|
on Open MacroEconomics |
| By: | Carmen M. Reinhart; Vincent R. Reinhart; Kenneth S. Rogoff |
| Abstract: | We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90% for at least five years. Consistent with Reinhart and Rogoff (2010) and other more recent research, we find that public debt overhang episodes are associated with growth over one percent lower than during other periods. Perhaps the most striking new finding here is the duration of the average debt overhang episode. Among the 26 episodes we identify, 20 lasted more than a decade. Five of the six shorter episodes were immediately after World Wars I and II. Across all 26 cases, the average duration in years is about 23 years. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that cumulative shortfall in output from debt overhang is potentially massive. We find that growth effects are significant even in the many episodes where debtor countries were able to secure continual access to capital markets at relatively low real interest rates. That is, growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates. |
| JEL: | E44 E62 E63 F30 F41 H6 H63 N1 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18015&r=opm |
| By: | Caglayan, Mustafa; Jehan, Zainab; Mouratidis, Kostas |
| Abstract: | This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries. |
| Keywords: | Monetary policy rule; asymmetric preferences; open economy |
| JEL: | E58 E52 F41 |
| Date: | 2012–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37401&r=opm |
| By: | Erceg, Christopher; Lindé, Jesper |
| Abstract: | This paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation. |
| Keywords: | currency union; fiscal policy; monetary policy; New Keynesian Small Open Economy DSGE Model; zero lower bound constraint |
| JEL: | E52 E58 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8955&r=opm |
| By: | Thomas Nitschka |
| Abstract: | Cross-border asset and liability holdings allow countries to insulate their consumption streams from idiosyncratic output shocks, i.e. consumption risk sharing. By contrast, banks' international interconnectedness spread the U.S. subprime mortgage crisis to various economies with adverse macroeconomic consequences. This paper evaluates the partial impact of banks' cross-border links on the ability of their host countries to share consumption risk internationally. It shows that the impact of banks' links to the non-bank sector in the rest-of-the-world on consumption risk sharing is negligible while strong interbank links are associated with relatively little consumption risk sharing of banks' host countries. |
| Keywords: | banking sector, cross-border assets, consumption risk sharing, interconnectedness,systemic risk |
| JEL: | E2 F15 G15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2012-04&r=opm |
| By: | Aki-Hiro Sato |
| Abstract: | This study considers the multivariate segmentation procedure under the assumption of the multivariate Gaussian mixture. Jensen-Shannon divergence between two multivariate Gaussian distributions is employed as a discriminator and a recursive segmentation procedure is proposed. The daily log-return time series for 30 currency pairs consisting of 12 currencies for the last decade (January 3, 2001 to December 30, 2011) are analyzed using the proposed method. The proposed method can detect several important periods related to the significant affairs of the international economy. |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1205.0336&r=opm |
| By: | Bruno Versailles |
| Abstract: | This paper studies border efects in Eastern Africa by exploiting a consumer price data set covering 4 out of 5 EAC member states, 39 cities and 24 goods over the period 2004-2008. The Law-of-One-Price (LOP) is tested by running level regressions on relative prices with city-pairs the unit of observation. Unsurprisingly, distance plays an important role in explaining relative price movements, both within and between countries. The border efect as measured by the coefficient on a border dummy is significant but smaller compared to what is usually found in the EngelRogers literature. Consequently, distance equivalents, at 300 to 6,000 km, are much lower (and more reasonable) than what most papers working in the Engel-Rogers tradition find. Neither the significance nor the size of the border efect is reduced by allowing for nominal exchange rate variation or non-tarifbarriers. The nominal exchange rate pass through is very high across the region, but lower for country-pairs that include Kenya. The advent of the Customs Union in 2005 improved market integration, as measured by a reduced border efect between 2004 and 2008, but only between Kenya and Uganda. This makes sense as Rwanda and Burundi only joined the EAC in 2007. Further, larger departures from the LOP are found during the Kenyan political crisis as regional markets were disrupted. When splicing the data across goods, staple markets are by far the most integrated with the lowest border efects and the lowest distance coefficients. Non-Trade barriers are most important for fruits and vegetables, which could be linked to these goods being perishable. Non-food items show the largest departures from the LOP, which can be attributed to these goods (i) being less comparable, and (ii) being less present in the consumption baskets of the average Eastern African households (i.e. less deep markets). |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2012-01&r=opm |
| By: | Yilmaz Akyüz (The South Centre) |
| Abstract: | This paper argues that the unprecedented acceleration of growth in the developing world in the new millennium in comparison with advanced economies is due not so much to improvements in underlying fundamentals as to exceptionally favourable global economic conditions, shaped mainly by unsustainable policies in advanced economies. The only developing economy which has had a major impact on global conditions, notably on commodity prices, is China. However, growth in China has been driven first by a rapid expansion of exports to advanced economies and more recently, after the global crisis, by an investment boom, neither of which is replicable or sustainable over the longer term. To maintain a rapid growth, export-led Asian economies need to reduce their dependence on foreign markets. For Latin American and African commodity exporters, gaining greater autonomy and achieving rapid and stable growth depend on their success in reducing reliance on capital flows and commodity earnings – the two key determinants of their growth which are largely beyond national control. |
| Keywords: | global growth, decoupling, developing and emerging economies, advanced economies |
| JEL: | F43 N10 O57 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tek:wpaper:2012/3&r=opm |