nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2015‒09‒11
twelve papers chosen by
Martin Berka
University of Auckland

  1. Currency Unions and Trade: A Post-EMU Mea Culpa By Reuven Glick; Andrew K. Rose
  2. Measuring Industry Productivity Across Time and Space and Cross Country Convergence By Diewert, Erwin; Inklaar, Robert
  3. Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks? By Olivier J. Blanchard; Gustavo Adler; Irineu E. Carvalho Filho
  4. International Relative Prices: Evidence from Online Retailers in Seven Countries By Brent Neiman; Alberto Cavallo
  5. External Balances, Trade and Financial Conditions By Martin D D Evans
  6. Financial News, Banks and Business Cycles By Christopher M. Gunn; Alok Johri
  7. Government deficits in large open economies: The problem of too little public debt By Buiter, Willem H.; Sibert, Anne C.
  8. Capital Control Measures: A New Dataset By Andrés Fernández; Michael W. Klein; Alessandro Rebucci; Martin Schindler; Martin Uribe
  9. Export diversification and exchange-rate regimes: Evidences from 72 developing countries By Liu, Xiaohui; Zhang, Jing
  10. German labor market and fiscal reforms 1999 to 2008: Can they be blamed for intra-euro area imbalances? By Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
  11. External debt and real exchange rates’adjustment in the euro area: New evidence from a nonlinear NATREX model By Cécile Couharde; Serge Rey; Audrey Sallenave
  12. The Real Exchange Rate and Sectoral Employment in South Africa. By Haroon Bhorat; Nan Tian; Mark Ellyne

