nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2011‒05‒30
eight papers chosen by
Martin Berka
Massey University, Albany

  1. Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates By Jamel Saadaoui
  2. The World Has More Than Two Countries: Implications of Multi- Country International Real Business Cycle Models By Hirokazu Ishise
  3. International Capital Flows and Aggregate Output By von Hagen, Jürgen; Zhang, Haiping
  4. The two-sided effect of financial globalization on output volatility By Meller, Barbara
  5. Exchange Rates in Emerging Countries: Eleven Empirical Regularities from Latin America and East Asia By Sebastian Edwards
  6. Demographic Trends and International Capital Flows in an Integrated World By Luca Marchiori
  7. Do exports cause growth? Some evidence for the new EU members By Oscar Bajo-Rubio; Carmen Díaz-Roldán
  8. Economic growth and the balance-ofpayments constraint: The case of the Spanish regions, 1988-2008 By Oscar Bajo-Rubio; Carmen Díaz-Roldán

  1. By: Jamel Saadaoui (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris-Nord - Paris XIII - CNRS : UMR7234)
    Abstract: The paper investigates if the most popular alternative to the purchasing parity power approach (PPP) to estimate equilibrium exchange rates, the fundamental equilibrium exchange rate (FEER) influences exchange rate dynamics in the long run. For a large panel of industrialized and emerging countries and on the period 1982-2007, we detect the presence of unit roots in the series of real effective exchange rates and in the series of FEERs. We find and estimate a cointegration relationship between real effective exchange rates and FEERs. The results show that the FEER has a positive and significant influence on exchange rate dynamics in the long run.
    Keywords: Fundamental equilibrium exchange rates; Panel unit root tests; Global imbalances; Fully modified ordinary least square; Dynamic ordinary least square; Pooled Mean Group
    Date: 2011–05–17
  2. By: Hirokazu Ishise (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: The cross-country correlations of international real business cycle models depend critically on the number of countries in the models. A positive productivity shock in one country will stimulate investment in the country that has experienced the shock, while reducing internal investment in the other countries, which will then simultaneously experience a slump. This comovement mechanism is absent in two-country models.
    Keywords: International Real Business Cycles, Cross-Country Correlations, Multi-Country, Country Size
    JEL: E32 F41
    Date: 2011–05
  3. By: von Hagen, Jürgen; Zhang, Haiping
    Abstract: We show in a tractable, multi-country OLG model that cross-country differences in financial development explain three recent empirical patterns of international capital flows. International capital mobility affects output in each country directly through the size of domestic investment as well as indirectly through the composition of domestic investment and the level of domestic savings. In contrast to earlier literature, our model admits the possibility that the indirect effects dominate the direct effects and international capital mobility raises output in the poor country and globally, although net capital flows are in the direction of the rich country. Our model adds to the understanding of the benefits of international capital mobility in the presence of financial frictions.
    Keywords: capital market imperfections; financial development; financial frictions; foreign direct investment; international capital movements
    JEL: E44 F41
    Date: 2011–05
  4. By: Meller, Barbara
    Abstract: This paper provides evidence for a significant relation between international financial markets' integration and output volatility. In the framework of a threshold model, it is shown empirically that this relation depends on country's financial risk. Financial risk indicates a country's ability to pay its official, commercial and trade debts. In countries with low financial risk, financial openness decreases output volatility, while, in countries with high financial risk, financial openness increases output volatility. Extensive robustness checks confirm this result. --
    Keywords: output volatility,financial openness,financial risk
    JEL: E32 F36 F41
    Date: 2011
  5. By: Sebastian Edwards
    Abstract: In this paper I discuss some of the most important lessons on exchange rate policies in emerging markets during the last 35 years. The analysis is undertaken from the perspective of both the Latin American and East Asian nations. Some of the topics addressed include: the relationship between exchange rate regimes and growth, the costs of currency crises, the merits of “dollarization,” the relation between exchange rates and macroeconomic stability, monetary independence under alternative exchange rate arrangements, and the effects of the recent global “currency wars” on exchange rates in commodity exporters.
    JEL: F0 F31 F32 F41
    Date: 2011–05
  6. By: Luca Marchiori (CREA, University of Luxembourg)
    Abstract: This paper examines the impact of projected demographic trends on international capital flows. The analysis builds upon a ten-region overlapping generations’model of the world economy where capital is mobile across regions. Results show that, over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population aging is relatively advanced. In particular, the findings suggest that in the coming decades China will be the world’s main creditor region. However, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force. An additional analysis demonstrates that the economic consequences of demographic changes depend on the degree of capital market integration between regions.
    Keywords: Demographic trends; capital flows; overlapping generations; general equilibrium; multi-regional model
    JEL: J11 F21 D91 C68
    Date: 2011
  7. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha); Carmen Díaz-Roldán (Universidad de Castilla-La Mancha)
    Abstract: In this paper, we analyze the relationship between international trade and economic growth, from the point of view of one of the most traditional hypothesis within this field, namely, the export-led growth hypothesis. To this end, we apply Grangercausality tests, in a cointegration framework, to data on exports and GDP of the eight CEECs that became members of the EU in 2004.
    Keywords: Economic growth, Exports, Transition countries
    JEL: F41 F43 O40
    Date: 2011–05
  8. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha); Carmen Díaz-Roldán (Universidad de Castilla-La Mancha)
    Abstract: The balance of payments can act as a constraint to the rate of growth of output, on putting a limit to the growth in the level of demand to which supply can adapt. This effect might be even stronger for regional economies, presumably more integrated among them. In this paper, we examine this issue for the case of the Spanish regions over the period 1988-2008, and calculate their balance of payments-constrained growth rates. By comparing these balance of payments-constrained growth rates with the actual growth rates, we would be able to assess whether the balance of payments has worked as a constraint to economic growth for the Spanish regional economies in the period analyzed.
    Keywords: Economic growth, External deficit, Spanish regions
    JEL: F41 F43 O40
    Date: 2011–05

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