nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2020‒12‒21
nine papers chosen by
Martin Berka
University of Auckland

  1. The Dutch Disease Revisited: Theory and Evidence By Arsham Reisinezhad
  2. Foreign Shocks as Granular Fluctuations By Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
  3. Demographics, pension systems, and the current account: an empirical assessment using the IMF current account model By Miriam Koomen; Laurence Wicht
  4. Global oil prices and the macroeconomy: The role of tradeable manufacturing versus nontradeable services By Khalil, Makram
  5. On the international dissemination of technology news shocks By Claudio, João C.; von Schweinitz, Gregor
  6. De-Globalisation? Global Value Chains in the Post-COVID-19 Age By Pol Antràs
  7. Broken promises: regime announcements and exchange rates around elections By Pablo Garofalo; Jorge M. Streb
  8. Fiscal Stress and Monetary Policy Stance in Oil-Exporting Countries By Hao Jin; Chen Xiong
  9. Autarchy along the distribution By Silvia Fabiani; Alberto Felettigh; Alfonso Rosolia

  1. By: Arsham Reisinezhad (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics)
    Abstract: Contrary to empirical evidence, the Dutch disease hypothesis, driven by Learning By Doing (LBD), does not predict the steady-state real exchange rate appreciation and economic growth deceleration due to a resource boom. To do so, I first represent a simple model to fill the theory's gap, and then adopt a dynamic panel data approach for a sample of 132 countries over the period 1970-2014 to re-evaluate both symptoms of the hypothesis in systematic analysis. The main findings are threefold. First, a resource boom appreciates the real exchange rate. Second, the real exchange rate appreciation decelerates the rate of growth in both sectors such that the shrinkage is larger in the manufacturing sector than in the service sector. This, in turn, makes the relative output level of the manufacturing sector to the service sector be smaller and economic growth be slower. Third, these effects are more intensive in resource-rich countries than in resource-poor countries.
    Keywords: Natural resource,The Dutch Disease,Real exchange rate,Growth rate
    Date: 2020–11
  2. By: Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
    Abstract: This paper uses a dataset covering the universe of French firm-level sales, imports, and exports over the period 1993-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix, 2011), and most likely to be internationally connected. This implies that foreign shocks are transmitted to the domestic economy primarily through the largest firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level heterogeneity across firms predominates: 40 to 85% of the impact of foreign fluctuations on French GDP is accounted for by the “foreign granular residual” — the term capturing the fact that larger firms are more affected by the foreign shocks. At the macro level, firm heterogeneity dampens the impact of foreign shocks, with the GDP responses 10 to 20% larger in a representative firm model compared to the baseline model.
    JEL: E32 F15 F23 F44 F62 L14
    Date: 2020–11
  3. By: Miriam Koomen; Laurence Wicht
    Abstract: This paper empirically assesses the link between demographics, pension systems, and current account (CA) balances using the IMF External Balance Assessment (EBA) model. We propose two refinements to the EBA model. We first refine the existing demographic variables to better account for the entire population age structure of countries. Compared to the EBA specification, we find a more robust, smoother, and economically intuitive effect of demographics on CA balances across countries. We then introduce new indicators to account for pension systems. We find a positive and statistically significant relationship between the generosity and coverage of fully funded pension systems and CA balances. Our refinements broadly improve the EBA model fit, especially for advanced economies with a fully funded pension system.
    Keywords: Current account, demographics, public pensions, EBA model
    JEL: F32 F41 H55 J11
    Date: 2020
  4. By: Khalil, Makram
    Abstract: This paper studies the ability of manufacturing-specific shocks to explain global oil prices. In an estimated three-region DSGE model (UnitedStates, OPEC, rest-of-world) in corporating two sectors (manufacturing and services) in the oil-importing economies and featuring cross-border manufacturing supply chains, oil inventories as well as endogenous oil supply, such shocks rationalize the observed empirical pattern of a positive comovement between global oil prices and the global cyclical gap between manufacturing output and services provision. Given positive manufacturing technology shocks, oil demand and demand for intermediate manufactured goods as well as global trade decline in tandem. Of similar importance are shocks to final manufactured goods demand that are amplified by input-output linkages and international trade. From the perspective of the US, all foreign shocks that cause higher oil prices - including adverse oil supply shocks - have a positive impact on manufacturing relative to service s as well as a positive impact on aggregate core inflation and policy rates. These dynamics rationalize, to a large extent, the observed pattern during major oil price hikes, and, correspondingly (with opposite signs), during important episodes of low oil prices.
    Keywords: endogenous global oil price,trade channel,manufacturing and services,oil and the business cycle,oil intensity,intermediate inputs
    JEL: E32 F41 Q43
    Date: 2020
  5. By: Claudio, João C.; von Schweinitz, Gregor
