |
| JEL: | E31 F41 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1011&r=opm |
| By: | Il Houng Lee; Woon Gyu Choi |
| Abstract: | The paper explores the linkages between the global and domestic monetary gaps, and estimates the effects of monetary gaps on output growth, inflation, and net saving rates using panel data for 20 Asian countries for 1980-2008. We find a significant pass-through of the global monetary gap to domestic monetary gaps, which in turn affect output growth and inflation, in individual emerging market and developing countries in Asia. Notably, we provide evidence that the global monetary condition is partly responsible for the current account surplus in Asia. We also draw implications for monetary policy coordination for global rebalancing. |
| Keywords: | Asia , Balance of trade , Capital flows , Economic integration , Economic models , Export competitiveness , Globalization , Inflation , Monetary policy , Production growth , Reserves , Savings , |
| Date: | 2010–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/214&r=opm |
| By: | Fransesco Furlanetto; Martin Seneca |
| Abstract: | In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are a potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp48&r=opm |
| By: | Patrice Fontaine (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II); Cuong Le Van (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, University of Exeter Business School - University of Exeter Business School) |
| Abstract: | Most of the international asset pricing models are developed in the situation where purchasing power parity (PPP) is not respected. Investors of different countries do not agree on expected security returns. However, in this case, an equilibrium on the international assets market may exist but not on the international goods market. Our purpose in this paper is to give conditions under which we have equilibrium, not only on the international assets markets but also on the international good market. More precisely, we focus on the link between no-arbitrage, equilibrium and PPP. At equilibrium, assets markets must clear and international goods market balance. In particular, equilibrium goods prices respect the PPP. |
| Keywords: | International assets and goods markets, exchange rates, securities returns, no-arbitrage, purchasing power parity, general equilibrium. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00523364_v1&r=opm |
| By: | Barbara Pistoresi; Alberto Rinaldi |
| Abstract: | This paper investigates the causal relationship between real export and real GDP in Italy from 1863 to 2004 by using cointegration analysis and causality tests. The outcome suggests that in the period prior to WW1 the growth of the Italian economy led that of exports, while in the post-WW2 period the causal relationship was reversed with the expansion of exports that determined the growth of the Italian economy. |
| Keywords: | Export led growth hypothesis; unit root tests; cointegration analysis; Granger – causality |
| JEL: | F43 O11 N1 N7 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mod:depeco:0633&r=opm |