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on Open Economy Macroeconomics |
| By: | Dausà, Neus; Stracca, Livio |
| Abstract: | We revisit the so-called ”secular international problem”, whereby the adjustment of current account imbalances purportedly falls entirely on the shoulders of deficit countries. We introduce a stylised model to rationalise an asymmetric counter-cyclical policy reaction that is stronger for deficit countries. When considering large current account adjustments (both deficits and surpluses) in advanced and emerging economies, we find surprisingly little evidence of greater policy activism in deficit countries. However, large surplus adjustments are less frequent and are associated with export compression, whereas deficit adjustments tend to accompanied by import contraction. Moreover, when we look at current account (terms of trade) shocks we do find some evidence of asymmetry in the sense that fiscal policy is tightened only in reaction to shocks leading to a larger deficit position. Finally, emerging markets display a more counter-cyclical response to negative current account shocks, partly mitigated by the quality of institutions. JEL Classification: F32, F41 |
| Keywords: | Current account adjustment, fiscal policy, Harry Dexter White, John Maynard Keynes, secular international problem |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232777&r=opm |
| By: | Martin Kuncl; Dmitry Matveev |
| Abstract: | The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as population aging, declining productivity, rising government debt and inequality. Foreign factors are captured by changes in the global neutral real rate. We use the model to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate. |
| Keywords: | Economic models; Interest rates; Monetary policy |
| JEL: | E21 E22 E43 E50 E52 E58 F41 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-5&r=opm |
| By: | Thibault Lemaire; Paul Vertier |
| Abstract: | Global commodity prices spikes can have strong macroeconomic effects, particularly in developing countries. This paper estimates the global commodity prices pass-through to consumer price inflation in Africa. Our sample includes monthly data for 48 countries over the period 2002m02-2021m04. We consider 17 commodity prices separately to take into account both the heterogeneity in price variations and the cross-correlations between them, and to depart from aggregate indices that use weights unrepresentative of consumption in African countries. Using local projections in a panel dataset, we find a maximum pass-through of 24%, and a long-run (18 months) pass-through of about 20%, higher than usually found in the literature, which typically uses aggregate indices. We also consider country-specific regressions to test whether estimated pass-through are related to countries’ observable characteristics. We find evidence that the pass-through is negatively correlated with the GDP per capita and the quality of transport infrastructure, and positively correlated with the share of food and energy in the consumption basket and the share of taxes on goods and services in government revenue. Net oil exporters, countries with larger energy subsidies and with a more independent central bank tend to have a lower pass-through. We further show that commodity-specific pass-through are correlated with the share of corresponding goods in the consumer basket. |
| Keywords: | Commodity Prices, Food Prices, Energy Prices, Inflation, Pass-Through, Africa |
| JEL: | C23 E31 F44 O11 Q02 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:906&r=opm |
| By: | Florencia S. Airaudo (Universidad Carlos III de Madrid); Evi Pappa (Universidad Carlos III de Madrid); Hernán D. Seoane (Universidad Carlos III de Madrid) |
| Abstract: | We design a small open economy model where production combines energy and traditional factors with low short run substitutability and efficient technology adoption. We study green transitional dynamics. Permanent increases in brown energy prices induce a green transition with short run inflation and persistent output losses. Fiscal policy impacts the transition. Brown energy taxes are inflationary and crowd out brown energy use in favor of green energy. Green public investment or green subsidies have moderate macroeconomic effects, but do not crowd out brown energy use. We discuss fiscal costs and evaluate welfare along the green transition using different metrics |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:219&r=opm |
| By: | Laser, Falk Hendrik; Weidner, Jan |
| Abstract: | During recent years, central banks have increased the levels of their international reserves at an unprecedented pace. In this paper, we introduce new country-specific reserve data and examine determinants of the composition of international reserves. Using a dataset of 36 countries (and the euro area) for the years from 1996 to 2016, we identify currency pegs and trade patterns as determinants of currency compositions. Our results emphasize the importance of transaction motives for the composition of currency reserves. The euro crisis appears to have been a setback for the euro, which temporarily seemed to challenge the US dollar as the most important international reserve currency and potentially impacted the determination of international reserve compositions. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:136620&r=opm |
| By: | Thibault Lemaire (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Paul Vertier (Banque de France - Banque de France - Banque de France) |
| Abstract: | Global commodity prices spikes can have strong macroeconomic effects, particularly in developing countries. This paper estimates the global commodity prices pass-through to consumer price inflation in Africa. Our sample includes monthly data for 48 countries over the period 2002m02-2021m04. We consider 17 commodity prices separately to take into account both the heterogeneity in price variations and the cross-correlations between them, and to depart from aggregate indices that use weights unrepresentative of consumption in African countries. Using local projections in a panel dataset, we find a maximum passthrough of 24%, and a long-run pass-through of about 20%, higher than usually found in the literature. We also consider country-specific regressions to test whether estimated pass-through are related to countries' observable characteristics. |
| Keywords: | Commodity prices, food prices, energy prices, inflation, pass-through, Africa |
| Date: | 2023–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-03944888&r=opm |
| By: | Hillary Stein |
| Abstract: | I examine the effect of exogenous terms of trade shocks on an exchange rate by turning to New Zealand’s dairy auctions. Dairy is New Zealand’s largest export category, making up almost 20 percent of exports. Specifically, whole milk powder accounts for 6 to 11 percent of total exports, and its price is determined in twice-monthly auctions. I use event studies to quantify the impact of surprise auction results on the New Zealand dollar on a high-frequency basis. I find that a 1 percent increase in whole milk powder prices has a modest, but nevertheless significant, effect on the nominal exchange rate that does not seem to be explained by interest rate movements. Rather, the effect seems to be driven by a combination of two channels: a financial flows channel and a fundamental channel. The methodology developed here can potentially be applied to other commodity exporters. |
| Keywords: | exchange rates; commodity prices; terms of trade; event studies |
| JEL: | F31 F41 G14 |
| Date: | 2022–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:95646&r=opm |
| By: | Ivan Hajdukovic (University of Barcelona) |
| Abstract: | This paper provides an empirical examination on the transmission mechanisms of conventional and unconventional monetary policies for two non-EMU countries, Switzerland and the United Kingdom, over the period 1990-2017. We investigate the role of stock prices and consumer expectations in the transmission of monetary policy. We propose two distinct structural VAR models. The model for the case of conventional monetary policy covers the pre-2009 period, while the model for the case of unconventional monetary policy covers the post-2009 period. The official bank policy rate and central bank's reserve assets are used as instruments for conventional and unconventional monetary policy. The analysis reveals that the inclusion of a forward-looking informational variable of near-term development in economic activity and a financial variable such as the stock prices is of key importance for the monetary policy assessment. We provide evidence for the existence of a consumer confidence channel in the transmission of conventional monetary policy. Moreover, the long-term government bond yields, the exchange rate and stock prices have an important role in the transmission of unconventional monetary policy. Our findings indicate that conventional and unconventional monetary policies have short-run expansionary effects in both countries by increasing output, consumption, investment, stock prices and wages, while reducing unemployment. |
| Keywords: | Conventional and unconventional monetary policies Consumer confidence Small open economy Stock market Vector autoregression JEL Classification: C32 E32 E52 F31 F41 G1, Conventional and unconventional monetary policies, Consumer confidence, Small open economy, Stock market, Vector autoregression JEL Classification: C32, E32, E52, F31, F41, G1 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03912666&r=opm |