nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2012‒10‒06
six papers chosen by
Martin Berka
Victoria University of Wellington

  1. The banking and distribution sectors in a small open economy DSGE Model By Szabolcs Deák; Lionel Fontagné; Marco Maffezzoli; Massimiliano Marcellino
  2. How firms use domestic and international corporate bond markets By Gozzi, Juan Carlos; Levine, Ross; Peria, Maria Soledad Martinez; Schmukler, Sergio L.
  3. US real interest rates and default risk in emerging economies By Foley-Fisher, Nathan; Guimarães, Bernardo
  4. Optimality of a menatry union : New evidence from exchange rate misalignments in West Africa By Issiaka Coulibaly; Blaise Gnimassoun
  5. Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis By Simplice A , Asongu
  6. Real Convergence in Europe: A Cluster Analysis By Juan Carlos Cuestas; Mercedes Monfort; Javier Ordóñez

  1. By: Szabolcs Deák; Lionel Fontagné; Marco Maffezzoli; Massimiliano Marcellino
    Abstract: The recent crisis has emphasized the role of financial - macroeconomic interactions, and international trade in goods and services, in the transmission of the shocks. Both phenomena, closely related to the higher degree of globalization, are very relevant for small open economies, and particularly so when a large share of the economy relies on financial and distribution services. Hence, in this paper we propose to incorporate the banking and distribution sectors into a medium scale DSGE model of a small open economy. As an illustration, the resulting model is then calibrated to match the specific characteristics of the Luxembourg economy, where the financial sector plays a key role. We believe that the results are also of more general interest for studying the reaction of small open economies to real and financial shocks. JEL Codes: E13; E32; Keywords: DSGE model, Small open economy, Banking, International trade, Luxembourg, Segmented labor market; Trade union
    Date: 2012
  2. By: Gozzi, Juan Carlos; Levine, Ross; Peria, Maria Soledad Martinez; Schmukler, Sergio L.
    Abstract: This paper provides the first comprehensive documentation of how firms use domestic and international corporate bond markets. Debt issues in domestic and international markets have different characteristics, not explained by differences across firms or countries. International issues tend to be larger, of shorter maturity, denominated in foreign currency, include more fixed rate contracts, and entail lower yields. These patterns remain when analyzing issues by firms from countries with more developed domestic markets and higher financial integration, and even when comparing issues conducted by the same firm in different markets. These findings are consistent with the views that (1) frictions limit the ability of investors and firms to enter into certain contracts in certain markets, (2) domestic and international markets provide distinct financial services and firms use them as complements, and (3) firms with access to domestic and international markets enjoy advantages relative to those that rely solely on domestic markets.
    Keywords: Debt Markets,Emerging Markets,Markets and Market Access,Microfinance,Currencies and Exchange Rates
    Date: 2012–09–01
  3. By: Foley-Fisher, Nathan; Guimarães, Bernardo
    Abstract: This paper empirically investigates the impact of changes in US real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy-induced increases in US interest rates starkly raise default risk in emerging market economies. However, the overall correlation between US real interest rates and the risk of default is negative, demonstrating that the effects of other variables dominate the anterior relationship
    Date: 2012–09–12
  4. By: Issiaka Coulibaly; Blaise Gnimassoun
    Abstract: This paper aims to study the optimality of a monetary union in West Africa by using a new methodology based on the analysis of convergence and co-movements between exchange rate misalignments. Two main advantages characterize this original framework. First, it brings together the information related to several optimum currency area criteria— such as price convergence, terms of trade shocks, and trade and fiscal policies—going further than previous studies which are mainly based on only one criterion at a given time. Second, our study detects potential competitiveness differentials which play a key role in the debate on the optimality or not of a monetary union, as evidenced by the recent crisis in the Euro area. Relying on recent panel cointegration techniques and cluster analysis, our results show that the WAEMU area has a core composed by Burkina Faso, Mali, Niger and Senegal which can be joined by Ghana, Sierra Leone and, to a lesser extent, Gambia, and that Ghana and Senegal appear to be the best reference countries for the creation of the whole West Africa monetary union.
    Keywords: Exchange rate misalignment, Optimum Currency Area, West African countries
    JEL: F31 F33 O1
    Date: 2012
  5. By: Simplice A , Asongu
    Abstract: Purpose – A spectre is hunting embryonic African monetary zones: the EMU crisis. This paper assesses real, monetary and fiscal policy convergence within the proposed WAM and EAM zones. The introduction of common currencies in West and East Africa is facing stiff challenges in the timing of monetary convergence, the imperative of central bankers to apply common modeling and forecasting methods of monetary policy transmission, as well as the requirements of common structural and institutional characteristics among candidate states. Design/methodology/approach – In the analysis: monetary policy targets inflation and financial dynamics of depth, efficiency, activity and size; real sector policy targets economic performance in terms of GDP growth at macro and micro levels; while, fiscal policy targets debt-to-GDP and deficit-to-GDP ratios. A dynamic panel GMM estimation with data from different non-overlapping intervals is employed. The implied rate of convergence and the time required to achieve full (100%) convergence are then computed from the estimations. Findings – Findings suggest overwhelming lack of convergence: (1) initial conditions for financial development are different across countries; (2) fundamental characteristics as common monetary policy initiatives and IMF backed financial reform programs are implemented differently across countries; (3) there is remarkable evidence of cross-country variations in structural characteristics of macroeconomic performance; (4) institutional cross-country differences could also be responsible for the deficiency in convergence within the potential monetary zones; (5) absence of fiscal policy convergence and no potential for eliminating idiosyncratic fiscal shocks due to business cycle incoherence. Practical implications – As a policy implication, heterogeneous structural and institutional characteristics across countries are giving rise to different levels and patterns of financial intermediary development. Thus, member states should work towards harmonizing cross-country differences in structural and institutional characteristics that hamper the effectiveness of convergence in monetary, real and fiscal policies. This could be done by stringently monitoring the implementation of existing common initiatives and/or the adoption of new reforms programs. Originality/value – It is one of the few attempts to investigate the issue of convergence within the proposed WAM and EAM unions.
    Keywords: Currency Area; Convergence; Policy Coordination; Africa
    JEL: F15 F42 O55 F36 P52
    Date: 2012–09–25
  6. By: Juan Carlos Cuestas (Department of Economics, The University of Sheffield); Mercedes Monfort (Jaume I University, Spain); Javier Ordóñez (University of Bath)
    Abstract: In this paper we analyse real convergence in GDP per worker in the EU member states. The aim is to test whether there is evidence of club convergence in the EU, i.e. divergence in GDP per worker. Evidence in favour of cluster or club convergence may be an indication of significant productivity divergences between countries, which may also explain the current turmoil in the euro zone. The results show evidence of different economic growth rates within Europe, which also converge to different steady states, implying divergence in the EU-14. Within the EU-14 member states we observe two convergence clubs, which are not related to the fact that some countries belong to the euro area. Furthermore, Eastern European countries are also divided in two clubs, with a more direct effect of belonging to the euro zone in the composition of the clubs.
    Keywords: cluster; real convergence; economic integration; euro
    JEL: C32 C33 O47
    Date: 2012

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