nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2019‒05‒27
six papers chosen by
Martin Berka
University of Auckland

  1. A Tale of Two Surplus Countries: China and Germany By Yin-Wong Cheung; Sven Steinkamp; Frank Westermann
  2. Reassessing Trade Barriers with Global Value Chains By Yuko Imura
  3. Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors By Tamon Asonuma; Hyungseok Joo
  4. Relative Prices and Hysteresis: Evidence from US Manufacturing By Douglas L. Campbell
  5. The Impact of Real Exchange Rate Shocks on Manufacturing Workers: An Autopsy from the MORG By Douglas L. Campbell; Lester Lusher
  6. Aid and exchange rates in sub-Saharan Africa: No more Dutch Disease? By Oliver Morrissey; Lionel Roger; Lars Spreng

  1. By: Yin-Wong Cheung (City University of Hong Kong); Sven Steinkamp (Osnabrück University); Frank Westermann (Osnabrück University)
    Abstract: We analyze current account imbalances through the lens of the two largest surplus countries; China and Germany. We observe two striking patterns visible since the 2007/8 Global Financial Crisis. First, while China has been gradually reducing its current account surplus, Germany’s surplus has continued to increase throughout and after the crisis. Second, for these two countries, there is a remarkable reversal in the patterns of exchange rate misalignment: China’s currency has turned from being undervalued to overvalued, Germany’s currency has erased its level of overvaluation and become undervalued. Our empirical analyses show that the current account balances of these two countries are quite well explained by currency misalignment, common economic factors, and country-specific factors. Furthermore, we highlight the global financial crisis effects and, for Germany, the importance of differentiating balances against euro and non-euro countries.
    Keywords: Currency Misalignment; Current Account Surplus; Global Imbalances; Global Financial Crisis
    JEL: F15 F31 F32
    Date: 2019–05–14
  2. By: Yuko Imura
    Abstract: This paper provides a systematic, quantitative analysis of the short-run and long-run effects of various trade-restricting policies in the presence of global value chains and multinational production. Using a two-country dynamic stochastic general equilibrium model with endogenous firm entry and exit in both exporting and multinational production, I compare the effects of (i) tariffs on final-good imports, (ii) tariffs on intermediate-input imports, and (iii) barriers to accessing foreign markets. I show that, in the long run, all three policies lead to a recession in both countries, but the relative effects on the GDP of the two countries vary across policies. At the firm level, less productive exporters exit from the destination market while the most productive few find it profitable to locate production in the foreign country as multinationals, thereby partially recovering the loss from exporting. In the short run, the dynamics differ across policies and from their long-run outcomes. Final-good tariffs and market-access barriers lead to a temporary production boom in the policy-imposing country, while intermediate-input tariffs result in an immediate recession in both countries. The latter also discourages multinational operation over the short run when the input tariffs dominate the declining costs of labor and capital.
    Keywords: Business fluctuations and cycles; Firm dynamics; International topics; Trade Integration
    JEL: F12 F13 F41
    Date: 2019–05
  3. By: Tamon Asonuma (International Monetary Fund); Hyungseok Joo (University of Surrey)
    Abstract: Foreign creditors' business cycles influence both the process and the outcome of sovereign debt restructurings. We compile two datasets on creditor committees and chairs and on creditor business and financial cycles at the restructurings, and find that when creditors experience high GDP growth, restructurings are delayed and settled with smaller haircuts. To rationalize these stylized facts, we develop a theoretical model of sovereign debt with multi-round renegotiations between a risk averse sovereign debtor and a risk averse creditor. The quantitative analysis of the model shows that high creditor income results in both longer delays in renegotiations and smaller haircuts. Our theoretical predictions are supported by data.
    JEL: F34 F41 H63
    Date: 2019–05
  4. By: Douglas L. Campbell (New Economic School (NES))
    Abstract: A central tenet of economics is that prices matter. A corollary is that in a world with sunk costs, historical prices can affect current economic outcomes. There exists a large theoretical literature on exchange rate hysteresis, but recent empirical treatments are scarce. To fill the gap, I employ new measures of real exchange rates (RERs) to study the impact of large, temporary RER shocks on the US manufacturing sector. To identify a causal impact of RER movements on manufacturing, I test whether sectors more exposed to international trade respond differently when relative prices appreciate. I also compare the US experience to Canada’s in the mid-2000s, when high oil prices and a falling US dollar led to an equally sharp appreciation of the Canadian dollar. I find that temporary RER shocks have a surprisingly persistent impact on employment, output, and productivity in relatively more open manufacturing sectors, and that the magnitude of the shock in the early 2000s was large enough to have played a role in the onset of secular stagnation, lending support to the Bernanke Hypothesis.
    Keywords: Exchange Rates, American Manufacturing, Hysteresis, Trade
    JEL: F10 F16 L60
    Date: 2017–08
  5. By: Douglas L. Campbell (New Economic School (NES)); Lester Lusher (UC Davis)
    Abstract: We study the impact of large real exchange rate shocks on workers in sectors initially more exposed to international trade using the Current Population Survey’s (CPS) Merged Outgoing Rotation Group (MORG) from 1979 to 2010 combined with new annual measures of imported inputs, a proxy for offshoring. We find that in periods when US relative prices are high, and imports surge relative to exports, workers in sectors with greater initial exposure to international trade were more likely to be unemployed or exit the labor force a year later, but did not experience significant declines in wages conditional on being employed. Contrary to the usual narrative, we find negative wage effects for higher-wage, but not lower-wage workers, particularly for those who are lesseducated.
    Keywords: Real Exchange Rates, Labor Market Impact of Trade Shocks, Inequality, American Manufacturing
    JEL: F10 F16 F41 N60 L60
    Date: 2018–06
  6. By: Oliver Morrissey; Lionel Roger; Lars Spreng
    Abstract: Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Empirical evidence is inconclusive, but a common presumption is that aid has been associated with Dutch Disease effects in SSA. Previous empirical studies rely on annual data and few include data since themid-2000s. This paper focuses on themore recent period employing monthly time series data for ten countries over 2001 to 2017 to estimate a structural VAR. For the majority of countries aid has no or a minimal effect on the real exchange rate; there is evidence of a significant real appreciation in only two countries. Additional analysis shows that commodity export prices are a more important determinant of the real exchange rate, with an effect on average twice that of aid. The paper conjectures that the absence of a Dutch Disease effect since the 2000s is due to a declining level of aid inflows and improved macroeconomic management.
    Keywords: Foreign Aid, Exchange Rates, Dutch Disease, sub-Saharan Africa
    Date: 2019

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