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on Open Economy Macroeconomics |
| By: | Clemens Graf von Luckner (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Carmen Reinhart (Harvard University); Kenneth Rogoff (Department of Economics, Harvard University - Harvard University) |
| Abstract: | This paper employs high frequency transactions data on the world's two oldest and most extensive centralized peer-to-peer Bitcoin markets, enabling trade in the currencies of more than 160 countries. We develop an algorithm that allows us, with high probability, to detect "crypto vehicle transactions" in which crypto currency is used to move capital across borders, and/or to exchange one fiat currency for another. The data suggest that the use of Bitcoin has become an increasingly important channel to receive remittances and evade capital controls in emerging markets. Two event studies on Venezuela and Argentina provide supporting evidence. |
| Keywords: | cryptocurrencies, bitcoin, international capital flows, transactions, speculative bubbles |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04603357&r= |
| By: | Graf von Luckner, Clemens M.; Meyer, Josefin; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | We study sovereign external debt crises over the past 200 years, with a focus on creditor losses, or "haircuts". Our sample covers 327 sovereign debt restructurings with external private creditors over 205 default spells since 1815. Creditor losses vary widely (from none to 100%), but the statistical distribution has remained remarkably stable over two centuries, with an average haircut of around 45 percent. The data also reveal that 'serial restructurings', meaning two or more debt exchanges in the same default spell, are on the rise. To account for this trend toward serial renegotiation, we introduce the 'Bulow-Rogoff haircut' - a cumulative measure that captures the combined creditor loss across all restructurings during a single debt crisis. Using this measure, we show that longer debt crises deliver larger haircuts and that interim restructurings provide limited debt relief. We further examine past predictors of the size of haircuts and identify 'rules of thumb' applicable to future defaults. Poorer countries, first-time debt issuers, and those that borrowed heavily from external creditors all record significantly higher haircuts in case of a default. Geopolitical shocks - such as wars, revolutions, or the break-up of empires - deliver the deepest haircuts. Sovereign debt investment disasters are often linked to (geo-)political disasters. |
| Keywords: | Sovereign Default, Debt Restructuring, Credit Events, Financial Crises, Geopolitical Risk |
| JEL: | F34 H63 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:299232&r= |
| By: | Mauricio Barbosa-Alves; Javier Bianchi; César Sosa-Padilla |
| Abstract: | This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads. |
| Keywords: | International reserves; rollover crises; Sovereign debt |
| JEL: | E40 F34 F32 E50 F41 |
| Date: | 2024–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:98384&r= |
| By: | Théo Aphecetche; Maria Bianchi; Guergana Stanoeva |
| Abstract: | Global imbalances, as measured by current account surpluses and deficits, had been on a narrowing path for several years, before widening in 2020 and 2021. While there is nothing wrong per se, excessive current account imbalances, if unaddressed, might pose serious risks to the global economy. These Brief analyses the recent dynamics in global imbalances in the context of the COVID-19 pandemic and discusses the possible effects of the ongoing Russia’ war in Ukraine. It notes that while the recent global imbalances widening appears to reflect mostly transitory shocks, uncertainty and downside risks to the global outlook remain exceptionally high. It also underlines that while Emerging Markets Economies’ macroeconomic fundamentals appear more resilient to the current monetary tightening, weaknesses remain. The Brief also considers how climate change as a systemic risk could jeopardise the fragile equilibrium of macroeconomic fundamentals. Finally, the Brief presents possible macroeconomic and structural policy options to reduce excess current account imbalances in a growth-friendly manner and to prevent or cushion possible risks. |
| Keywords: | Global Current Account Imbalances; COVID-19 Pandemic; Russia’s War in Ukraine, Climate Change, Global Economic Governance; International Cooperation; Multilateralism; Economy and Finance, G20, Aphecetche, Bianchi, Stanoeva. |
| Date: | 2022–11 |
| URL: | https://d.repec.org/n?u=RePEc:euf:ecobri:074&r= |
| By: | Ampudia, Miguel; Lombardi, Marco Jacopo; Renault, Théodore |
| Abstract: | This paper studies the pass-through from wages to producer prices using sectoral disaggregated data for the euro area. We find a positive and statistically significant wage-price pass-through that reaches 50% after three years, which differs across sectors. The wage-price pass-through in private servicesis significantly higher than in industry and takes longer before reaching its peak. While a higher labour intensity is a key component of the pass-through, our estimates indicate that differences in sectoral labour shares alone cannot explain the larger wage-price pass-through in private services compared to industry. Instead, the estimates hint at an important role for international competition in the domestic market for the tradeable sector. They also suggest that the sales destination matters: wage growth contributes to domestic inflation for goods but not to export inflation. Finally, we also provide evidence of an increase in the wage-price pass-through after 2020, particularly in private services. JEL Classification: E24, E31 |
