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on Open Economy Macroeconomics |
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Issue of 2016–07–02
three papers chosen by Martin Berka, Massey University and University of Auckland |
| By: | Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik; Schrimpf, Andreas |
| Abstract: | We assess the properties of currency value strategies based on real exchange rates. We find that real exchange rates have predictive power for the cross-section of currency excess returns. However, adjusting real exchange rates for key country-specific fundamentals (productivity, the quality of export goods, net foreign assets, and output gaps) better isolates information related to the currency risk premium. In turn, the resulting measure of currency value displays considerably stronger predictive power for currency excess returns. Finally, the predictive information content in our currency value measure is distinct from that embedded in popular currency strategies, such as carry and momentum. |
| Keywords: | Currency value; macro fundamentals; predictability; real exchange rate |
| JEL: | F31 G12 G15 |
| Date: | 2016–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:11324 |
| By: | Raphael, Brun-Aguerre; Ana-Maria, Fuertes; Matthew, Greenwood-Nimmo |
| Abstract: | We analyse exchange rate pass-through into import prices for a large group of 33 emerging and developed economies from 1980Q1 to 2010Q4. Our error correction models permit asymmetric pass-through for currency appreciations and depreciations over three horizons of interest: on impact, in the short run and in the long run. We find that depreciations are typically passed-through more strongly than appreciations in the long-run, suggesting that exporters may exert a degree of long-run pricing power. This asymmetry is stronger in economies which are more import dependent but is moderated by freedom to trade and a positive output gap. Given that this pass-through asymmetry is welfare-reducing for consumers in the destination market, a key macroeconomic implication is that import-dependent economies, in particular, can benefit from trade liberalisation. |
| Keywords: | Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets. |
| JEL: | F10 F14 F30 F31 |
| Date: | 2016–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:71764 |
| By: | Verstegen, Loes (Tilburg University, Center For Economic Research); Meijdam, Lex (Tilburg University, Center For Economic Research) |
| Abstract: | In this paper, we incorporate a transfer mechanism into a DSGE model with a rich fiscal sector to assess the effectiveness of fiscal transfers for a monetary union, in particular for the Economic and Monetary Union. Using a heterogeneous setup, the model is estimated for the North and the South of Europe using Bayesian methods. The results show that the transfer mechanism is effective in stabilizing the economy of the southern block of countries during the financial crisis, although the total welfare effect for the EMU is negative, though small. Ex ante, a transfer mechanism would be beneficial for both the North and the South in terms of welfare and stabilization purposes. |
| Keywords: | Two-country DSGE; Fiscal Federalism; Monetary union; fiscal policy |
| JEL: | E62 E63 F42 |
| Date: | 2016 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiucen:2963247d-7fe3-4b3a-80b5-ce2c9306dfcf |