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on Open Economy Macroeconomics |
| By: | David Beers; Obiageri Ndukwe; 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 2024 edition updates the historical data and revisits sovereign defaults on local currency debt. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F3 F34 G1 G10 G14 G15 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-19 |
| By: | Federico S. Mandelman; Yang Yu; Francesco Zanetti; Andrei Zlate |
| Abstract: | We document a steady decline in low-skilled immigration that began with the onset of the Great Recession in 2007, which was associated with labor shortages in low-skilled service occupations and a decline in the skill premium. Falling returns to high-skilled jobs coincided with a decline in the educational attainment of native-born workers. We develop and estimate a stochastic growth model with endogenous immigration and training to account for these facts and study macroeconomic performance and welfare. Lower immigration leads to higher wages for low-skilled workers and higher consumer prices. Importantly, the decline in the skill premium discourages the training of native workers, persistently reducing aggregate productivity and welfare. Stimulus policies during the COVID-19 pandemic, amid a widespread shortage of low-skilled immigrant labor, exacerbated the rise in consumer prices and reduced welfare. We show that the 2021-2023 immigration surge helped to partially alleviate existing labor shortages and restore welfare. |
| Keywords: | immigration, skill premium, task upgrading, heterogeneous workers |
| JEL: | F16 F22 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11202 |
| By: | Michael Sposi; Kei-Mu Yi; Jing Zhang |
| Abstract: | We add to recent evidence on deindustrialization and document a new pattern: increasing industry polarization over time. We assess whether these new features of structural change can be explained by a dynamic open economy model with two primary driving forces, sector-biased productivity growth and sectoral trade integration. We calibrate the model to the same countries used to document our patterns. We find that sector-biased productivity growth is important for deindustrialization by reducing the relative price of manufacturing to services, and sectoral trade integration is important for industry polarization through increased specialization. The interaction of these two driving forces is also essential as increased trade openness transmits global technological change to each country's relative prices, sectoral specialization and sectoral trade imbalances. |
| Keywords: | structural change; international trade; Sector Biased Productivity Growth |
| JEL: | F11 F43 O41 O11 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddgw:98630 |
| By: | Sindala, Elvin; Musonda, Gabriel; Mumba, Matrina; Basila, Moono |
| Abstract: | Inflation, exchange rate and gross domestic product (GDP) are critical variables to macroeconomic stability. For a small economy like Zambia, it is imperative for central authorities to establish the size and degree of the exchange rate pass-through (ERPT) to domestic prices and output as they formulate monetary policies. This paper examines the effect of ERPT to domestic prices and local production using the vector error correction model (VECM) for the period 1995Q1 to 2019Q4. The study utilizes the baseline and alternative models for intra study comparisons. Results show that the ERPT to domestic prices is high, persistent, and incomplete in the baseline model while the alternative model depicts a low, persistent, and incomplete ERPT in the long run. Furthermore, the long run ERPT to local production was found to be high, persistent, and complete. Policy implications are that monetary and fiscal policies should be geared towards exchange rate measures that would contribute to both internal and external balances and nurture macroeconomic stability. The measures would include management of exchange rate volatility, effective debt sustainability strategies and reviving as well as broadening the manufacturing sector in Zambia to nurture an export-oriented economy. |
| Keywords: | Price; exchange rate; local production; VECM |
| JEL: | E0 E00 E01 E02 E03 E4 E42 E44 F1 F14 F4 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121533 |
| By: | Ingomar Krohn; Mariel Maguiña |
| Abstract: | Global currency risk factors continue to explain a large share of the variation in the Canadian dollar during the period following the 2008–09 global financial crisis. We show that they are also systematically important for risk premiums, and only in recent months has the role of idiosyncratic country-specific risks grown. |
| Keywords: | Asset pricing; Exchange rates; International financial markets |
| JEL: | F3 F31 G1 G12 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-20 |
| By: | Popov, Vladimir |
