nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2012‒04‒03
ten papers chosen by
Martin Berka
Victoria University of Wellington

  1. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks By Joseph E. Gagnon
  2. Real exchange rate adjustment, wage-setting institutions, and fiscal stabilization policy: Lessons of the Eurozone’s first decade By Carlin, Wendy
  3. Trade Effects of Exchange Rates and their Volatility: Chile and New Zealand By Marilyne Huchet-Bourdon; Jane Korinek
  4. Intermediaries in International Trade: Direct Versus Indirect Modes of Export By Andrew B. Bernard; Marco Grazzi; Chiara Tomasi
  5. Real Effective Exchange Rates for 178 Countries: a New Database By Zsolt Darvas
  7. Productivity and the Welfare of Nations By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  8. Pricing-to-market by Brazilian Exporters: a Panel Cointegration Approach By João Barata Ribeiro Blanco Barroso
  9. Capital mobility ? a resource curse or blessing? How, when, for whom? By Hikaru Ogawa; Jun Oshiro; Yasuhiro Sato
  10. Towards an explanation of cross-country asymmetries in monetary transmission By Georgiadis, Georgios

  1. By: Joseph E. Gagnon (Peterson Institute for International Economics)
    Abstract: Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
    Keywords: current account, foreign exchange reserves
    JEL: F30 F31 F32
    Date: 2012–03
  2. By: Carlin, Wendy
    Abstract: In terms of macroeconomic performance, the Eurozone’s first decade is a story of successful inflation-targeting by the ECB for the common currency area as a whole combined with the persistence of real exchange rate and current account disequilibria at member country level. According to the standard New Keynesian model of a small member of a currency union, policy intervention at country level is not necessary to ensure adjustment to country-specific shocks. Self-stabilization of shocks takes place through the adjustment of prices and wages to ensure that the real exchange rate returns to equilibrium. That this did not happen in the Eurozone appears to be related to the presence of non-rational wage-setters in a number of member countries. A related second departure from the New Keynesian model was the transmission of nonrational inflation expectations to the real interest rate, propagating easy credit conditions in countries with inflation above target. Problems of real exchange rate misalignment among members were exacerbated by the ability of Germany’s wagesetting institutions to deliver self-stabilization. The implications for policy focus on using fiscal policy to target the real exchange rate and / or on reforms to labour markets that deliver real exchange rate oriented wage-setting.
    Keywords: Eurozone; fiscal policy; New Keynesian model; real exchange rate; wage-setting
    JEL: E61 E62 E65 F41 O52
    Date: 2012–03
  3. By: Marilyne Huchet-Bourdon; Jane Korinek
    Abstract: Trade deficits and surpluses are sometimes attributed to intentionally low or high exchange rate levels. The impact of exchange rate levels on trade has been much debated but the large body of existing empirical literature does not suggest an unequivocally clear picture of the trade impacts of changes in exchange rates. In addition, much of the evidence on this subject considers currencies of large economies, and overwhelmingly the United States.<p>This study examines the impact of exchange rates and their volatility on trade flows in two small, open economies – Chile and New Zealand – with three major trading partners, in two broadly defined sectors – agriculture on the one hand and manufacturing and mining on the other. It finds that exchange volatility impacts trade flows in the small, open economies more than was found for larger economies. Findings do not clearly indicate the direction of the impact, i.e. whether this volatility increases or decreases trade in all countries and sectors. Exchange rate levels, on the other hand, affect trade in both agriculture and manufacturing and mining sectors although their magnitude differs depending on the trading partner and sector. Moreover, this study indicates that a depreciation in the exchange rates in Chile and New Zealand would not lead to a strong change in their trade balances with three main trading partners across the board.
    Keywords: exchange rates, trade, New Zealand, real exchange rates, Chile, volatility, trade deficit, trade in agriculture, short-run effects, long-run effects, GARCH volatility, depreciation, currency movements, exchange rate appreciation, exchange hedging, small open economies, Chilean peso, New Zealand dollar
    JEL: F1 F31 O24 Q17
    Date: 2012–03–22
  4. By: Andrew B. Bernard; Marco Grazzi; Chiara Tomasi
    Abstract: This paper examines the factors that give rise to intermediaries in exporting and explores the implications for trade volumes. Export intermediaries such as wholesalers serve different markets and export different products than manufacturing exporters. In particular, high market-specific fixed costs of exporting, the (lack of) quality of the general contracting environment and product- specific factors play important roles in explaining the existence of export intermediaries. These underlying differences between direct and intermediary exporters have important consequences for trade flows. The ability of export intermediaries to overcome country and product fixed costs means that they can more easily respond along the extensive margin to external shocks. Intermediaries and direct exporters respond differently to exchange rate fluctuations both in terms of the total value of shipments and the number of products exported as well as in terms of prices and quantities. Aggregate exports to destinations with high shares of indirect exports are much less responsive to changes in the real exchange rate than are exports to countries served primarily by direct exporters.
    Keywords: heterogeneous firms, international trade, intermediation, wholesalers, export entry costs, product adding and dropping, exchange rates
    JEL: D22 F12 F14 L22 L23
    Date: 2012–03
  5. By: Zsolt Darvas