  1. By: Reuven Glick; Andrew K. Rose
    Abstract: In our European Economic Review (2002) paper, we used pre-1998 data on countries participating in and leaving currency unions to estimate the effect of currency unions on trade using (then-) conventional gravity models. In this paper, we use a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union (EMU). We have three findings. First, our assumption of symmetry between the effects of entering and leaving a currency union seems reasonable in the data but is uninteresting. Second, EMU typically has a smaller trade effect than other currency unions; it has a mildly stimulating effect at best. Third and most importantly, estimates of the currency union effect on trade are sensitive to the exact econometric methodology; the lack of consistent and robust evidence undermines confidence in our ability to reliably estimate the effect of currency union on trade.
    JEL: F15 F33
    Date: 2015–09
  2. By: Diewert, Erwin; Inklaar, Robert
    Abstract: The paper introduces a new method for simultaneously comparing industry productivity levels across countries and over time. The new method is similar to the method for making multilateral comparisons of Caves, Christensen and Diewert (1982b) but their method can only compare gross outputs across production units and not compare real value added of production units across time and space. The present paper uses the translog GDP methodology for measuring productivity levels across time that was pioneered by Diewert and Morrison (1986) and adapts it to the multilateral context. The new method is illustrated using an industry level data set and shows that productivity dispersion across 38 countries between 1995 and 2011 has decreased faster in the traded sector than in the non-traded sector. In both sectors, there is little evidence of decreasing distance to the productivity frontier.
    Keywords: Productivity, index numbers, Purchasing Power Parities, multilateral comparisons, convergence, value added functions, efficiency, world production fro
    JEL: C43 C82 D24 E01 E23 E31 F14 O47
    Date: 2015–09–03
  3. By: Olivier J. Blanchard; Gustavo Adler; Irineu E. Carvalho Filho
    Abstract: Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
    Keywords: Central banks and their policies;Foreign exchange;Foreign exchange intervention;Capital flows;exchange rate, gross capital flows, exchange, market, General,
    Date: 2015–07–16
  4. By: Brent Neiman (University of Chicago); Alberto Cavallo (MIT)
    Abstract: We construct a dataset containing daily prices for hundreds of goods that collectively represent the bulk of expenditures on fuel, food, and consumer electronics in seven countries since 2010. Relative to earlier work, including our own, we significantly increase the coverage of goods studied by measuring prices in common physical units such as grams, items, or liters. We can therefore reasonably compare across countries the prices of otherwise identical goods sold in slightly different package sizes. We use these data to ask how price levels and dynamics for the same good varies across countries, with a focus on uncovering the extent to which the exchange rate, measurement error, and price stickiness dictate the extent of law of one price variations. Finally, we consistently scrape the web pages of the 10 largest online retailers in each country and note the total number of available varieties within narrowly defined categories. This allows us to, for the first time, characterize the scale of cross-country differences in the availability of consistently defined consumer varieties.
    Date: 2015
  5. By: Martin D D Evans (Department of Economics, Georgetown University)
    Abstract: This paper examines the persistent deterioration in the international external position of the U.S. over the past 60 years. I develop a model without Ponzi schemes and arbitrage opportunities that accounts for both the secular rise and the cyclical variations in the U.S. international debt position. The model estimates quantify the role played by financial and real factors in driving these dynamics, and their impact on the steady state debt position. I find that financial factors raise the steady state debt level by three percent of GDP, and account for 80 percent the cyclical variations. In contrast, real factors associated with trade flows are the dominant drivers of the secular rise in the debt position. I argue that these empirical findings are at odds with recent models of global imbalances that focus on demographics and asymmetric financial development. They also represent a substantial challenge to the view that the U.S. external position is on a sustainable path.
    Keywords: Global Imbalances, External Positions, Current Accounts, Trade Flows, Valuation Effects, Stochastic Discount Factors, International Asset Pricing
    JEL: F31 F32 F34
    Date: 2015–08–19
  6. By: Christopher M. Gunn; Alok Johri
    Abstract: Can variations in the expected future return on a portfolio of sovereign bonds itself have real effects on a small open economy? We build a model where banks face a capital sufficiency requirement to demonstrate that news about a fall in the expected return on a portfolio of international long bonds held by the bank can lead to an immediate and persistent fall in economic activity. Even if the news never materializes, the model can generate several periods of below steady state investment, hours worked and production followed by a recovery. The presence of long bonds in bank portfolios enable the news to have an immediate impact on bank capital via an immediate fall in bond prices. The portfolio adjustment induced by the capital sufficiency requirements leads to a rise in loan rates and tighter credit conditions which trigger the fall in activity. The model contributes to the news-shock literature by showing that imperfect signals about future financial returns can create business cycles without relying on the usual suspects: variation in domestic fundamentals such as technology shocks, preference shocks and fiscal policy. It also contributes to the emerging economy business cycle literature in that disturbances in world financial markets can lead to domestic business cycles without relying on shocks to the world interest rate or to country spreads.
    Keywords: expectations-driven business cycles, financial news shocks,financial intermediation, business cycles, small open economy, capital adequacy requirements.
    JEL: E3 E44 F4 G21
    Date: 2015–08
  7. By: Buiter, Willem H.; Sibert, Anne C.
    Abstract: Large and growing levels of public debt in the United States, United Kingdom, Japan and the Euro Area raise new interest in the cross-country effects of a large open economy's deficits. The authors consider a dynamic optimising model with costly tax collection and exogenously given public spending and initial debt. They ask whether the externalities associated with an individual country's deficits are positive or negative. They characterise the path of taxes in the Nash equilibrium where policy makers act nationalistically and compare this outcome to the global optimal outcome.
    Keywords: fiscal policy,international policy coordination,optimal taxation
    JEL: E62 F42 H21
    Date: 2015
  8. By: Andrés Fernández; Michael W. Klein; Alessandro Rebucci; Martin Schindler; Martin Uribe
    Abstract: This paper presents a new dataset of capital control restrictions on both inflows and outflows of 10 categories of assets for 100 countries over the period 1995 to 2013. Building on the data in Schindler (2009) and other datasets based on the analysis of the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), this dataset includes additional asset categories, more countries, and a longer time period. The paper discusses in detail the construction of the dataset and characterizes the data with respect to the prevalence and correlation of controls across asset categories and between controls on inflows and controls on outflows, the aggregation of the separate categories into broader indicators, and the comparison of this dataset with other indicators of capital controls.
    Keywords: Capital controls;Capital flows;Capital inflows;Capital outflows;Data analysis;Time series;capital control measures, international financial integration, exchange, international capital, investment, monetary fund, General, Financial Aspects of Economic Integration,
    Date: 2015–04–22
  9. By: Liu, Xiaohui; Zhang, Jing
    Abstract: Drawing on a new dataset of diversification of export products, the paper makes the first attempt in the empirical literature to test the impact of product diversification on the choice of exchange-rate regimes in a sample of 72 developing countries (1974-2010). The paper finds that diversification of export products has a positive but insignificant effect on the choice of fixed exchange-rate regimes. When export diversification is decomposed into the extensive and intensive margins, evidences of the paper show that higher level of product diversification at the extensive margin has a statistically positive effect on exchange-rate regime choices while the intensive margin has a negative but insignificant impact on the choice.
    Keywords: Export Diversification, Extensive Margin, Intensive Margin, The Choice of Exchange-rate Regime, Developing Countries
    JEL: F30 F40
    Date: 2015–09–01
  10. By: Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
    Abstract: In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of observed imbalances in the Euro Area. Our simulations within a two-country monetary union DSGE model show that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. Further simulations highlight the importance of increased savings preferences in Germany to explain the latter.
    Keywords: Fiscal Policy,Labor Market Reforms,DSGE Modeling,Macroeconomics
    JEL: H2 J6 E32 E62
    Date: 2015
  11. By: Cécile Couharde; Serge Rey; Audrey Sallenave
    Abstract: In this paper we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATREX approach which provides an explicit framework of the external debt-real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential non-linearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly.
    Keywords: Euro area; External debt; NATREX approach; Panel Smooth Transition Regression models; Real exchange rates.
    JEL: C23 F31 O47
    Date: 2015
  12. By: Haroon Bhorat; Nan Tian; Mark Ellyne (Development Policy Research Unit; Director and Professor)
    Abstract: This paper examines the impact of exchange rate fluctuations on sectoral employment in South Africa from 1975 to 2009. A major focus is how exchange rate fluctuations impact on employment in South Africa’s formal non-agricultural sector. Another relevant factor to consider is the impact skills have on the employment-exchange rate elasticity Overall, following a real exchange rate appreciation, the results show strong support for a negative and significant employment decline in the tradable sector, limited evidence of a positive employment impact in the non-tradable sector and generally no effect on aggregate employment.
    Keywords: Real exchange rate; Employment; South Africa
    JEL: F31 J21 J30
    Date: 2014–12

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