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on Open Economy Macroeconomics |
| By: | Alex Costa; Jaume Garcia; Josep Lluís Raymond; Daniel Sanchez-Serra |
| Abstract: | Due to the lack of Purchasing Power Parities (PPPs) at regional level, regional Gross Domestic Product (GDP) figures have been traditionally adjusted using national PPPs. The simplifying assumption that all regions of a country have the same cost of living, and implicitly that there are no regional differences in prices, might lead to regional GDP figures (adjusted for national PPPs) that are biased and might limit the design and implementation of regional policies. This paper tries to overcome this problem by estimating PPPs at subnational level (TL2 regions) for OECD countries through a new method which uses publicly available data and is based on the Balassa-Samuelson hypothesis. |
| Keywords: | Balassa-Samuelson hypothesis, regional price levels, Regional Purchasing Power Parity |
| JEL: | C20 E31 O47 R10 |
| Date: | 2019–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:govaab:2019/12-en&r=all |
| By: | Scheubel, Beatrice; Stracca, Livio; Tille, Cédric |
| Abstract: | We add to the literature on the influence of the global financial cycle (GFC) and gyrations in capital flows. First, we build a new measure of the GFC based on a structural factor approach, which incorporates theoretical priors in its definition. This measure can also be decomposed in a price-based and quantity-based version of the GFC, which is novel in the literature. Second, we compare our measure to other common existing indicators of the GFC. Third, we estimate the influence of the fluctuations in the GFC on capital flow episodes (sudden stops, flights, retrenchments, surges) and currency crises, also testing for its stability and linearity. We find that the nexus between the GFC and capital flow episodes is generally consistent and not very wobbly. In line with theoretical priors, we find some evidence that the GFC is more important for sudden stops when it is more negative, i.e. the relationship is (mildly) convex, in keeping with a role for occasionally binding constraints, but the evidence for this feature is not strong. JEL Classification: F32, F33, F36, F42, F44 |
| Keywords: | capital flows, global financial cycle, push factors, structural factor analysis |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192337&r=all |
| By: | Mary Everett; Jakob de Haan; David-Jan Jansen; Peter McQuade; Anna Samarina |
| Abstract: | This paper examines whether the increased use of macroprudential policies since the global financial crisis has affected the impact of (euro area and foreign) monetary policy on mortgage lending in Ireland and the Netherlands, which are both small open economies in the euro area. Using bank-level data on domestic lending in both countries during the period 2003-2018, we find that restrictive euro area monetary policy shocks reduce the growth of mortgage lending. We find evidence that stricter domestic prudential regulation mitigates this effect in Ireland, but not so in the Netherlands. There is weak evidence for an international bank lending channel. |
| Keywords: | monetary policy; prudential policy; mortgage lending; European monetary union |
| JEL: | G21 E42 F36 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:659&r=all |
| By: | Juan Carlos Cuestas (Department of Economics, Universitat Jaume I, Castellón, Spain); Mercedes Monfort (Department of Economics, Universitat Jaume I, Castellón, Spain); Javier Ordoñez (Department of Economics, Universitat Jaume I, Castellón, Spain) |
| Abstract: | In this paper we analyse the evolution of the RER and its main fundamentals for a group of Central and Eastern European countries. We focus particularly on the possibility of structural breaks in the relationship. We find clear evidence of breaks, mainly caused by the great recession. We find that a combination of both supply-side and demand-side effects are behind the variations in the real exchange rate, and overall, capital inflows have contributed to improve competitiveness in these countries. |
| Keywords: | Real exchange rates; Central and Eastern Europe; structural breaks; European integration. |
| JEL: | C22 F15 F32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2019/12&r=all |
| By: | Alpaslan Akay (University of Gothenburg); Alexandra Brausmann (3Center of Economic Research, ETH); Slobodan Djajic (The Graduate Institute, Geneva); Murat G. Kirdar (Department of Economics Bogazici University) |
| Abstract: | How does the saving behavior of immigrants respond to changes in purchasing power parity between the source and host countries? We examine this question by building a theoretical model of joint return-migration and saving decisions of temporary migrants and then test its implications by using data from the German Socioeconomic Panel on immigrants from 92 source countries. As implied by our theoretical model, we find that the saving rate increases in the price of host- in terms of source-country currency, but decreases in the source-country price level and that the absolute magnitude of both relationships increases as the time to retirement becomes shorter. At the median level of years to retirement, the absolute values of the elasticity of savings with respect to the nominal exchange rate and with respect to the source-country price level are both close to unity. Moreover, as we gradually restrict the sample to individuals with stronger return intentions, the estimated magnitudes become larger and their stastical significance higher. |
| Keywords: | Migrants' Savings, Return Migration, Exchange Rates, Prices, PPP |
| JEL: | F22 J61 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:crm:wpaper:1916&r=all |
| By: | Cavallo, Alberto (Harvard University); Gopinath, Gita (International Monetary Fund); Neiman, Brent (University of Chicago); Tang, Jenny (Federal Reserve Bank of Boston) |
| Abstract: | We use micro data collected at the border and at retailers to characterize the effects brought by recent changes in US trade policy — particularly the tariffs placed on imports from China — on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to the total prices paid by importers, suggesting that the tariffs’ incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of the Chinese renminbi is unlikely to alter this conclusion. Next, using product-level data from several large multinational retailers, we demonstrate that the impact of the tariffs on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers’ imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods. |
