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on Open Economy Macroeconomics |
| By: | Mariano Kulish; James Morley; Nadine Yamout; Francesco Zanetti |
| Abstract: | We build a multi-sector, open economy model that captures the effects of a commodity boom on unemployment when there is also ongoing structural change. We use Bayesian methods to jointly estimate transition path effects of structural change and business cycle dynamics. Applying our model to the Australian economy, the estimates suggest that the large, permanent increase in commodity prices of the 2000s is critical for the observed appreciation of the real exchange rate and the contraction of net exports. Consistent with Dutch disease, the commodity boom increases unemployment in the short run. But structural change in the form of shifting preferences over non-tradable consumption and non-tradable employment, a process somewhat akin to structural transformation, explains the long-run reduction in unemployment, the increasing importance of the non-tradable sector for aggregate fluctuations and the increasing responsiveness of the tradable sector to shocks. |
| Keywords: | Dutch disease, commodity prices, unemployment, structural change, structural transformation |
| JEL: | E52 E58 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-38&r=opm |
| By: | Jeffrey A. Frankel |
| Abstract: | Written on the 50th anniversary of floating exchange rates, this paper deals with possible alternatives to a unipolar dollar-based system. It considers (1) measures of international currency use; (2) potential challengers to the dollar; (3) network externalities; and (4) the plausibility of gold and digital currencies, as alternatives to regular currencies. On the one hand, network externalities operate in favor of the status quo: the dollar as the single leading international currency. On the other hand, the danger of abuse of exorbitant privilege – for example, by debasing the currency or repeated use of sanctions – operates in favor of challengers. A good guess is that the dollar will continue to lose market share slowly to others, but will remain in the lead. |
| JEL: | F33 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31476&r=opm |
| By: | Alexander Rodnyansky; Yannick Timmer; Naoki Yago |
| Abstract: | This paper studies the spillovers of US monetary policy and the mitigating role of foreign exchange interventions (FXI) by combining deviations from a daily FXI policy rule with high-frequency US monetary policy shocks, daily exchange rates, and firm-level stock prices, as well as firm-level balance sheet variables across several countries. We first present evidence that–without interventions– contractionary US monetary policy shocks spill over through a balance sheet channel: foreign exchange rates depreciate and stock prices fall, driven by those firms with US dollar debt. However, when countries counter-intervene, the spillover of US monetary policy tightening is muted. FXIs entirely offset the depreciation of the domestic exchange rate and the reduction in stock price for firms with US dollar debt, suggesting that “intervening against the Fed" protects economies from the adverse spillover of US monetary policy tightening through the balance sheet channel of exchange rates. |
| Keywords: | foreign exchange intervention, monetary policy spillovers, balance sheet channel, exchange rates, dollar debt |
| JEL: | E44 E52 F31 F32 F41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10575&r=opm |
| By: | Gergö Motyovszki |
| Abstract: | This paper looks at whether the recent sharp spike in inflation can be beneficial for public debt sustainability by eroding the real value of nominal debt. Simulations with the European Commission’s QUEST model suggest that if the source of inflation is an adverse terms-of-trade shock, then it leads to a rising public debt-to-GDP ratio. In this case, the debt-reducing effect of higher inflation is outweighed by the adverse effects of slower real growth, a declining primary budget balance, and higher interest rates as an active monetary policy tightens to fight inflationary pressures. The results are highly policy-dependent: shorter consolidated debt maturity (brought about by past QE programs) would speed up the rise in interest expenditures, while a more accommodative monetary policy would delay them, also supporting nominal growth. The reaction of the primary fiscal balance (via automatic stabilisers, inflation indexation and debt-stabilisation rules) also matters. However, the baseline result that the debt-to-GDP ratio rises in response to an adverse terms-oftrade shock is fairly robust across all but the most extreme alternative policy scenarios |
| JEL: | E52 E62 E63 F41 F44 H62 H63 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:190&r=opm |
| By: | David Beers; Obiageri Ndukwe; Karim McDaniels; Alex Charron |
| Abstract: | The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default. The 2023 edition includes a new section about the characteristics of sovereign defaults and provides new visuals showing regional debt in default. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F F34 G G15 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:23-10&r=opm |
| By: | David Beers; Obiageri Ndukwe; Karim McDaniels; Alex Charron |
| Abstract: | Until recently, few efforts were made to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada (BoC), in partnership with the Bank of England (BoE), developed a comprehensive database of sovereign defaults in 2014. The database is posted on the Bank of Canada’s website and updated annually. The BoC–BoE database draws on datasets published by various public and private sector sources. It combines elements of these, together with new information, to develop comprehensive estimates of stocks of government obligations in default. These include bonds and other marketable securities, bank loans and official loans, valued in US dollars, for the years 1960 to 2022 on both a country-by-country and a global basis. In addition, we include country and global data on estimated stocks of domestic arrears—late payments by governments—also valued in US dollars. For most countries, data are from 2000 to 2022. Regular updates of the BoC–BoE database help researchers analyze the economic and financial effects of individual sovereign defaults and, importantly, the impact on global financial stability of episodes involving multiple sovereign defaults. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F F34 G G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocatr:124&r=opm |
| By: | David Beers; Obiageri Ndukwe; Karim McDaniels; Alex Charron |
| Abstract: | Since 2014, the Bank of Canada (BoC) has maintained a comprehensive database of sovereign defaults to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. The database draws on published datasets compiled by various public and private sector sources. It combines elements of these with new information to develop comprehensive estimates of stocks of government obligations in default. The database is posted on the BoC’s website and is updated annually in partnership with the Bank of England (BoE). Regular updates of the BoC–BoE database are useful to researchers analyzing the economic and financial effects of individual sovereign defaults and, importantly, the impacts on global financial stability from episodes involving multiple sovereign defaults. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F F34 G G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocatr:125&r=opm |