|
on Open Economy Macroeconomics |
| By: | Kilian, Lutz (University of Michigan CEPR); Vigfusson, Robert J. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over the course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3 percent cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5 percent cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1 percent. |
| Keywords: | Real GDP; nonlinearity; asymmetry; time variation; conditional response; prediction. |
| JEL: | E32 E37 E51 Q43 |
| Date: | 2014–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1114&r=opm |
| By: | Marco Riguzzi |
| Abstract: | This essay examines the implications of openness to trade, capital mobility, and exchange rate flexibility for the fiscal multiplier. It presents a New Open Economy Macroeconomics model which is extended with the formation of "deep habits" by individual households. Hereby, an inter-temporal substitution effect is constituted, which causes monopolistically competitive producers to move their markups counter-cyclically and generates a positive fiscal multiplier of private consumption. The main outcome is a mechanism elaborating that both openness to trade and exchange rate flexibility limit the fiscal multiplier in equilibrium, and that capital mobility increases the fiscal multiplier in the short run. This dynamic model differs in its implications from a static model, such as the Mundell-Fleming model, and it is consistent with recent empirical findings. |
| Keywords: | Fiscal Multiplier; openness to trade; capital mobility; exchange rate flexibility |
| JEL: | E12 E62 F4 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1406&r=opm |
| By: | Paul Castillo; Cesar Carrera; Marco Ortiz; Hugo Vega |
| Abstract: | This paper extends the model of Aoki et al. (2009) considering a two sector small open economy. We study the interaction of borrowing, asset prices, and spillovers between tradable and non-tradable sectors. Our results suggest that when it is difficult to enforce debtors to repay their debt unless it is secured by collateral, a productivity shock in the tradable sector generates an increase in asset prices and leverage that spills over to the non-tradable sector, generating an appreciation of the real exchange and an increase in domestic lending. Macro-prudential instruments are introduced under the form of cyclical loan-to-value ratios that limit the amount of capital that entrepreneurs can pledge as collateral. Cyclical taxes that respond to the movements in the price of non-tradable goods are analysed. Simulation results show that this type of instruments significantly lessen the amplifying effects of borrowing constraints on small open economies and consequently reduce output and asset price volatility. |
| Keywords: | Collateral, productivity, small open economy |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:459&r=opm |
| By: | S. Tolga Tiryaki |
| Abstract: | This paper explores the sectoral dimension of emerging market business cycles by building a two-sector small open economy real business cycle model featuring a working capital requirement, variable capital utilization and imported inputs in production. The primary finding is that the price of imported inputs and nontradable sector productivity are the two most important sources of macroeconomic fluctuations in a typical emerging market economy. Interest rates and the price of imported final goods also play significant role in driving investment and import fluctuations. The model also produces significant sectoral asymmetry, especially in response to interest rate shocks. Variable capital utilization acts as a strong propagation mechanism. |
| Keywords: | Business cycles, Emerging markets, Imported inputs, Capital utilization |
| JEL: | E32 F32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1433&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); Yeganeh Forouheshfar (Université Paris-Dauphine - Université Paris-Dauphine) |
| Abstract: | We study the implication of a multipolarization of the international monetary system on cross-currency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a three-country, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stock-flow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock. |
| Keywords: | China; yuan; exchange-rate regime; euro-dollar |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00801100&r=opm |
| By: | Toyoichiro Shirota (Bank of Japan) |
| Abstract: | This paper examines the major determinant of the cross-border credit flows from global banks toward 70 vis-a-vis countries in seven regions of the world. Employing a Bayesian dynamic latent factor model, we decompose the volatilities of banking flows into the contribution of the global-common factor, the regional-common factor, and the national-specific factor. The results indicate that the global-common factor explains 36.4 percent of volatilities in overall cross-border banking flow, suggesting that the international propagations of shocks through global banks are quantitatively important. Especially, the contribution of the global-common factor is increasing in the 2000s. At the same time, main determinants are largely heterogeneous across countries. This heterogeneity implies that the desirable policy response to credit inflows could be different for each host country. |
| Keywords: | International Capital Flows; Dynamic Latent Factor; Bayesian Estimation |
| JEL: | C11 F3 |
| Date: | 2013–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-5&r=opm |
| By: | Claudio Borio; Harold James; Hyun Song Shin |
| Abstract: | In analysing the performance of the international monetary and financial system (IMFS), too much attention has been paid to the current account and far too little to the capital account. This is true of both formal analytical models and historical narratives. This approach may be reasonable when financial markets are highly segmented. But it is badly inadequate when they are closely integrated, as they have been most of the time since at least the second half of the 19th century. Zeroing on the capital account shifts the focus from the goods markets to asset markets and balance sheets. Seen through this lens, the IMFS looks quite different. Its main weakness is its propensity to amplify financial surges and collapses that generate costly financial crises – its "excess financial elasticity". And assessing the vulnerabilities it hides requires going beyond the residence/non-resident distinction that underpins the balance of payments to look at the consolidated balance sheets of the decision units that straddle national borders, be these banks or non-financial companies. We illustrate these points by revisiting two defining historical phases in which financial meltdowns figured prominently, the interwar years and the more recent Great Financial Crisis. |
