nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2021‒10‒25
six papers chosen by
Martin Berka
University of Auckland

  1. Rethinking Exchange Rate Regimes By Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
  2. Better Two Eyes than One: A Synthesis Classification of Exchange Rate Regimes By Cécile Couharde; Carl Grekou
  3. Estimating the elasticity of consumer prices to the exchange rate: an accounting approach By Camatte, Hadrien; Daudin, Guillaume; Faubert, Violaine; Lalliard, Antoine; Rifflart, Christine
  4. The transmission of euro area monetary policy to financially euroised countries By Moder, Isabella
  5. Not all shocks are created equal: assessing heterogeneity in the bank lending channel By Blattner, Laura; Farinha, Luísa; Nogueira, Gil
  6. (De-)Globalisation of trade and regionalisation: a survey of the facts and arguments By Iván Kataryniuk; Javier Pérez; Francesca Viani

  1. By: Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China.
    JEL: E5 F3 F4 N2
    Date: 2021–10
  2. By: Cécile Couharde; Carl Grekou
    Abstract: This paper proposes a new de facto classification of exchange rate regimes, the synthesis classification. The proposed framework has several advantages over existing de facto classifications. First, it offers a unified framework based on the most divergent classifications, the RR and LYS classifications, leading not only to a broader coverage but also to encompass a broad spectrum of exchange systems. Second, it fits better with the known history of exchange rate regimes developments in the post-Bretton Woods era. Among others, it brings an interesting nuance to the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes —especially in emerging economies since the late 1990s— has essentially involved movement toward more tightly “managed” intermediate regimes and not a shift away from such regimes. As an illustration of the insightfulness of our classification, we empirically revisit the nexus between currency crises and exchange rate regimes. In addition to associate a higher probability of currency crisis to both intermediate and floating regimes, our classification, also displays better statistical performances than other classifications in predicting currency crises.
    Keywords: Currency crisis;De facto classifications;Exchange rate regimes;Probit model;ROC analysis
    JEL: E52 F33 F4 O24
    Date: 2021–10
  3. By: Camatte, Hadrien; Daudin, Guillaume; Faubert, Violaine; Lalliard, Antoine; Rifflart, Christine
    Abstract: We analyse the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate, using world input-output tables (WIOT) from 1995 to 2019. In line with the existing literature, we find a modest output-weighted elasticity of around 0.1. This elasticity is stable over time but heterogeneous across countries, ranging from 0.05 to 0.22. Such heterogeneity mainly reflects differences in foreign product content of consumption and intermediate products. Direct effects through imported consumption and intermediate products entering domestic production explain most of the transmission of an exchange rate appreciation to domestic prices. By contrast, indirect effects linked to participation in global value chains play a limited role. Our results are robust to using four different WIOT datasets. As WIOT are data-demanding and available with a lag of several years, we extrapolate a reliable estimate of the HCE deflator elasticity from 2015 onwards using trade data and GDP statistics. JEL Classification: C67, E31, F42, F62
    Keywords: cost-push inflation, global value chains, input-output linkages, spillovers
    Date: 2021–10
  4. By: Moder, Isabella
    Abstract: This paper provides a comprehensive analysis of the interest rate pass-through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroisation and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than one third of all euro retail rates in euroised countries of central, eastern and south-eastern Europe (CESEE) are linked to the euro area shadow rate. Compared to euro area monetary policy, the share of cointegration of the domestic monetary policy rate is lower, suggesting that domestic central banks in euroised countries with independent monetary policy can only partially control the `euro part´ of the interest rate channel. Furthermore, euro area monetary policy shocks are fast and persistently transmitted into euro retail rates outside the euro area, which constitutes an additional channel of international shock transmission. JEL Classification: C22, C32, E43, E52, F42
    Keywords: EU integration, international monetary policy spillovers, monetary policy transmission, unofficial financial euroisation
    Date: 2021–10
  5. By: Blattner, Laura; Farinha, Luísa; Nogueira, Gil
    Abstract: We provide evidence that the strength of the bank lending channel varies considerably across three major events in the European sovereign debt crisis - the Greek debt restructuring (PSI), outright monetary transactions (OMT), and quantitative easing (QE). We study how lending responds to each shock using detailed bank, firm, and household data from Portugal, a country that was directly exposed to the three events. While the price of sovereign debt securities increased in all three events, banks reduced sovereign debt holdings and realized accumulated capital gains only after QE. As a result, lending to final borrowers reacted more strongly to QE than to the PSI or OMT events. Our results suggest that asset purchases were more effective than signalling events at stimulating the bank lending channel. JEL Classification: E52, E58, G18, G21
    Keywords: asset purchases, bank lending channel, OMT, PSI, QE
    Date: 2021–10
  6. By: Iván Kataryniuk (Banco de España); Javier Pérez (Banco de España); Francesca Viani (Banco de España)
    Abstract: The COVID-19 pandemic initially caused some international trade distortions, most of which were temporary, since international goods trade flows recovered their pre-pandemic levels by the end of 2020. Against this background, geopolitical factors are gaining traction in shaping cross-border trade, as many countries adopted initiatives geared to influencing the relocation of their international firms’ activity and the reorganisation of global value chains. These recent measures, though, can be seen as part of a larger-scale pre-pandemic process that partly called into question the WTO rules-based multilateral framework. Another process under way prior to the outbreak of the pandemic was the slowdown in international trade in goods. All these elements have spurred an active debate on the direction international trade might take and have called into question the future of globalisation. In this paper we provide a survey of the main arguments put forward in this literature and the key stylised facts needed to frame it.
    Keywords: globalization, trade policy
    JEL: F15 F40
    Date: 2021–10

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