| Keywords: | inflation dynamics, international competition, sectors, wage-price pass-through |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242948&r= |
| By: | Ali-Yrkkö, Jyrki; Kuusela, Olli-Pekka; Kuusi, Tero |
| Abstract: | Abstract The new era of geopolitics and geoeconomy significantly alters the economic landscape and the operating environment. It is already clear that industrial policies and barriers to international trade increasingly influence the location of investment decisions. These trends challenge the foundations of the international division of labor. Our report outlines the key drivers, assumptions, and policy actions behind these changes. In addition, the report provides recommendations and key principles for a small open economy, such as Finland, on how to navigate the changing landscape. |
| Keywords: | Geopolitics, Geoeconomics, Industrial policy, Globalization, Fragmentation |
| JEL: | F15 F12 F41 L5 |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:150&r= |
| By: | Kim Karlsson, Hyunjoo (Department of Economics and Statistics); Li, Yushu (Department of Mathematics, University of Bergen, Norway) |
| Abstract: | This paper investigates daily exchange rate volatility behaviors with a focus on a small open economy’s currency, the Swedish krona (SEK), against four currencies: the U.S. dollar, Euro, the Pound Sterling (GBP), and the Norwegian krone (NOK) over the whole period from Jan. 2010 to March 2023, whereas the whole period is divided into different sub-sample periods based on the economic events. In the framework of APARCH models, we find that volatility behavior of the Swedish krona (SEK) exchange rates varies across different currency pairs (SEK being included in all cases) and sub-sample periods. Precisely, a negative asymmetric return-volatility relationship was found for the case of the SEK/EUR exchange rate, while an inverted asymmetric relationship was detected in the case of SEK/NOK exchange rate. Significant asymmetric effects of volatility in the SEK/USD and SEK/GBP exchange rates were not observed for either the whole period or the three sub-sample periods. As the return of exchange rate are all non-normally distributed, we then use a distribution-free support vector machine-based regression, called support vector regression (SVR), to estimate and forecast volatility in the framework of the chosen APARCH model for each krona exchange rate. The result shows that the SVR-APARCH based volatility forecasting performs better than the forecasting based on APARCH model estimated by maximum likelihood estimation (MLE). |
| Keywords: | Conditional volatility; volatility; SVR; Wavelet; Asymmetry; APARCH |
| JEL: | C14 C53 F31 |
| Date: | 2024–06–22 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:vxesta:2024_010&r= |
| By: | Purva Gole (EHESS, Paris); Erica Perego (CEPII, Paris); Camelia Turcu (LEO, University of Orl´eans) |
| Abstract: | In this paper, we reconsider the role of uncertainty in explaining uncovered interest rate parity (UIP) deviations by focusing on 60 emerging and developing (EMDE) and advanced (AE) economies, over the period 1995M1–2023M3. We show that differentiating between EMDE currencies and AE currencies is crucial for understanding UIP deviations as the behaviour of excess returns differs in the two groups in periods of uncertainty: deviations become wider for EMDEs and narrow for AEs. These new results are consistent with the idea that in periods of uncertainty, global investors might change their risk preferences and move from high currency-risk investments in EMDEs towards less risky ones in AEs. This evidence holds for both the short-run and long-run UIP, and becomes stronger since the Global Financial Crisis (GFC). |
| Keywords: | Uncertainty, uncovered interest rate parity, risk premia, emerging countries |
| JEL: | E |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2024.5&r= |
| By: | Jason Kim (Brown University); Marco Mello (University of Aberdeen); Cosimo Petracchi (DEF, University of Rome "Tor Vergata") |
| Abstract: | Compiling a novel dataset of prices for products sold in sixteen European countries starting in 1972, we establish that monetary-regime breaks, from peg to floating regimes, increase not only the volatility of nominal exchange rates, but also the volatility of product-level real exchange rates. Our result holds for any type of products—tradables versus nontradables—although the volatility of the real exchange rates of tradables responds less to breaks than the volatility of the real exchange rates of nontradables. Overall, the law of one price is less likely to hold under floating regimes for both tradables and nontradables |
| Date: | 2024–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:579&r= |
| By: | Milan Výškrabka; Erza Aruqaj |
| Abstract: | After a decade-long period of surpluses, soaring energy prices sent the euro area current account into a deficit in 2022. This occurred against the backdrop of a lingering COVID-19 impact, and in parallel with gradual recovery of the tourism sector. After its strong fall, the euro area current account balance has been on an improving path this year, as energy prices have fallen from their 2022 highs, and assisted somewhat by a small but visible reduction in the volume of net energy imports. However, energy prices are expected to remain above their pre-pandemic levels exerting a continuous downward pressure on energy balances in the medium term. The asymmetric nature of these shocks caused current account balances to widen across the globe over the past three years, undoing the narrowing that had previously been underway. The fading of these shocks will affect the normalisation of current accounts worldwide and in the euro area and may result in a changed landscape going forward. This paper reviews recent developments in the euro area external position, discusses the main drivers and provides some insights into the likely determinants of the external position in the near term. |
