nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2012‒09‒09
six papers chosen by
Martin Berka
Victoria University of Wellington

  1. Capital Debt -and Equity-Led Capital Flow Episodes By Kristin J. Forbes; Francis E. Warnock
  2. On International Spillovers By Bianco, Dominique; Niang, Abdou-Aziz
  3. Disaggregating the international business cycle By Gilhooly, Robert; Weale, Martin; Wieladek, Tomasz
  4. A Simple Model and Its Application in the Valuation of Five Asian Real Exchange Rates By Zhibai, Zhang
  5. RMB Undervaluation and Appreciation By Zhibai, Zhang
  6. Appendix for the PPP hypothesis and structural breaks: the case of Mexico By Gómez-Zaldívar, Manuel; Ventosa-Santaulària, Daniel; Wallace, Frederick

  1. By: Kristin J. Forbes; Francis E. Warnock
    Abstract: Kristin Forbes and Francis Warnock's "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," in Journal of International Economics (forthcoming) identifies episodes of extreme capital flow movements—surges, stops, flight, and retrenchment—and finds that global factors, especially global risk, are significantly associated with extreme capital flow episodes whereas domestic macroeconomic characteristics and capital controls are less important. That analysis leads naturally to the question of which types of capital flows are driving the episodes, and if debt- and equity-led episodes differ materially. After identifying debt- and equity-led episodes, we find that most episodes of extreme capital flow movements around the world are debt-led and the factors associated with debt-led episodes are similar to the factors behind episodes identified with aggregate capital flow data. In contrast, equity-led episodes are less frequent, more idiosyncratic, and differ in nature from other episodes.
    Date: 2012–08
  2. By: Bianco, Dominique; Niang, Abdou-Aziz
    Abstract: This study investigates the role of international spillovers in generating productivity gains for a panel of 24 OECD countries during the period between 1971 and 2004. We use recent techniques developed in a common factor framework to characterize the global interdependence implied by international spillovers and the diffusion mechanisms involved. Consistently with some recent studies in this field, the evidence suggests that there are substantial cross-country spillovers mainly related to R&D and human capital variables, which contribute significantly to productivity.
    Keywords: Productivity; Spillovers; R&D; Human capital; Common factors
    JEL: C23 O31 O40
    Date: 2012–02
  3. By: Gilhooly, Robert (Monetary Policy Committee Unit, Bank of England); Weale, Martin (Monetary Policy Committee Unit, Bank of England); Wieladek, Tomasz (Monetary Policy Committee Unit, Bank of England)
    Abstract: This paper investigates the international business cycle with new sector level data on hours and output for Canada, Germany, France, Italy, the United Kingdom and the United States from 1992 Q1 to 2011 Q3. We estimate a Bayesian dynamic common factor model on this disaggregate data to decompose the quarterly growth rates of output, hours worked and labour productivity into contributions from global, country, sector and idiosyncratic factors. During the ‘Great Recession’ our results suggest that the global factor became the most important determinant of output, hours and labour productivity growth. Before the ‘Great Recession’, on the other hand, the global factor was not very important; country and idiosyncratic factors were the dominant influences on output, hours and productivity; sector factors never matter very much.
    Keywords: Labour productivity; international business cycles; dynamic common factor model
    JEL: F44
    Date: 2012–08–17
  4. By: Zhibai, Zhang
    Abstract: In the current paper, a new and simple currency valuation model called the ratio model is proposed based on the Penn effect (a systematic deviation of the purchasing power parity (PPP)). The ratio model, which reduces the uncertainty of the econometric specification that many other valuation models have, is used to valuate the bilateral real exchange rates (RERs) of five Asian industrial countries and areas, namely, Japan, Korea, Taiwan, Hong Kong, and Singapore, against the United States. In the early 1950s to 2009, the misalignments from the ratio model of four new industrial countries and areas converged, but those from the PPP model did not, implying the competitiveness of the ratio model against the PPP model both in currency valuation and as a RER anchor. In 2010–2011, based on the two models, the yen was overvalued by approximately 30%, whereas the Singapore dollar was undervalued by approximately 20%. However, the conclusions on the other three RERs were not consistent.
    Keywords: Equilibrium exchange rate; Absolute purchasing power parity; Balassa-Samuelson effect; Penn effect
    JEL: F41 F31
    Date: 2012–08–28
  5. By: Zhibai, Zhang
    Abstract: The bilateral real exchange rate between Chinese renminbi (RMB) and the US dollar is studied. The panel data Penn effect model shows that the RMB was overvalued in 1980–1991 but later undervalued in 1992–2010. In 2010, it was undervalued by 36.7%. Econometric analysis and an examination of the appreciation of seventeen currencies belonging to countries and areas under the same economic development stage show that the RMB should appreciate at an annual speed of 3.2%. At this rate, the RMB misalignment in 2010 will be corrected by 2020. In the future, RMB appreciation should be realized totally from the nominal exchange rate, not partly from the nominal exchange rate and partly from the relative price level. This appreciation path satisfies the interests of both China and the US.
    Keywords: Chinese renminbi; Real exchange rate; Penn effect; Undervaluation; Appreciation
    JEL: F31
    Date: 2012–05–27
  6. By: Gómez-Zaldívar, Manuel; Ventosa-Santaulària, Daniel; Wallace, Frederick
    Abstract: This appendix presents an extended explanation for our finding of mean reversion of the real exchange rate to a shifting mean using monthly data for Mexico, 1969-2010. Because such shifts coincide with trade liberalization in Mexico, we conclude that changes in the tradable/nontradable goods composition of the price index used in the empirical estimations caused the mean shifts.
    Keywords: Purchasing power parity; mean reversion; mean shifts; Mexico
    JEL: C22 F31
    Date: 2012–09–04

This nep-opm issue is ©2012 by Martin Berka. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.