| Abstract: | China was extremely successful in recent decades in managing external equilibrium in the short and medium term using three mechanisms to cushion the balance of payments shocks. First, it maintained a flexible rate, so could adjust to the fluctuations in trade balance and capital flows via devaluation/appreciation of national currency. Second, it exercised a capital account control that prevented the sudden and sizeable outflow of capital. And third, its foreign exchange reserves were the largest in the world and large even as compared to its GDP and foreign trade and capital flows, so they could have been used to absorb negative trade and capital account shocks with full sterilization (without a fear of continuous outflow of capital due to capital control). In particular, China survived the Asian currency crisis of 1997 better than the other countries – its reserves even did not decrease in 1997 and its GDP growth rates virtually did not decline. However, in the long term the abandonment of the policy of foreign exchange reserves accumulation (since the Great Recession of 2008-09) led to the considerable appreciation of the real exchange rate of yuan, the decline in the ratio of export to GDP and the share of investment in GDP. The result was the slowdown of growth: GDP growth rates fell from 14% in 2007 to 5% in 2024. |
| Keywords: | balance of payments, foreign exchange reserves, external and internal equilibrium, exchange rate, slowdown of growth in China |
| JEL: | F31 F32 F41 N15 O24 O40 |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121627 |
| By: | Jésus Fernández-Villaverde; Tomohide Mineyama; Dongho Song; Jesús Fernández-Villaverde |
| Abstract: | After decades of rising global economic integration, the world economy is now fragmenting. To measure this phenomenon, we introduce an index of geopolitical fragmentation derived from various empirical indicators. This index is developed using a flexible dynamic factor model with time-varying parameters and stochastic volatility. We then employ structural vector autoregressions and local projections to assess the causal effects of changes in fragmentation. Our analysis demonstrates that increased fragmentation negatively impacts the global economy, with emerging economies suffering more than advanced ones. Notably, we document a key asymmetry: fragmentation has an immediate negative effect, while the benefits of reduced fragmentation unfold gradually. A sectoral analysis within OECD economies reveals that industries closely linked to global markets —such as manufacturing, construction, finance, and wholesale and retail trade— are adversely affected. Finally, we examine the interaction between fragmentation and the economic dynamics of regional economic blocs, highlighting significant differences in the impacts across various geopolitical blocs. |
| Keywords: | dynamic factor model, causality, geopolitical fragmentation, fragmentation index |
| JEL: | C11 C33 E00 F01 F20 F40 F60 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11192 |
| By: | Schwartz, Herman M. |
| Abstract: | What explains the US dollar's role in the global economy and the tensions affecting its likely persistence? Most analyses start from Triffin's dilemma, which accurately captured specific but partial tensions of a global monetary system based on essentially fixed exchange rates, gold backing for its core currency, and relatively robust capital controls. Triffin's approach, and those based on it, struggles to explain the tensions in a system with floating exchange rates and fiat money, because Triffin and successors assume a commodity theory of money, a loanable funds model for credit creation, and the "triple coincidence" of monetary, legal, and economic zones. Approaching the question from different premises - chartalist money, endogenous credit creation, and interlocked global balance sheets - enables us to see four factors behind the antinomies or dilemmas that structure the dynamics and durability of US dollar centrality. Those four factors are adequate credit creation and thus global aggregate demand growth, current account deficits for the core, domestic legitimacy in major economies, and the dollar's status as global quasi-state money. |
| Abstract: | Wie lässt sich die Bedeutung des US-Dollars in der Weltwirtschaft erklären? Was hat das mit den Spannungen auf sich, die über den Fortbestand der Dollar-Dominanz entscheiden? Die meisten Analysen nehmen das Triffin-Dilemma zum Ausgangspunkt, das spezifische Spannungen des globalen Geldsystems einst gut erfasste. Dieses System basierte im Wesentlichen auf festen Wechselkursen, einer goldgedeckten Leitwährung und Kapitalverkehrskontrollen. Triffins Ansatz und darauf aufgebaute Analysen haben aber Schwierigkeiten, wenn es um die Spannungen in einem Geldsystem mit Fiatgeld und frei schwankenden Wechselkursen geht. Triffin und seine Nachfolger nahmen die Warentheorie des Geldes und das Loanable-Funds-Modell der Kreditschöpfung als stimmig und die dreifache Koinzidenz von Währungs-, Rechts- und Wirtschaftsräumen als gegeben an. Wenn wir das Problem hingegen unter den Prämissen des chartalistischen Geldes, der endogenen Kreditschöpfung und miteinander verzahnter globaler Bilanzen betrachten, lassen sich hinter den Unvereinbarkeiten und Dilemmata vier Faktoren erkennen, die für die Dynamiken und die Dauerhaftigkeit der Dollar-Dominanz entscheidend sind: eine angemessene Kreditschöpfung und damit ein Wachstum der globalen Gesamtnachfrage; Leistungsbilanzdefizite der Kernländer; innenpolitische Legitimität in den großen Volkswirtschaften; und der Status des Dollars als globales Quasi-Staatsgeld. |
| Keywords: | Balance of payments, foreign debt, geo-economics, international financial system, money, power, reserve currency, Auslandsverschuldung, Geld, Geoökonomie, internationales Finanzsystem, Leitwährung, Macht, Zahlungsbilanz |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:mpifgd:300666 |