| JEL: | F45 F62 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:202&r= |
| By: | Tobias Adrian; Gaston Gelos; Nora Lamersdorf; Emanuel Moench |
| Abstract: | We document that U.S. monetary policy shocks have highly persistent but asymmetric effects on U.S. Treasury and global bond yields, with a clear break around the Great Financial Crisis (GFC). Prior to the GFC, tightening shocks used to lead to a pronounced hump-shaped increase of Treasury yields across maturities. Yields used to respond little to easing shocks as term premiums would rise strongly, offsetting the associated decline of expected policy rates. Since the GFC, term premiums have been declining persistently following both tightening and easing shocks. As a result, post-GFC tightening shocks only have transitory positive effects on yields, which reverse later. The response of advanced-economy and emerging market sovereign yields essentially mimics the pattern observed for Treasury yields. Consistent with recent work by Kekre et al. (2022) we find that changes in the duration of primary dealer Treasury portfolios pre- and post-GFC are highly informative about the sign of the term premium response to policy shocks, but cannot explain the full picture. The observed puzzling persistence of returns is likely to stem at least in part from slow and persistent mutual fund flows following monetary policy surprises. |
| Keywords: | spillovers, monetary policy, yield curve, capital flows |
| JEL: | F32 E43 E52 G12 G15 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1195&r= |
| By: | Hochmuth, Brigitte; Merkl, Christian; Stüber, Heiko |
| Abstract: | This paper shows that less generous unemployment benefits in one country may generate substantial negative long-run consumption spillovers to non-reforming countries under incomplete consumption insurance. While lower benefits reduce unemployment in the reforming country, employed workers increase their precautionary savings to compensate for reduced government-provided insurance. A portion of these additional savings flows to the non-reforming country and depresses long-term consumption due to the negative net foreign asset position. To discipline our quantitative model, we estimate the increase of Germany's tradable sector in the aftermath of the Hartz unemployment insurance reform based on firm-level data. Our quantitative model matches a significant fraction of various macroeconomic trends after the reform, namely Germany's persistent increase of aggregate savings and net foreign assets, the increase of net exports, the real exchange rate depreciation within the Eurozone, and the decline in unemployment. Conversely, Germany's wage moderation before the reform appears to be unrelated to most of these phenomena. |
| Keywords: | Unemployment insurance reform, spillover effects, precautionary savings |
| JEL: | E21 E24 F16 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwqwdp:298854&r= |
| By: | Pablo Ottonello; Diego J. Perez; William Witheridge |
| Abstract: | We study the role of exchange rates in industrial policy. We construct an open-economy macroeconomic framework with production externalities and show that the desirability of these policies critically depends on the dynamic patterns of externalities. When they are stronger in earlier stages of development, economies that are converging to the technological frontier can improve welfare by intervening in foreign exchange markets, keeping the exchange rate undervalued, and speeding the transition; economies that are not converging to the technological frontier are better off not using the exchange rate as an industrial policy tool. Capital-flow mobility and labor market dynamism play a central role in the effectiveness of these policies. We also discuss the role of capital controls as an industrial policy tool and use our framework to interpret historical experiences. |
| JEL: | F0 F3 F4 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32522&r= |
| By: | Christine Arriola; Przemyslaw Kowalski; Frank van Tongeren |
| Abstract: | This report analyses the broad risks associated with sectoral output disruptions both domestically and abroad, examining several exposure metrics. The results indicate that domestic shocks generally have larger sectoral impacts than foreign shocks. In most cases, foreign production disruptions cause minimal domestic output responses, suggesting that domestic and international linkages, along with economic adjustment mechanisms, tend to dampen rather than amplify foreign shocks. However, a cumulation of adverse shocks can significantly affect specific sectors, with manufacturing sectors are on average much more exposed to foreign output shocks than services and agrifood given their greater internationalisation of output and inputs. Economies with strong backward and forward global value chain links to major foreign economies also tend to be more exposed to foreign shocks. |
| Keywords: | CGE, Exposure risk, Global Value Chains, GVCs, METRO Model, Shock transmission, Supply Chains |
| JEL: | C68 F14 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:oec:traaab:283-en&r= |