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on Open Economy Macroeconomics |
| By: | Akihisa Shibata; Mototsugu Shintani; Takayuki Tsuruga |
| Abstract: | The current account in developed countries is highly persistent and volatile in comparison to their output growth. The standard intertemporal current account model with rational expectations (RE) fails to explain the observed current account and consumption dynamics. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for the consumption dynamics, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility explains both the current account and consumption, provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered. |
| Keywords: | Capital mobility, Imperfect information, Inattentive consumers, Permanent income hypothesis |
| JEL: | E21 F21 F32 F41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-56&r=opm |
| By: | Eleni Iliopulos; Erica Perego; Thepthida Sopraseuth (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We study the international transmission of shocks when agents form expectations under adaptive learning and imperfect information. To this aim we consider a two-country model featuring financial frictions, nominal rigidities, learning and Home information bias (as a source of information imperfection). We show that the more pronounced the Home information bias, the less agents track the international transmission of shocks, as it would otherwise be the case under rational expectations. The model succeeds in matching the low business cycle synchronization of consumption, while generating a positive output co-movement. In doing so, the model takes the theory closer to the data with respect to the output-consumption co-movement anomaly. The model also exhibits departure from the Uncovered Interest rate Parity. |
| Keywords: | financial frictions, interdependent economies, learning, uncovered interest rate parity. |
| JEL: | D84 E44 E51 F41 F42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2018-13&r=opm |
| By: | Bibiana Lanzilotta (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Gabriela Mordecki (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Victoria Umpiérrez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | It has been well documented by the macroeconomic literature the negative effects of economic policy instability on economic uncertainty and investment decisions. In changing environments, agents prefer to delay investment decisions in fixed capital, ultimately leading to the depression of economic activity. Uruguay, as a small and open economy of South America, has historically faced strong external shocks. Therefore, not only local instability of economic policy affects, also international and regional ones affect macroeconomic volatility and growth. With the objective of quantifying and analyzing uncertainty and volatility in the Uruguayan economy, we built an uncertainty composite index adapting the methodology proposed by Baker, Bloom & Davis (2015). In order to address how local and global economic policy uncertainty affects the volatility of the Uruguayan economy we include in the composite index, local and external uncertainty indicators. We represent local uncertainty by agent’s divergence on expectations about the future of the exchange rate. In order to account for both, regional and global shocks, we include uncertainty indicators of the relevant economic-world for Uruguay. Empirical strategy is based on a combination of statistical methods of principal components analysis and time series techniques. We test two alternative indexes, both of them starting in January 2004. Our results show that although both uncertainty indexes seem to be good predictors of the volatility for the whole period, they losses predictability power in the last years. |
| Keywords: | Political economic uncertainty, volatility, principal components analysis |
| JEL: | E32 C54 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-05-18&r=opm |
| By: | Crespo Cuaresma, Jesus (WU Wirtschaftsuniversität Wien); Doppelhofer, Gernot (Norwegian School of Economics); Feldkircher, Martin (Oesterreichische Nationalbank (Austrian Central Bank)); Huber, Florian (University of Salzburg) |
| Abstract: | This paper develops a global vector autoregressive (GVAR) model with time-varying parameters and stochastic volatility to analyze whether international spillovers of US monetary policy have changed over time. The proposed model allows assessing whether coefficients evolve gradually over time or are better characterized by infrequent, but large breaks. Our findings point towards pronounced changes in the international transmission of US monetary policy throughout the sample period, especially so for the reaction of international output, equity prices, and exchange rates against the US dollar. In general, the strength of spillovers has weakened in the aftermath of the global financial crisis. Using simple panel regressions, we link the variation in international responses to measures of trade and financial globalization. We find that a broad trade base and a high degree of financial integration with the world economy tend to cushion risks stemming from a foreign shock such as a US monetary policy tightening, whereas a reduction in trade barriers and/or a liberalization of the capital account increase these risks. |
