nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2018‒03‒12
three papers chosen by
Martin Berka
University of Auckland

  1. Global Financial Cycles and the Exchange Rate Regime: A Perspective from Emerging Markets By Obstfeld, Maurice; Ostry, Jonathan D.; Qureshi, Mahvash S.
  2. Global Spillover Effects of US Uncertainty By Saroj Bhattarai; Arpita Chatterjee; Woong Yong Park
  3. Markups and Markets: A New Empirical Framework and Evidence on Exporters from China By Corsetti, G.; Crowley, M.; Han, L.; Song, H.

  1. By: Obstfeld, Maurice; Ostry, Jonathan D.; Qureshi, Mahvash S.
    Abstract: This paper examines the relevance of exchange rate regimes in the transmission of global financial shocks to domestic financial and macroeconomic conditions. Our findings suggest that even in today's highly financially integrated world, the nominal exchange rate regime does matter-at least for emerging market economies. The transmission of global financial shocks to domestic variables is magnified under fixed exchange rate regimes relative to more flexible regimes. For advanced economies, however, the jury is still out, as the recent paucity of truly fixed regimes among these economies poses a challenge for estimating the effect of exchange rate flexibility.
    Keywords: emerging market economies; global financial cycle; trilemma
    JEL: F31 F36 F41
    Date: 2018–02
  2. By: Saroj Bhattarai (University of Texas at Austin); Arpita Chatterjee (UNSW Business School, UNSW); Woong Yong Park (Seoul National University)
    Abstract: We study spillover effects of US uncertainty fluctuations using panel data from fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and leads to capital outflows from them. Moreover, it decreases EME output, while increasing their consumer prices and net exports. The negative effects on output, exchange rates, and stock prices are weaker, but the effects on capital and trade flows stronger, for South American countries compared to other EMEs. We present a model of a small open economy that faces an external shock to interpret our findings.
    Keywords: US Uncertainty, Emerging Market Economies, Small Open Economy Model, Capital Flows, Country Spread
    JEL: C33 E44 E52 E58 F32 F41
    Date: 2017–11
  3. By: Corsetti, G.; Crowley, M.; Han, L.; Song, H.
    Abstract: We develop a new empirical framework to analyse destination-specific markup and quantity adjustments to bilateral exchange rates by exporters. The framework offers two methodological innovations. First, we develop an unbiased estimator of the markup elasticity that correctly isolates marginal costs in large unbalanced panels where the set of markets served by firms varies endogenously with currency movements. Second, we exploit Chinese linguistics to process characters recorded in Chinese custom forms to build a novel, general, product classification distinguishing high and low differentiation goods---which we can use to proxy for exporters' market power. Applying this framework to exporters from China over 2000-2014, we document substantial heterogeneity in destination-specific markup elasticities across product classes and firm types. Conditional on a price change, the average markup elasticity for highly differentiated consumption goods is 32%; markup adjustments explain three quarters of incomplete pass through into import prices for these goods. In contrast, the average for low-differentiation intermediates is only 5%, suggesting that pricing for these goods responds to global, rather than local, economic conditions. Markup elasticities are higher for both state-owned and foreign-invested enterprises than for private enterprises, which, on average, pursue aggressively competitive strategies throughout our sample.
    Keywords: Exchange rates, pricing-to-market, product classification, differentiated goods, market power, markup elasticity, trade elasticity, China.
    JEL: F31 F41
    Date: 2018–02–13

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