    Abstract: We use data on exchange rates and consumer price indices and the weighting matrix derived by Bayoumi, Lee and Jaewoo (2006) to calculate consumer price index-based REER. The main novelties of our database are that (1) it includes data for 178 countries –many more than in any other publicly available database– plus an external REER for the euro area, using a consistent methodology; (2) it includes up-to-date REER values, such as data for January 2012; and (3) it is relatively easy to calculate REER against any arbitrary group of countries. The annual database is complete for 172 countries and the euro area for 1992-2011 and data is available for six other countries for a shorter period. For several countries annual data is available for earlier years as well, e.g. data is available for 67 countries from 1960. The monthly database is complete for 138 countries for January 1995-January 2012, and data is also available for 15 other countries for a shorter period. The indicators calculated by us are freely downloadable and will be irregularly updated.
    Keywords: effective exchange rate
    JEL: F31
    Date: 2012–03–19
  6. By: Ai Lian Tan Author_Email: (Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia ); Shiau Mooi Lim (Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia ); Seow Shin Koong (Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia ); Ying Yin Koay (Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia )
    Keywords: Current account, exchange rate, Malaysia
    JEL: M0
    Date: 2011–10
  7. By: Susanto Basu (Boston College; NBER); Luigi Pascali (Boston College); Fabio Schiantarelli (Boston College; IZA); Luis Serven (World Bank)
    Abstract: We show that the welfare of a representative consumer can be related to observable aggregate data. To a first order, the change in welfare is summarized by (the present value of) the Solow productivity residual and by the growth rate of the capital stock per capita. We also show that productivity and the capital stock suffice to calculate differences in welfare across countries, with both variables computed as log level deviations from a reference country. These results hold for arbitrary production technology, regardless of the degree of product market competition, and apply to open economies as well if TFP is constructed using absorption rather than GDP as the measure of output. They require that TFP be constructed using prices and quantities as perceived by consumers. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. We apply these results to calculate welfare gaps and growth rates in a sample of developed countries for which high-quality TFP and capital data are available. We find that under realistic scenarios the United Kingdom and Spain had the highest growth rates of welfare over our sample period of 1985-2005, but the United States had the highest level of welfare.
    Keywords: Productivity, Welfare, TFP, Solow Residual
    JEL: D24 D90 E20 O47
    Date: 2012–03–28
  8. By: João Barata Ribeiro Blanco Barroso
    Abstract: This paper investigates Brazilian exporter's pricing behavior, over the longrun, following destination specific exchange rate shocks. The panel cointegration method of Bai, Kao and Ng (2009) is shown to identify the long-run parameter of interest. The method crucially depends on identification and controlling for the common trend in prices to different countries, a trend which is structurally interpreted, like originally proposed by Kneeter (1989), as the exporter's marginal cost. We find evidence of incomplete exchange-rate pass-through in the long-run, which supports the market structure explanations of Krugman (1986), known in the literature as pricing-to-market, over contending short-run sticky-price explanations. The degree of long-run pass-through is also shown to be positively related to technological intensity in the sector, a proxy for low elasticity of substitution of varieties.
    Date: 2012–03
  9. By: Hikaru Ogawa (Graduate School of Economics, Nagoya University (Japan)); Jun Oshiro (Graduate School of Economics, Osaka University (Japan)); Yasuhiro Sato (Graduate School of Economics, Osaka University (Japan))
    Abstract: This paper investigates which of the two countries \resource-rich or resourcepoor\ gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages via resource-based inputs as well as international fiscal linkages between resource-rich and resource-poor countries. Our analysis shows that capital market integration causes capital flows from resourcepoor countries to resource-rich countries and thus improves production efficiency and global welfare. However, such gains accrue only to resource-poor countries, and capital mobility might even hurt resource-rich countries. In response to capital flows, the governments of both resource-rich and resource-poor countries have an incentive to tax capital. Such taxations would enable resource-rich countries to exploit their efficiency gains through capital market integration and become winners in the tax game.
    Keywords: capital market integration, natural resource, resource curse, tax competition
    JEL: F21 H20 H77
    Date: 2012–05
  10. By: Georgiadis, Georgios
    Abstract: I quantify the importance of financial structure, labor market rigidities and industry mix for cross-country asymmetries in monetary transmission. To do so, I determine how closely the impulse responses to a monetary policy shock obtained from country-specific vectorautoregressive (VAR) models and a non-standard panel VAR model match. In the country-specific VAR models, the impulse responses vary across countries in an unrestricted fashion. In the panel VAR model, the impulse responses also vary across countries, but only to the extent that countries differ regarding their financial structure, labor market rigidities and industry mix. For a sample of 20 industrialized countries over the time period from 1995 to 2009, I find that up to 70% (50%) of the cross-country asymmetries in the responses of output (prices) to a monetary policy shock can be accounted for by crosscountry differences in financial structure, labor market rigidities and industry mix. While in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium and long run differences in financial structure and labor market rigidities gain more importance. Moreover, cross-country differences in industry mix appear to be of rather minor importance for cross-country asymmetries in the transmission of monetary policy to prices. --
    Keywords: Monetary Transmission,Financial Structure,Labor Market Rigidities,Industry Mix,Panel VAR,Heterogeneity
    JEL: C33 C51 E44 E52
    Date: 2012

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