| Keywords: | excess financial elasticity, banking glut, current account, capital account, financial cycle, financial crises |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:457&r=opm |
| By: | Yoshiyuki Fukuda (Bank of Japan); Yuki Kimura (Bank of Japan); Nao Sudo (Bank of Japan); Hiroshi Ugai (Bank of Japan) |
| Abstract: | Monetary policy shocks in the United States are considered a significant cause of economic fluctuations in other countries. We study empirically how the spillover effects of such shocks have changed as a result of the recent deepening of global integration. We consider shocks to the Federal Funds rate and examine how domestic production in a number of advanced, Latin American, and Asian countries were affected by these shocks during the 1990s and 2000s. We show that contractionary U.S. monetary policy shocks reduced domestic production in most of the sampled countries during the 1990s. During the 2000s, by contrast, the adverse effects were moderated. To explore the reasons behind the weakened spillover effects, we construct a DSGE model and examine the theoretical implications of the recent changes in economic structure, including global integration. In addition, we estimate response of trade and financial variables as well as policy instruments to U.S. monetary policy shocks. Our model combined with the empirical exercises suggests that, despite being enhanced by deepened trade integration, spillover effects may be decreasing due to a decline in the relative importance of the U.S. economy, and to regime switches in domestic monetary and exchange rate policy in non-U.S. countries. Though we empirically find a sign of short-run financial contagion during the 2000s, its effect upon the real economy was minor, possibly reflecting its low persistence. |
| Keywords: | U.S. Monetary Policy; Spillover Effect; Financial and Trade Linkages |
| Date: | 2013–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-16&r=opm |
| By: | Carlos A. Ibarra (Universidad de las Américas, Puebla (UDLAP)) |
| Abstract: | After a two-year deceleration, in 2009 the Mexican economy suffered a contraction only matched, in its modern history, by the one recorded in 1995, in the wake of the peso crisis of December 1994. As in the latter crisis, the economy immediately bounced back, posting positive growth in 2010. Compared with the sharp rebound of exports, though, the overall recovery was weak, with GDP and industrial production surpassing (barely, in the latter case) their pre-crisis levels only in 2011. Motivated by these observations, the paper studies the transmission channels behind the 2009 recession in Mexico, the reasons for the weakness of the 2010?2011 recovery, and ?based on that analysis? some of the risks the country faces for sustaining stronger economic growth in the future. |
| JEL: | C22 E22 E58 F14 F21 F32 F41 O11 O54 |
| Date: | 2014–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:smx:wpaper:2014002&r=opm |
| By: | Michele Gori (Dipartimento di Scienze per l'Economia e l'Impresa); Giorgio Ricchiuti (Dipartimento di Scienze per l'Economia e l'Impresa) |
| Abstract: | In this paper, we analyze a heterogeneous agent model in which the fundamental exchange rate is endogenously determined by the real markets. The exchange rate market and the real markets are linked through the balance of payments. We have analytically found that there exists at least a steady state in which the exchange rate is at its fundamental value and incomes of both countries are equal to the autonomous components times the over-simplified multiplier (as in the Income-Expenditure model). That steady state can be unique and always unstable when all agents act as contrarians, while when agents act as fundamentalists is unique but its stability depends on the reactivity of actors of the market. Finally, we show that the (in)stability of the economic system depends on both the reactivity of the markets and that of different type of agents involved. |
| Keywords: | Complex Dynamics; Heterogeneous Agents Models; Financial Markets. |
| JEL: | C62 D84 E12 E32 G02 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_15.rdf&r=opm |
| By: | Carine Nourry (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC) |
| Abstract: | We consider an OLG economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good which can be either consumed or used as capital. We prove that the existence of Pareto optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's (1986, Journal of Economic Theory, 40, 89-102) influential conclusion, this result suggests that some fiscal policy rules can prevent the existence of business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as it is announced. |
| Keywords: | Two-sector OLG model, multiple consumption goods, dynamic efficiency, Endogenous fluctuations, local indeterminacy |
| JEL: | C62 E32 O41 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1439&r=opm |
| By: | Yulia Vymyatnina; Evgeniya Goryacheva |
| Abstract: | Using monthly and quarterly data for 2000 – 2012 for Belarus, Kazakhstan and Russia we estimate monetary policy rules for these countries. The aim of our study is to find out similarities and differences in monetary policy practices in these countries in order to evaluate potential problems in switching to unified macroeconomic policy that is envisaged within the Common Economic Area. We analyze official statements of the Central Banks, dynamics of major macroeconomic indicators, estimate modified monetary policy rules and conclude that Kazakhstan and Russia have similar monetary policy, while Belarus will have to change most of its practices in case the unified monetary policy is introduced in the Common Economic Area. |
| Keywords: | Customs Union, Common Economic Area, monetary policy rules, inflation, Russia, Belarus, Kazakhstan |
| JEL: | E52 F42 |
| Date: | 2014–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:eus:wpaper:ec0514&r=opm |