| Keywords: | trade policy; tariffs; exchange rate passthrough |
| JEL: | F01 F13 F14 F4 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-12&r=all |
| By: | Kristin Forbes |
| Abstract: | Inflation dynamics have been difficult to explain over the last decade. This paper explores if a more comprehensive treatment of globalization can help. CPI inflation has become more synchronized around the world since the 2008 crisis, but core and wage inflation have become less synchronized. Global factors (including commodity prices, world slack, exchange rates, and global value chains) are significant drivers of CPI inflation in a cross-section of countries, and their role has increased over the last decade, particularly the role of non-fuel commodity prices. These global factors, however, do less to improve our understanding of core and wage inflation. Key results are robust to using a less-structured trend-cycle decomposition instead of a Phillips curve framework, with the set of global variables more important for understanding the cyclical component of inflation over the last decade, but not the underlying slow-moving inflation trend. Domestic slack still plays a role for all the inflation measures, although globalization has caused some “flattening” of this relationship, especially for CPI inflation. Although CPI inflation is increasingly “determined abroad”, core and wage inflation is still largely a domestic process. |
| JEL: | E30 E52 E58 F62 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26496&r=all |
| By: | Bilge Erten; Anton Korinek; Jose Antonio Ocampo |
| Abstract: | This paper synthesizes recent advances in the theoretical and empirical literature on capital controls. We start by observing that international capital flows have both benefits and costs, but some of these are not internalized by individual actors and thus constitute externalities. The theoretical literature has identified pecuniary externalities and aggregate demand externalities that respectively contribute to financial instability and recessions. These externalities provide a natural rationale for counter-cyclical capital controls that lean against boom and busts cycles in international capital flows. The empirical literature has developed several measures of capital controls to capture different aspects of capital account openness. We evaluate the strengths and weaknesses of different measures and provide an overview of the empirical findings on the effectiveness of capital controls in addressing the externalities identified by the theory literature, i.e. in reducing financial fragility and enhancing macroeconomic stability. We also discuss strategies to deal with the endogeneity of capital controls in such statistical exercises. We conclude by providing an overview of the historical and current debates on the role of capital controls in macroeconomic management and their relationship to the academic literature. |
| JEL: | D62 E44 F32 F38 F42 H23 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26447&r=all |
| By: | Marie-Pierre de Bellefon; Pierre-Philippe Combes; Gilles Duranton; Laurent Gobillon; Clément Gorin |
| Abstract: | We develop a new dartboard methodology to delineate urban areas using detailed information about building location, which we implement using a map of all buildings in France. For each pixel, our approach compares actual building density after smoothing to counterfactual smoothed building density computed after randomly redistributing buildings. We define as urban any area with statistically significant excess building density. Within urban areas, extensions to our approach allow us to distinguish ‘core’ urban pixels and detect centres and subcentres. Finally, we develop novel one- and two-sided tests that provide a statistical basis to compare maps with different delineations, which we use to assess the robustness of our approach and to document large differences between our preferred delineation and the corresponding official one. |
| JEL: | C14 R12 R14 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26482&r=all |
| By: | Juin-Jen Chang (Institute of Economics, Academia Sinica, Taipei, Taiwan); Yi-Ling Cheng (National Sun Yat-sen University); Shin-Kun Peng (Institute of Economics, Academia Sinica, Taipei, Taiwan) |
| Abstract: | This paper provides the implications of firm heterogeneity for the global environment and trade liberalization in a trade model with endogenous markups and regulatory non-compliance. We show that firms with heterogeneous productivities respond differently to a uniform environmental regulation (emission taxation), which changes the market competition structure within a country and across countries, and disentangles the interaction effects of environmental regulations and trade liberalization. In autarky, raising emission tax generates an average productivity gain and favors efficient firms in the sense that they can expand output but may produce more emissions via non-compliance to escape the regulation and maintain competitiveness. In a symmetric two-country open economy, trade liberalization can break the trade-off between output and environment, not only increasing worldwide output but also decreasing global pollution emissions. Under asymmetric environmental regulations, a unilateral increase in the emission tax decreases average productivity in this country if openness to trade is substantially high, which contrasts with the e§ect under autarky. Our welfare analysis shows a U-shaped relationship between the optimal emission tax and openness to trade regardless of whether under tax harmonization or tax competition. Trade liberalization unambiguously decreases global pollution emissions under tax harmonization but it may increase global pollution emissions under tax competition. |
| Keywords: | : Firm heterogeneity, environmental regulation, trade liberalization, pollution haven e§ect, environmental tax harmonization and competition |
| JEL: | F12 F18 Q56 R13 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:sin:wpaper:19-a005&r=all |