nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2018‒02‒05
ten papers chosen by
Martin Berka
University of Auckland

  1. Short-Run Pain, Long-Run Gain: The Conditional Welfare Gains from International Financial Integration By Raouf Boucekkine; Giorgio Fabbri; Patrick A. Pintus
  2. Production Fragmentation and Factor Price Convergence By Hulya Saygili
  3. Bank Globalization and Monetary Policy Transmission in Small Open Economies By Inhwan So
  4. Imbalances and policies in the Eurozone By Schilirò, Daniele
  5. Real exchange rate and economic growth in Ghana By Mwinlaaru, Peter Yeltulme; Ofori, Isaac Kwesi
  6. Equity Market Globalization and Portfolio Rebalancing By Kyungkeun Kim; Dongwon Lee
  7. Foreign Currency Borrowing, Exports and Firm Performance: Evidence from a Currency Crisis By Spiros Bougheas; Hosung Lim; Simona Mateut; Paul Mizen; Cihan Yalcin
  8. The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result By Lind�, Jesper; Pescatori, Andrea
  9. Bond Convenience Yields and Exchange Rate Dynamics By Rosen Valchev
  10. Output Costs of Currency Crises: Shocks, Policies and Cycles By Nakatani, Ryota

  1. By: Raouf Boucekkine (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille); Giorgio Fabbri (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne); Patrick A. Pintus (DGEI-DEMFI-POMONE – Banque de France)
    Abstract: This paper aims at clarifying the analytical conditions under which financial globalization originates welfare gains in a simple endogenous growth setting. We focus on an open-economy AK model in which the capital-deepening effect of financial globalization boosts growth in a in permanent but entails an entry cost in order to access international credit markets. We show that constrained borrowing triggers substantial welfare gains, even at small levels of international financial integration, provided that the autarkic growth rate is larger than the world interest rate. Such conditional welfare benefits boosted by stronger growth - long-run gain - arise in our preferred model without investment commitment and they range, relative to autarky, from about 2% in middle-income countries to about 13% in OECD-type countries under international financial integration. Sizeable benefits emerge despite the fact that consumption initially falls - short-run pain - which is however shown not to dwarf positive growth changes.
    Keywords: Endogenous Growth,Welfare Gains,Collateral-Constrained Borrowing,International Financial Integration,Growth Breaks
    Date: 2017
  2. By: Hulya Saygili
    Abstract: In this analysis, we empirically analyze if the nature of trade matters for international factor price convergence. In particular, we examine whether factor prices converge when country pairs involve with more bilateral production fragmentation arrangements. We apply panel fixed effect techniques using data for five EU countries. The analyses are controlled for alternative trade related indicators such as bilateral trade intensity and bilateral intra-industry trade as well as for industrial similarity variables. We find that bilateral production fragmentation plays a key role in labor cost converging effects of trade.
    Keywords: International factor price convergence, Production fragmentation, Trade
    JEL: J31 F14 F15 F41
    Date: 2017
  3. By: Inhwan So (International Department, The Bank of Korea)
    Abstract: This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.
    Keywords: Bank globalization, Monetary policy, Dynamic stochastic general equilibrium model, Small open economies
    JEL: E32 E44 E52 E58 F36
    Date: 2017–11–20
  4. By: Schilirò, Daniele
    Abstract: The present paper highlights the imbalances that have characterized the Eurozone during the crisis. The contribution focuses on the issue of current account imbalances and the factors that caused them. It also examines the banking union as an important step toward a better management of the Eurozone financial imbalances. Furthermore, the paper discusses and assesses the policies, especially monetary policy, implemented in the Eurozone, stressing the limits of the strategy pursued by the European authorities. The main purpose of the paper is to point out possible solutions in order to correct the imbalances and discuss changes in Eurozone policies.
    Keywords: imbalances; current account balance; monetary and fiscal policies; banking union
    JEL: E50 E58 E62 F30 O52
    Date: 2017–08
  5. By: Mwinlaaru, Peter Yeltulme; Ofori, Isaac Kwesi
    Abstract: The study sought to determine effect of real effective exchange rate on economic growth in Ghana using annual data from 1984 to 2014. Data was sourced from the databases of World Bank, Bank of Ghana annual bulletins, and Ghana Ministry of Finance and Economic Planning. Using the ARDL cointegration estimation technique, the study found that real exchange rate and economic growth are cointegrated. The result suggests that real exchange rate exerts a positive and statistically significant effect on economic growth in both the long-run and short-run. Thus, there is the need to ensure exchange rate stability in the Ghanaian economy to help boost economic growth.
    Keywords: Economic growth, Real exchange rate, Autoregressive Distributed Lag (ARDL) model
    JEL: F31 O4 O40
    Date: 2017–11–03
  6. By: Kyungkeun Kim (Economic Research Institute, The Bank of Korea); Dongwon Lee (University of California, Riverside)
    Abstract: This paper examines how the financial globalization affects international equity mutual funds' portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds' propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds' equity holdings in emerging economies.
    Keywords: Equity market globalization, Portfolio allocation, Portfolio rebalancing, Return correlation
    JEL: F3 G11 G15
    Date: 2017–06–13
  7. By: Spiros Bougheas; Hosung Lim; Simona Mateut; Paul Mizen; Cihan Yalcin
    Abstract: This paper develops a simple signalling model of foreign currency borrowing that yields predictions about firm survival and performance during a currency crisis. Using a large panel of firm level data for South Korea we offer empirical support for the predictions of our model. It demonstrates that although firms that borrow in foreign currency are more likely to exit after the currency collapses, those that survive perform better. Among them, the best performers are exporters whose foreign sales are now more competitive.
    Keywords: Currency crisis, Exports, Foreign currency borrowing
    JEL: F34 F41 G21 L25
    Date: 2018
  8. By: Lind�, Jesper; Pescatori, Andrea
    Abstract: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined change in import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Deviations from symmetry, however, do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across countries. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects.
    Keywords: Border Adjustment Tax; Import Tariffs and Export Subsidies; Lerner Condition; Incomplete and Complete Markets; New Keynesian open-economy model; Trade War
    JEL: E52 E58
    Date: 2017–12
  9. By: Rosen Valchev (Boston College)
    Abstract: This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalize both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilib- rium convenience yield is non-monotonic, which generates the reversal of the puzzle. The model fits exchange rate dynamics very well, and I also find direct evidence that convenience yields indeed drive excess currency returns.
    Keywords: Uncovered Interest Rate Parity, Exchange Rates, Open Economy Macroeconomics, Bond Convenience Yield, Monetary-Fiscal Interaction, Government Debt Dynamics
    JEL: F31 F41 F42 E43 E52 E63
    Date: 2017–10–16
  10. By: Nakatani, Ryota
    Abstract: This paper studies output declines during currency crises based on the theoretical model by Nakatani (2016, 2017a), highlighting the role of shocks that trigger crises. Using panel data on 49 developing countries, we find that both productivity shocks in the real sector and shocks to the country’s risk premium in financial markets affect the output costs of currency crises, which are 4% of GDP on average and 8% for severe crises. During severe currency crises in Asian and Latin-American countries, both productivity shocks and exchange rate overvaluation were found to be important factors in explaining large output losses.
    Keywords: Growth; Currency Crisis; Productivity; Risk Premium; Exchange Rate Overvaluation; Developing Countries
    JEL: E32 F41 F43 G15 O47
    Date: 2018–01–01

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