nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2022‒07‒11
five papers chosen by
Martin Berka
Massey University

  1. The Effects of Capital Controls on Housing Prices By Yang Zhou
  2. What is the Effect of Domestic Demand Shocks on Inflation in a Small Open Economy? Chile 2000-2021 By Ramon Lopez; Kevin Sepulveda
  3. Theorizing the Initial Response of Countries in Bringing COVID-19 Pandemic under Control: The Effect of Change Readiness of Countries By M. Mahdi Moeini Gharagozloo; Farinaz Sabz Ali Pour; Chen Chen; Mozhgan Moeini Gharagozloo
  4. Exchange rate pass-through to Inflation: Symmetric and Asymmetric Effects of Monetary Environment in Nigeria By Tiamiyu, Kehinde A.
  5. Why has the Norwegian krone exchange rate been persistently weak?. A fully simultaneous VAR approach By Andreas Benedictow; Roger Hammersland

  1. By: Yang Zhou (Graduate School of Economics, Kobe University and Junir Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)
    Abstract: Policymakers increasingly use capital control policies (i.e., capital flow management) to manage capital flows. However, whether the implementation of such policies can effectively affect housing prices and to what extent is less discussed. In this paper, we study the effects of four types of granular capital control polices on housing prices using a large cross-country panel of 53 economies from 1995 to 2017. We find that the estimated effects of capital controls are distinct for different capital flow types and flow directions, but most capital control indices appear to reduce housing prices. Specifically, we find that capital controls have asymmetric effects on housing prices for advanced and emerging economies. The negative effects of capital controls on housing prices are mainly driven by pre-crisis subsample. This means that capital controls have been in effect several times before Global Financial Crisis. We also estimate the effects for boom and slump periods respectively and find that capital control policies are implemented in an acyclical way. Since there exists endogeneity for capital control on real estate transactions, we further use inverse probability weights to rebalance capital control actions and find that this method can weaken the negative effects on housing prices, and the attenuation effects can be attributed to endogenous factors.
    Keywords: Capital control policy; Housing price; Local projections; Inverse probability; Weighted regression adjusted estimator
    JEL: F21 F32 F38 F41 G28
    Date: 2022–06
  2. By: Ramon Lopez; Kevin Sepulveda
    Abstract: This study decomposes the factors that determined inflation in Chile during the period 2000-2021. We find that the main determinants of domestic inflation are variables of external origin and the exchange rate. Domestic demand has played a rather limited role as an inflationary factor. In general, in normal periods, increases in domestic demand explain no more than 20% of observed inflation. The average monthly inflation observed during the 2000-2021 period reached 0.3%, which means that domestic demand increases in normal periods explain a monthly inflation of 0.06%. Surprisingly, the extraordinary periods of rapid acceleration in demand as a result of highly expansionary fiscal policies and/or of the large withdrawals from pension retirement savings had a rather modest effect on the acceleration of inflation. Only in the last 5 months of 2021 we can detect some effects of the expansion in domestic demand on inflation. This study corroborates an expected fact in a small and open economy like Chile's: most domestic price changes are determined by foreign price changes.
    Date: 2022–05
  3. By: M. Mahdi Moeini Gharagozloo (Morgan State University, USA,); Farinaz Sabz Ali Pour (Old Dominion University, USA,); Chen Chen (Old Dominion University, USA,); Mozhgan Moeini Gharagozloo (Azad University, Iran,)
    Abstract: Pandemic crises can bring the biggest and deepest shocks to countries around the world. In the first quarter of 2020, a global pandemic named “COVID-19†spread all over the world and not only took so many lives and created so much fear but also brought a tremendous financial pain as a result of shutting down economies to fight with this unknown contagious virus. This paper examines how countries’ change readiness enables them to bring the spread of an international crisis under control. We propose that higher levels of change readiness would help countries to cope with risks and uncertainties generated by the changes and shocks in the environment. Therefore, higher levels of change readiness help them bring a crisis under control. This characteristic of a country shows its influence, especially in facing pandemics. Overall, this study improves our knowledge about mechanisms through which change readiness of countries might impact their capability in facing international crises. This study contributes to the literature on risk mitigation in global crises. It is one of the first to look closely at the role of countries’ change readiness in helping them to respond to shocks generated by an international crisis.
    Keywords: Change readiness, Global Pandemic, Spread of COVID-19, Resiliency
    Date: 2022–03
  4. By: Tiamiyu, Kehinde A.
    Abstract: Abstract: This study investigates symmetric, asymmetric, and structural models of exchange rate pass-through to inflation in Nigeria over the monthly period of 2000: Month 01- 2021: Month 05. The percentage change in the price of import-competing goods (traded goods) that is ascribed to a particular percentage change in the exchange rate (which is the price of one country's currency in terms of another country's currency) is referred to as exchange rate pass-through. This paper is set out to examine the impact of monetary environment in exchange rate pass-through to inflation in Nigeria using monthly time series data. The method adopted included inter-alia the use of both the Augmented Dickey-Fuller (ADF) unit root test and the Breaking point unit root test for relative comparison. The results of unit root tests from both ends indicate the existence of both stationary and non-stationary variables which made adoption of bounds cointegration test plausible and Nonlinear Autoregressive Distributed Lag(NARDL) methodologies applicable, this method allows the incorporation of possible asymmetric effects of positive and negative changes in explanatory variables on dependent variable unlike the conventional Autoregressive Distributed Lag (ARDL) models where the possible impact of explanatory variable changes remain unaccounted for on dependent variable. Further, the results from cointegration test confirm the existence of short-run situations among the variables of interest in all the models considered. Also, three models were estimated under the framework of linear and nonlinear Autoregressive Distributed Lag (ARDL) models. The model estimate findings revealed that inflation modeling in Nigeria is both autoregressive and adaptive in character. In the short run, pass-through estimates are larger, though declining, due to asymmetric behaviours of exchange rate changes as confirmed by Wald test. This justifies the existence of asymmetric effect in the behavour of exchange rate over times. It was also discovered that inflation is seldom a monetary phenomenon in this new normal as industrial production index was found to reduce consumer prices drastically and exchange rate found to explain inflation better than money supply. However, structural policy of land border closure exerts positive but insignificant pressure on inflation in Nigeria during the period under investigation, this may be because of lag effect between the policy stance and reaction of economic agents in the economy. Finally, by policy recommendation, Nigerian government is thus advised to invest heavily in productive sectors of economy, specifically, by building capacities of local producers.
    Keywords: Exchange rate pass-through; Inflation; Money supply; Land border closure; Non-linear ARDL
    JEL: E31 E42 E51 F0
    Date: 2022–03–08
  5. By: Andreas Benedictow; Roger Hammersland (Statistics Norway)
    Abstract: We identify variables that help explain the persistent weakness of the Norwegian krone since 2016 within a fully simultaneous model of the underlying process driving the krone-euro exchange rate. In addition to a set of fundamental variables we consider non-traditional explanatory variables related to an exchange rate premium, inspired by several claims to insights made by market participants. The weak Norwegian krone seems to be largely attributable to factors related to the risk premium, such as the declining importance of petroleum in the Norwegian economy, a relative reduction in FDI in Norway and a fall in oil industry-specic share prices.
    Keywords: Exchange rate; Foreign exchange rate premium; Cointegration; VAR-analysis
    JEL: C22 C32 F31 F41 G15
    Date: 2022–05

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