    Abstract: This paper investigates the propagation of technology news shocks within and across industrialised economies. We construct quarterly utilisation-adjusted total factor productivity (TFP) for thirteen OECD countries. Based on country-specific structural vector autoregressions (VARs), we document that (i) the identified technology news shocks induce a quite homogeneous response pattern of key macroeconomic variables in each country; and (ii) the identified technology news shock processes display a significant degree of correlation across several countries. Contrary to conventional wisdom, we find that the US are only one of many different sources of technological innovations diffusing across advanced economies. Technology news propagate through the endogenous reaction of monetary policy and via trade-related variables. That is, our results imply that financial markets and trade are key channels for the dissemination of technology.
    Keywords: technology news shocks,technology spillover,structural VAR,international trade
    JEL: E24 E32 F41
    Date: 2020
  6. By: Pol Antràs
    Abstract: This paper evaluates the extent to which the world economy has entered a phase of de-globalisation, and it offers some speculative thoughts on the future of global value chains in the post-COVID-19 age. Although the growth of international trade flows relative to that of GDP has slowed down since the Great Recession, this paper finds little systematic evidence indicating that the world economy has already entered an era of de-globalisation. Instead, the observed slowdown in globalisation is a natural sequel to the unsustainable increase in globalisation experienced in the late 1980s, 1990s and early 2000s. I offer a description of the mechanisms leading to that earlier expansionary phase, together with a discussion of why these forces might have run out of steam, and of the extent to which they may be reversible. I conclude that the main challenge for the future of globalisation is institutional and political in nature rather than technological, although new technologies might aggravate the trends in inequality that have created the current political backlash against globalisation. Zooming in on the COVID-19 global pandemic, I similarly conclude that the current health crisis may further darken the future of globalisation if it aggravates policy tensions across countries.
    JEL: F1 F2 F4 F5 F6
    Date: 2020–11
  7. By: Pablo Garofalo; Jorge M. Streb
    Abstract: We study the relationship between exchange-rate regime announcements and exchange-rate dynamics around government changes by combining the IMF de jure and the Reinhart and Rogoff de facto exchange-rate regime classifications. Using monthly data from Latin American democracies, we do not identify significant exchange-rate depreciations before the change of government in any of the regimes, but we do identify a gradual exchange-rate overvaluation when regimes are fixed inconsistent (i.e., the de jure regime announcement is fixed and differs from the de facto behavior). After the change of government, the overvaluation under fixed-inconsistent regimes is abruptly corrected through significant devaluations. We thus identify a pattern of broken promises by which incumbents delay devaluations until after the change of government under fixed-inconsistent announcements, but not under fixed-consistent ones. Controlling for conditional volatility, we also detect significant “fear of floating” in flexible-inconsistent regimes before the change of government, when electoral stakes are highest.
    Keywords: exchange-rate regimes, exchange-rate overvaluations, electoral cycles
    JEL: D72 D78 E00
    Date: 2020–11
  8. By: Hao Jin (Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University); Chen Xiong (Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University)
    Abstract: We documented that for some oil-exporting countries, the correlation between exchange rates and oil prices is strongly negative during periods of significant oil price drop but is much weaker during other periods. To interpret this time-varying asymmetric correlation, we develop and estimate a Markov-switching small open economy New Keynesian model with oil income as a source of government revenue. In particular, we allow monetary and fiscal policy coefficients to switch across "active" and "passive" regimes. Using data on Russia, our result shows that the policy combinations fluctuate. We find that active monetary policy isolates the exchange rate from oil price variations but changes to passively tolerate depreciation and inflation to support government debt when oil price drops place fiscal policy in a state of stress. Counterfactual policy experiments suggest policy regime switching is crucial to account for the observed asymmetric impact of oil prices on the exchange rate and that the trans-mission channels of oil price shocks differ significantly across policy regimes.
    Keywords: Fiscal Policy; Monetary Policy; Exchange Rate; Oil Price
    JEL: E63 F41 Q43
    Date: 2020–06
  9. By: Silvia Fabiani (Bank of Italy); Alberto Felettigh (Bank of Italy); Alfonso Rosolia (Bank of Italy)
    Abstract: We measure the share of foreign value added embedded in the domestic consumption expenditure of the Italian household sector as a whole and of households along the distribution of consumption expenditure. We find that for each euro spent for consumption by households, almost irrespective of their affluence, about 20 to 40 cents remunerate foreign production factors; around two fifths of this foreign value added originate in other euro-area countries. Because of their heterogeneous bundles, households consume foreign value added through different expenditure items; less affluent ones do so through price-inelastic varieties and necessities.
    Keywords: global value chains, foreign and domestic value added, distribution of households’ consumption expenditure, exchange-rate shocks, international policy transmission
    JEL: D39 E21 F42 F45
    Date: 2020–11

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