| Keywords: | Spillovers; zero lower bound; globalization; mixture innovation models |
| JEL: | C30 E52 F41 |
| Date: | 2018–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2018_006&r=opm |
| By: | Christofzik, Désirée I.; Elstner, Steffen |
| Abstract: | This paper explores the international transmission of U.S. tax shocks and provides evidence for the German economy. Using structural vector autoregressions, we find that after a U.S. tax cut, German GDP increases moderately. While higher U.S. demand stimulates German exports, a deterioration of price competitiveness lowers this positive growth impulse. The current account increases significantly. Surprisingly, German prices fall as domestic companies reduce unit labor costs. The resulting increase of the real interest rate dampens domestic demand. German tax policy shows an opposite reaction to U.S. tax policy. The latter result, however, is driven by the decade of the 1970s. We find that significant changes in the transmission channels arise by distinguishing between different types of U.S. tax reforms. In particular, in contrast to U.S. personal income tax reforms, changes in the corporate income tax cause a depreciation of the German real effective exchange rate. |
| Keywords: | fiscal policy,tax policy,international spillovers,structural vector autoregressions |
| JEL: | H20 E32 E62 F44 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:082018&r=opm |
| By: | Aitor Erce; Enrico Mallucci |
| Abstract: | Governments issue debt both domestically and abroad. This heterogeneity introduces the possibility for governments to operate selective defaults that discriminate across investors. Using a novel dataset on the legal jurisdiction of sovereign defaults that distinguishes between defaults under domestic law and default under foreign law, we show that selectiveness is the norm and that imports, credit, and output dynamics are different around different types of default. Domestic defaults are associated with contractions of credit and are more likely in countries with smaller credit markets. In turn, external defaults, are associated with a sharp contraction of imports and are more likely in countries with depressed import markets. Based on these regularities, we construct a dynamic stochastic general equilibrium model that we calibrate to Argentina. We show that the model replicates well the behavior of the Argentinean economy and rationalizes these empirical findings. |
| Keywords: | Sovereign Default ; Selective Defaults ; Domestic Debt ; External Debt ; Credit ; Imports |
| JEL: | F34 F41 H63 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1239&r=opm |
| By: | Alessandro Maravalle; Łukasz Rawdanowicz |
| Abstract: | We estimate dynamic factor models for two sub-samples between 1995 and 2017 for up to 42 advanced and emerging-market economies to investigate changes in the contribution of global and regional factors to fluctuations in real GDP per capita growth, inflation, 10-year government bond yields and equity prices. The combined average contribution of global and regional factors in explaining fluctuations of GDP growth and inflation increased between 1995-2006 and 2007-17. In contrast, for financial variables, the role of country-specific factors strengthened between these two periods. The general findings are robust to alternative specifications of the lag structure, data frequency and the country composition of the largest region. Country-specific factors explain a higher share of variation of financial variables in emerging-market economies compared with advanced economies. For all variables, there is large cross-country heterogeneity regarding the level of contributions of specific factors and their evolution over time. |
| Keywords: | co-movement, dynamic factor models, Financial and trade integration, international business cycle |
| JEL: | C38 E32 E44 F44 |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1517-en&r=opm |
| By: | Lutz Kilian; Xiaoqing Zhou |
| Abstract: | Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis focuses on the response of Canadian housing markets to oil price shocks. Oil price shocks constitute an important source of exogenous regional variation in income in Canada because oil production is highly geographically concentrated. We document that, at the national level, real oil price shocks account for 11% of the variability in real house price growth over time. At the regional level, we find that unexpected increases in the real price of oil raise housing demand and real house prices not only in oil-producing regions, but also in other regions. We develop a theoretical model of the propagation of real oil price shocks across regions that helps understand this finding. The model differentiates between oil-producing and non-oil-producing regions and incorporates multiple sectors, trade between provinces, government redistribution, and consumer spending on fuel. We empirically confirm the model prediction that oil price shocks are propagated to housing markets in non-oil-producing regions by the government redistribution of oil revenue and by increased interprovincial trade. |
| Keywords: | Econometric and statistical methods, Housing, International topics, Labour markets, Regional economic developments |
| JEL: | F43 Q33 Q43 R12 R31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-56&r=opm |