nep-opm New Economics Papers
on All new papers
Issue of 2014‒09‒08
seven papers chosen by
Martin Berka
University of Auckland

  1. International Capital Flows, External Assets and Output Volatility By Matthias Hoffmann; Michael Krause; Peter Tillmann
  2. Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models By Carlos Viana de Carvalho; Fernanda Feitosa Necchio
  3. On the relationship between oil price and exchange rates: A wavelet analysis By Gazi Salah Uddin; Aviral Kumar Tiwari; Mohamed Arouri; Frederic Teulon
  4. The Federal Reserve Engages the World (1970-2000): An Insider’s Narrative of the Transition to Managed Floating and Financial Turbulence By Edwin M. Truman
  5. The Real Exchange Rate and Growth in Zimbabwe: Does the Currency Regime Matter? By Brixiova, Zuzana; Ncube, Mthuli
  6. A New Taxonomy of Sudden Stops: Which Sudden Stops Should Countries Be Most Concerned About? By Eduardo A. Cavallo; Andrew Powell; Mathieu Pedemonte; Pilar Tavella
  7. Commodity Price Booms and Breaks: Detection, Magnitude and Implications for Developing Countries By Rodrigo Mariscal; Andrew Powell

  1. By: Matthias Hoffmann (Deutsche Bundesbank); Michael Krause (Deutsche Bundesbank); Peter Tillmann (University of Gießen)
    Abstract: This paper proposes a new perspective on international capital flows and countries' long-run external asset position. Cross-sectional evidence for 84 developing countries shows that over the last three decades countries that have had on average higher volatility of output growth (1) accumulated higher external assets in the long-run and (2) experienced more procyclical capital outflows over the business cycle than those countries with a same growth rate but a more stable output path. To explain this finding we provide a theoretical mechanism within a stochastic real business cycle growth model in which higher uncertainty of the income stream increases the precautionary savings motive of households. They have a desire to save more when the variance of their expected income stream is higher. We show that in the model the combination of income risk and a precautionary savings motive will lead to procyclical capital outflows at business cycle frequency and a higher long-run external asset position.
    Keywords: Capital flows, net foreign assets, productivity growth, uncertainty, precautionary savings
    JEL: F32 F36 F43 F44
    Date: 2014
  2. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Fernanda Feitosa Necchio (Federal Reserve Bank of San Francisco)
    Date: 2014–07
  3. By: Gazi Salah Uddin; Aviral Kumar Tiwari; Mohamed Arouri; Frederic Teulon
    Abstract: We may find numerous works in the existing literature regarding the cohesion between oil prices and exchange rates, yet an exact shape of the relationship remains undefined. By restoring to wavelet analysis and using a rich database from Japan, this study contributes to the literature by investigating the said relationship within the time–frequency space. Over the time horizon, it is being established that the strength of the relationship between oil price and exchange rate keeps changing. If the Bank of Japan needs to control the exchange rate, it should give proper importance to shocks on oil prices, while formulating exchange rate policy.
    Keywords: Oil price, Exchange rates, Wavelets, Japan
    JEL: C40 E31 E32 F44
    Date: 2014–08–29
  4. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve’s role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
    Keywords: Federal Reserve, Federal Open Market Committee, inflation, macroeconomic policies, monetary policy, external balance, exchange rates, exchange market intervention, financial crises, third world debt crises, Mexican crisis, Asian financial crises
    JEL: F3 F31 F32 F33 F34 E4 E42 F5 F52 F53
    Date: 2014–08
  5. By: Brixiova, Zuzana (African Development Bank); Ncube, Mthuli (African Development Bank)
    Abstract: Zimbabwe faces growth and external competitiveness challenges, as indicated by its low trend growth and investment, declining share in the world exports, high current account deficits, and external debt. The stock-flow approach to the equilibrium exchange rate reveals that the real exchange rate experienced periods of sizeable overvaluation, both prior to the 2008 economic collapse and under the current multicurrency regime. While overvaluation hampers GDP growth, as well as growth and employment in export sectors, we have not found that undervaluation would raise it. Replacing the multicurrency regime anchored in the US$ by the South African rand as the sole transaction currency would help reduce overvaluation and stimulate exports and growth. Under any currency regime, Zimbabwe needs to adhere to sound macroeconomic policies, avoid overspending on public wages, and create environment conducive for investment.
    Keywords: real exchange rate misalignment, growth, employment, currency regime, Zimbabwe
    JEL: F36 F41 C22 O11
    Date: 2014–08
  6. By: Eduardo A. Cavallo; Andrew Powell; Mathieu Pedemonte; Pilar Tavella
    Abstract: This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is tracked over time and the type of Sudden Stop related to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are more disruptive than those where surges in (only) Gross Outflows dominate. The paper further discusses the mechanisms that might result in Sudden Stops in Gross Flows that are not Sudden Stops in Net Flows, such that shifts in financial assets or liabilities do not require a sharp current account adjustment. Still, it is found that Sudden Stops in Gross Inflows that do not provoke a sharp contraction in Net Flows may also be disruptive, including Sudden Stops that are driven by 'other flows' -which include banking flows. The results suggest new avenues for research and future policy analysis.
    JEL: F30 F32 F40
    Date: 2013–08
  7. By: Rodrigo Mariscal; Andrew Powell
    Abstract: There has been much interest of late regarding the current commodity “super cycle”. However, even sizing the current boom implies knowledge of long-run trends that are notoriously difficult to estimate. This paper uses new techniques to identify breaks in commodity prices and estimate trends and cointegrating relationships and argues that the weight of evidence is against a stable declining commodity terms of trade. The results are used to characterize the current boom and, assuming no new break, how commodity prices would be expected to return to the estimated “equilibrium”. The paper also discusses implications for commodity-dependent developing countries.
    JEL: C32 C52 Q02 Q33
    Date: 2014–01

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