|
on Open Economy Macroeconomics |
| By: | António Afonso; José Alves; João Jalles; Sofia Monteiro; João Tovar Jalles |
| Abstract: | This study examines the effects of geopolitical risk and global uncertainty on energy prices, conditioned by different exchange rate regimes, for 185 economies over the period 1980-2023. The central question is how uncertainty impacts energy prices and whether exchange rate flexibility mediates these effects. Using panel data techniques, including OLS and Panel VAR, we assess both demand and supply-side channels, exploring country-specific differences. Our key findings indicate that uncertainty shocks significantly raise energy prices, particularly in countries with flexible exchange rates, where currency depreciation amplifies global price fluctuations. Asymmetric results are found regarding emerging markets, with flexible exchange rates, which tend to have lower energy prices, while oil-exporting countries and OPEC members experience distinct pricing dynamics. These results underscore the importance of exchange rate policy choices in shaping energy market responses to global shocks. Policymakers may need to adopt complementary measures to manage the volatility arising from global uncertainty. |
| Keywords: | geopolitical risk, world uncertainty index, global energy markets, exchange rate regimes, asymmetric effects |
| JEL: | C23 E44 G32 H63 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11384 |
| By: | Mistak, Jakub; Ozkan, F. Gulcin |
| Abstract: | This paper examines the asymmetry in global spillovers from Fed policy across tightening versus easing episodes several examples of which have been on display since the global financial crisis (GFC). We build a dynamic general equilibrium model featuring: (i) occasionally binding collateral constraints in the financial sector with significant cross-border exposure; and (ii) global supply chains, allowing us to match the asymmetry of spillovers across contractionary versus expansionary monetary policy shocks. We find clear asymmetries in the transmission of US monetary policy, with significantly larger spillovers during contractionary episodes under both conventional and unconventional monetary policy changes. Our results also reveal that the greater the size of international credit and supply chain networks and the policymakers’ aversion to exchange rate fluctuations in the rest of the world, the greater the spillover effects of US monetary policy shocks. JEL Classification: E52, F41, E44 |
| Keywords: | capital flows, emerging markets, monetary policy, spillovers, supply chains |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242995 |
| By: | Alvaro Silva |
| Abstract: | This paper studies inflation in small open economies with production networks. I show that production networks alter the elasticity of the consumer price index (CPI) to changes in sectoral technology, factor prices, and import prices. Sectors can import and export directly but also indirectly through domestic intermediate inputs. Indirect exporting dampens the inflationary pressure from domestic forces, while indirect importing increases the inflation sensitivity to import price changes. Computing these CPI elasticities requires knowledge of the production network structure because these do not coincide with typical sufficient statistics used in the literature such as sectoral sales-to-GDP ratios, factor shares, or imported consumption shares. Using input-output tables, I provide empirical evidence that adjusting CPI elasticities for indirect exports and imports matters quantitatively for small open economies. I use the model to illustrate the importance of production networks during the COVID-19–related inflation in Chile and the United Kingdom. |
| Keywords: | inflation; Small open economies; networks; input-output tables; COVID-19 |
| JEL: | C67 D57 E31 F14 F41 L16 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:99025 |
| By: | António Afonso; Daniel Loureiro |
| Abstract: | We compute a GVAR to estimate the fiscal spillovers on output, consumption, investment, employment, and income, from 2002Q1 to 2021Q4, with 16 Euro Area (EA) countries. We found that a budget balance expansionary shock in Germany would generate positive spillovers on output and employment. Negative cross-country effects on consumption were also found. No significant spillovers on investment or income were observed following this shock. Greater and more significant spillovers were found after an EA global shock. There are also positive effects on private investment. However, a global shock still does not generate significant effects on income and increases the magnitude of the negative short-run spillovers on consumption. Greece is one of the countries more affected by short-run negative spillovers. Finally, national and global fiscal shocks put upward pressure on prices and generate negative effects on public debt. From a policy perspective, we recommend the reinforcement of the fiscal coordination framework. |
| Keywords: | Euro Area, fiscal spillovers, policy coordination, GVAR |
| JEL: | C32 E62 F42 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11406 |
| By: | Yudai Hatayama (Bank of Japan); Yuto Iwasaki (Previously Bank of Japan); Kyoko Nakagami (Bank of Japan); Tatsuyoshi Okimoto (Bank of Japan and Keio University) |
| Abstract: | This paper quantitatively examines the effect of globalization on the natural rate of interest in developed economies, including Japan, the US, and the euro area. By incorporating into the model the variables that capture global economic and financial trends, such as demand and supply of safe assets and cross-border spillovers, with a smooth-transition framework, we account for the existence of non-linear regime change of their coefficients, driven by globalization. Our findings indicate that along with the progress of globalization, (i) the impact of global factors rapidly increased around 2000, and (ii) the commonly observed decline in the natural rate of interest can be largely attributed to these global factors. These findings underscore the importance of incorporating global factors such as demand and supply of safe assets and global spillovers, with their increasing impact, alongside the domestic factors such as productivity and demographics, when investigating developments in the natural rate of interest. |
| Keywords: | Natural Rate of Interest; Globalization; Smooth Transition Model |
| JEL: | E43 E52 F41 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e13 |
| By: | Garrón Vedia, Ignacio; Rodríguez Caballero, Carlos Vladimir; Ruiz Ortega, Esther |
| Abstract: | In a globalised world, inflation in a given country may be becoming less responsive to domestic economic activity, while being increasingly determined by international conditions. Consequently, understanding the international sources of vulnerability of domestic inflation is turning fundamental for policy makers. In this paper, we propose the construction of Inflation-at-risk and Deflation-at-risk measures of vulnerability obtained using factor-augmented quantile regressions estimated with international factors extracted from a multi-level Dynamic Factor Model with overlappingblocks of inflations corresponding to economies grouped either in a givengeographical region or according to their development level. The methodology is implemented to inflation observed monthly from 1999 to 2022 for over 115 countries. We conclude that, in a large number of developed countries, international factors are relevant to explain the right tail of the distribution of inflation, and, consequently they are more relevant for the vulnerability related to high inflation than for average or low inflation. However, while inflation of developing low-income countries ishardly affected by international conditions, the results for middle-income countries are mixed. Finally, based on a rolling-window out-of-sample forecasting exercise, we show that the predictive power of international factors has increased in the most recent years of high inflation. |
| Keywords: | Global inflation; Inflation vulnerability; Multi-level dynamic factor model |
| JEL: | E44 C32 C55 E32 O41 F44 F47 |
| Date: | 2024–11–04 |
| URL: | https://d.repec.org/n?u=RePEc:cte:wsrepe:44814 |