nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2015‒07‒11
seven papers chosen by
Martin Berka
University of Auckland

  1. Large capital inflows, sectoral allocation and economic performance By Gianluca Benigno; Nathan Converse; Luca Fornaro
  2. The implications for trade and FDI flows from liberalisation of China's capital account By George Verikios
  3. Choice of Invoice Currency in Global Production and Sales Networks: The case of Japanese overseas subsidiaries By ITO Takatoshi; KOIBUCHI Satoshi; SATO Kiyotaka; SHIMIZU Junko
  4. The International Transmission of Credit Bubbles: Theory and Policy By Alberto Martin; Jaume Ventura
  5. Exchange rate fluctuations and the margins of exports By Richard Fabling; Lynda Sanderson
  6. Financial Crash, Commodity Prices and Global Imbalances By Emmanuel Farhi; Ricardo Caballero; Pierre-Olivier Gourinchas
  7. Immigration, trade and productivity in services: evidence from UK firms By Gianmarco I. P. Ottaviano; Giovanni Peri; Greg C. Wright

  1. By: Gianluca Benigno; Nathan Converse; Luca Fornaro
    Abstract: This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.
    Keywords: Capital flows; surges; sectoral allocation; sudden stops
    JEL: F31 F32 F41 O41
    Date: 2015–04
  2. By: George Verikios
    Abstract: We model the partial liberalisation of the capital account by China using a dynamic CGE model of the world economy. Our results indicate that a reduced capital controls on FDI would lead to a significant increase in FDI capital in China and a significant reduction in the cost of capital in China relative to the rest of the world. Further, we observe an increase in capital stocks in all regions, which benefits all regions in terms of GDP and GNP. The economies of China (1.7%), East Asia (1.3%) and Australia/New Zealand (0.5%) grow most strongly. The rental price of capital falls significantly in these regions, which lowers domestic costs and they experience a real depreciation of the exchange rate and thus increased exports relative to other regions. We also observe an across-the-board increase in the saving rate driven by the rise in the price of consumption relative to investment (saving) in all regions.
    Keywords: capital controls, China, computable general equilibrium, FDI, multinational firms, trade
    JEL: C68 E22 F21 F23 F40
    Date: 2014–01
  3. By: ITO Takatoshi; KOIBUCHI Satoshi; SATO Kiyotaka; SHIMIZU Junko
    Abstract: This paper empirically investigates the invoicing decision in trade of Japanese production subsidiaries, using the novel dataset obtained from a questionnaire survey. We sent out questionnaires in August 2010 to all Japanese subsidiaries located in North America, Europe, and Asia to collect product-level information on the choice of invoice currency in importing intermediate inputs and exporting production goods along the production chain. By conducting a logit estimation, we demonstrate that the invoicing choice of intra-firm trade along the production chain depends on the destination of the subsidiary's exports as well as the degree of exchange rate volatility. Subsidiaries tend to choose yen invoicing only in exports of intermediate inputs to Japan, while major currencies such as the U.S. dollar and, to a lesser extent, the euro are typically chosen in the subsidiary's exports of finished goods to other countries. To accommodate the currency mismatch caused by the choice of foreign currency invoicing, Japanese subsidiaries need efficient management of the exchange rate risk in the face of large fluctuations of the local currency.
    Date: 2015–07
  4. By: Alberto Martin; Jaume Ventura
    Abstract: We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic effects of these credit bubbles. This paper extends that framework to include many countries and general preferences, and uses it to study how financial integration affects the properties of credit bubbles, how the latter are transmitted across countries, and the role of international policy coordination.
    Keywords: Önancial globalization, international capital áows, sudden stops, credit bubbles, international policy coordination
    JEL: E32 E44 O40
    Date: 2015–05
  5. By: Richard Fabling (Motu Economic and Public Policy Research); Lynda Sanderson (New Zealand Treasury)
    Abstract: This paper examines the relationship between exchange rate fluctuations and New Zealand export performance. To isolate the impact of the exchange rate, as opposed to contemporaneous (and related) fluctuations in New Zealand’s economic performance or overseas market characteristics, we focus on bilateral export relationships at the firm level and control for both time-invariant country characteristics and changes in aggregate economic conditions. We examine two key margins of export adjustment – the probability of exporting (the extensive margin) and the average value of exports per firm (the intensive margin) – and distinguish between impacts on market incumbents and new or potential entrants. Finally, we specifically take account of the potential for interaction between the level and volatility of the exchange rate to affect exporting, as implied by theories of exchange rate hysteresis.
    Keywords: Margins of exports, Hysteresis, Exchange rates
    JEL: D22 F14 F31
    Date: 2015–05
  6. By: Emmanuel Farhi; Ricardo Caballero; Pierre-Olivier Gourinchas
  7. By: Gianmarco I. P. Ottaviano; Giovanni Peri; Greg C. Wright
    Abstract: This paper explores the impact of immigrants on the imports, exports and productivity of serviceproducing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.
    Keywords: Immigration; services trade
    JEL: F10 F16 F22 F23
    Date: 2015–05

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