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on Open Economy Macroeconomic |
| By: | Mario J. Crucini; Hakan Yilmazkuday |
| Abstract: | We use a unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005, to uncover six novel properties of long-run international price dispersion. First, at the PPP level, virtually all (91.6%) of price dispersion is attributed to service-sector wages, consistent with a dominant role of the retail distribution margin. Second, at the level of individual goods and services, the average contribution of service-sector wages is significantly reduced, one-third as large (31.9%). This reflects the fact that good-specific sources of price dispersion, such as trade costs and good-specific markups, tend to average out across goods. Third, at the LOP level, borders and distance contribute about equally to price dispersion with distance elasticities consistent with the existing trade gravity literature which links trade volumes (rather than relative prices) to borders and distance. Fourth, in the cross-section, price dispersion is rising in the distribution share consistent with the notion that baby-sitting services and haircuts embody local wages to a far greater extent than highly traded manufactured goods. Fifth, we provide the first estimates of distribution margins at the micro-level and show them to be very different across goods and substantial in the aggregate, where they account for about 55% of consumption expenditure. Sixth, these estimates are broadly consistent with more aggregated U.S. NIPA measures currently used in the literature. |
| JEL: | F0 F11 F15 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18811&r=opm |
| By: | Faruk Balli; Syed Abul Basher; Hatice Ozer Balli |
| Abstract: | We examine the impact of the global financial crisis on the degree of international income and consumption risk-sharing among industrial economies using returns on cross-border portfolio holdings (e.g., debt, equity, FDI). We split the returns from the net foreign holdings as receipts (inflows) and payments (outflows) to investigate which of the two sides exhibited the greater resilience for income risk-sharing during the recent crisis. First, we find that debt delivered better risk-sharing than equity, mainly reflecting the deficit deterioration in EMU countries during the post-crisis period. FDI, by contrast, did not correspond to noticeable risk diversification. Second, separating output shocks into positive and negative components reveals that debt holding receipts (equity liability payments) performed better under negative (positive) realizations of the shock variable. Third, the unwinding of capital flows resulted in a sharp fall in income dis-smoothing via the debt liability channel in the new EU countries. |
| Keywords: | Financial crisis, international portfolio diversification, income smoothing |
| JEL: | F36 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-02&r=opm |
| By: | James E. Anderson; Mykyta Vesselovsky; Yoto V. Yotov |
| Abstract: | We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their interaction with the US border. We find statistically and quantitatively significant economies of scale in cross-border trade in almost 2/3 of sectors. Real effects of exchange rate changes on trade are found for 12 of 19 goods sectors and none of 9 services sectors. |
| JEL: | F10 F4 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18807&r=opm |
| By: | Agnès Bénassy-Quéré (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Dramane Coulibaly (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense) |
| Abstract: | We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in montradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experimient, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods. |
| Keywords: | Real exchange rate; Balassa-Samuelson effect; product market regulations; employment protection |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00786095&r=opm |
| By: | Richard Fabling (Motu Economic and Public Policy Research); Lynda Sanderson (New Zealand Treasury) |
| Abstract: | Using comprehensive, shipment-level merchandise trade data, we examine the extent to which New Zealand exporters maintain stable New Zealand dollar prices by passing on exchange rate changes to foreign customers. We find that the extent to which firms absorb exchange rate fluctuations in the short run is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, when jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the New Zealand dollar, while others use either the importer or a third currency. In the short run, this translates into differences in exchange rate pass-through because of price rigidity in the invoice currency. Differences across invoice currencies diminish, but do not disappear, over time as prices adjust to reflect bilateral exchange rate movements. |
| Keywords: | Exchange rate pass-through, firm performance |
| JEL: | D12 F14 F31 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:13_01&r=opm |
| By: | Masashige Hamano (CREA, University of Luxembourg) |
| Abstract: | This paper investigates a consumption-real exchange rate anomaly from the open macroeconomics literature known as the Backus-Smith puzzle . We both analytically and quantitatively examine how an expansion of trade along extensive margins can contribute to the puzzle's resolution. Our argument is based on 1) a wealth effect due to changes in the number of product varieties, 2) statistical inefficiency in measuring the number of product varieties, and 3) market incompleteness. Contrary to complete asset markets which, in general, feature overly strong risk sharing properties, changes in the number of product varieties under incomplete markets may produce a wealth effect under high trade elasticity. Since statistical agencies systematically fail to capture the welfare impact arising from that changes, data-consistent terms of trade and real exchange rates tend to appreciate due to this positive wealth effect. This provides a realistic correlation between data-consistent real exchange rates and consumption. |
| Keywords: | terms of trade, the Backus-Smith puzzle, firm entry |
| JEL: | F12 F41 F43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-01&r=opm |
| By: | Yusuf Soner Baskaya; Timur Hulagu; Hande Kucuk |
| Abstract: | We analyze business cycle implications of oil price uncertainty in an oil-importing small open economy, where oil is used for both consumption and production. In our framework, higher volatility in oil prices works through two main channels. On the one hand, it makes the marginal product of capital riskier, creating an incentive to substitute away from capital. On the other hand, it increases the demand for precautionary savings, which might imply higher capital accumulation in response to a rise in oil price uncertainty depending on whether agents have access to an alternative asset, international bond in our model. We show that the fall in investment following a rise in the volatility of real oil prices in the case of financial integration is more than twice the fall in investment observed under financial autarky. Moreover, the interaction between shocks to the level and volatility of oil prices is quantitatively important: initial responses of investment, output and consumption to a rise in oil prices are almost doubled, when there is a simultaneous rise in the volatility of oil prices. |
| Keywords: | Oil price, stochastic volatility, financial market integration |
| JEL: | E20 E32 F32 F41 Q43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1309&r=opm |
| By: | Claude Francis Naoussi; Fabien Tripier |
| Abstract: | This article explores the role of trend shocks in explaining the specificities of business cycles in developing countries using the methodology introduced by Aguiar and Gopinath (2007) [“Emerging Market Business Cycles: The Cycle Is the Trend” Journal of Political Economy 115(1)]. We specify a small open economy model with transitory and trend shocks on productivity to replicate the differences in the business cycle behavior observed between developed, emerging, and Sub-Saharan Africa countries. Our results suggest a strong relationship between the weight of trend shocks in the source of fluctuations and the level of economic development. The weight of trend shocks is (i) higher in Sub-Saharan Africa countries than in emerging and developed countries, (ii) negatively correlated with the level of income, the quality of institutions, and the size of the credit market, and (iii) uncorrelated with the volatility of aid received by countries, the inflation rate, and the trend in trade-openness. |
| Keywords: | Business Cycle;Permanent shocks;Growth;Africa;Small open economy |
| JEL: | E32 F41 O55 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2013-03&r=opm |
| By: | Christopher M. Meissner |
| Abstract: | The classical gold standard period, 1880-1913, witnessed deep economic integration. High capital imports were related to better growth performance but may also have created greater volatility via financial crises. I first document the substantial output losses from various types of crises. I then explore the relationship between crises and two forces highlighted in the recent literature on financial crises: international capital movements and credit growth. Neither factor is sufficient to explain financial crises in this period. Instead, interactions between the informational environment, the fiscal situation, the exchange rate regime, and events beyond a nation’s borders all help explain crises. Some examples are provided. |
| JEL: | E5 E65 G01 N10 N20 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18814&r=opm |