nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2012‒11‒03
six papers chosen by
Martin Berka
Victoria University of Wellington

  1. Fiscal shocks in a two sector open economy with endogenous markups. By Olivier Cardi; Romain Restout
  2. Quality Pricing-to-Market By Raphael Anton Auer; Thomas Chaney; Philip Ulrich Sauré
  3. Value-Added Exchange Rates By Rudolfs Bems; Robert C. Johnson
  4. Was unofficial dollarisation/euroisation an amplifier of the 'Great Recession' of 2007-09 in emerging economies By Livia Chiţu
  5. Asymmetries with R&D-Driven Growth and Heterogeneous Firms. By Frédéric Olland
  6. Purchasing power parity theory in three East Asian economies: New evidence By Ahmad, Mahyudin; Marwan, Nur Fakhzan

  1. By: Olivier Cardi; Romain Restout
    Abstract: We use a two-sector neoclassical open economy model with traded and non-traded goods and endogenous markups to investigate both the aggregate and the sectoral ef- fects of temporary fiscal shocks. One central finding is that both the sectoral capital intensities and endogenous markups matter in determining the response of key eco- nomic variables. In particular, the model can produce a drop in investment and in the current account, in line with empirical evidence, only if the traded sector is more capital intensive than the non-traded sector. Irrespective of sectoral capital intensities, a fiscal shock raises the relative size of the non-traded sector substantially in the short-run. Additionally, allowing for the markup to depend on the number of competitors, the two-sector model can account for the real exchange rate depreciation found in the data. Finally, markup variations triggered by firm entry can raise the real wage, albeit under certain circumstances, and modify substantially the sectoral composition of GDP in the short-run.
    Keywords: Non-traded Goods; Fiscal Shocks; Investment; Current Account.
    JEL: F41 E62 E22 F32
    Date: 2012
  2. By: Raphael Anton Auer; Thomas Chaney; Philip Ulrich Sauré
    Abstract: We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Musa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct competitors in the quality dimension. The top quality firm, being exposed to just one direct competitor, enjoys the highest market power and equilibrium markup. Because higher quality exporters are closer to the technological leader, markups are generally increasing in quality, exporting is relatively more profitable for high quality than for low quality firms, and the degree of exchange rate pass-through is decreasing in quality.
    Date: 2012
  3. By: Rudolfs Bems; Robert C. Johnson
    Abstract: This paper updates the conceptual foundations for measuring real effective exchange rates (REERs) to allow for vertical specialization in trade. We derive a value-added REER describing how demand for the value added that a country produces changes as the price of its value added changes relative to competitors. We then compute this index for 42 countries from 1970-2009 using trade measured in value added terms and GDP deflators. There are substantial differences between value-added and conventional REERs. For example, China's value-added REER appreciated by 20 percentage points more than the conventional REER from 2000-2009. These differences are driven mainly by the theory-motivated shift in prices used to construct the value-added REER, not changes in bilateral weights.
    JEL: F1 F3 F4
    Date: 2012–10
  4. By: Livia Chiţu (European Central Bank)
    Abstract: This paper investigates whether, and if so why, the recent ‘Great Recession’ was more severe in unofficially dollarised/euroised economies than in other economies. To that end, the paper builds on a novel dataset on unofficial dollarisation/euroisation to test whether the latter was a determinant of the extent of the growth collapse in 2007-09 in a cross-section of around 60 emerging market economies. Both OLS and Bayesian model averaging estimates suggest that unofficial dollarisation/euroisation was an important contributor to the severity of the crisis, once other of its well-established determinants are taken into account, including fast pre-crisis credit growth, current account deficits, trade and financial openness, market regulation, international openness of the banking sector and GDP per capita. Moreover, the adverse impact of unofficial dollarisation/euroisation is found to have been transmitted through the main channels traditionally highlighted in the literature, i.e. currency mismatches, reduced monetary policy autonomy and limited lender of last resort ability, all of which became more binding constraints in the midst of the crisis. The results help to shed light on the long-standing debate regarding the conduct of monetary policy in unofficially dollarised/euroised economies in crisis times. JEL Classification: F30, G01, G21
    Keywords: Unofficial dollarisation/euroisation, foreign currency lending, Great Recession, emerging economies, Bayesian model averaging
    Date: 2012–09
  5. By: Frédéric Olland
    Abstract: This paper studies the impact of trade liberalization on the productivity growth of two asymmetric countries in a R&D driven growth model with heterogeneous firms. The Melitz’s reallocation of production induces positive but asymmetric productivity gains. Growth is also affected in an asymmetric way because trade liberalization reduces innovation incentives with a different strength in the two countries. A more productive country suffers a higher slowdown in the productivity growth rate.
    Keywords: heterogeneous firms, trade and endogenous growth, productivity gap.
    JEL: F43 O47
    Date: 2012
  6. By: Ahmad, Mahyudin; Marwan, Nur Fakhzan
    Abstract: To an otherwise extensive literature with yet mixed findings on the long run Purchasing Power Parity (PPP) theory, this paper extends the evidence against the PPP hypothesis in three East Asian economies namely Indonesia, Malaysia, and Thailand based on quarterly data spanning forty years (1968:Q1-2008:Q1). The testing of PPP hypothesis in this study employs two methods namely Engle-Granger procedure and Johansen multivariate cointegration method.
    Keywords: Purchasing power parity; East Asian countries; Johansen multivariate cointegration test
    JEL: E29 C22
    Date: 2012–08–14

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