|
on Open Economy Macroeconomics |
| By: | Hugo Spring-Ragain (HEIP) |
| Abstract: | This article examines how emerging economies use countercyclical monetary policies to manage economic crises and fluctuations in dominant currencies, such as the US dollar and the euro. Global economic cycles are marked by phases of expansion and recession, often exacerbated by major financial crises. These crises, such as those of 1997, 2008 and the disruption caused by the COVID-19 pandemic, have a particular impact on emerging economies due to their heightened vulnerability to foreign capital flows and exports.Counter-cyclical monetary policies, including interest rate adjustments, foreign exchange interventions and capital controls, are essential to stabilize these economies. These measures aim to mitigate the effects of economic shocks, maintain price stability and promote sustainable growth. This article presents a theoretical analysis of economic cycles and financial crises, highlighting the role of dominant currencies in global economic stability. Currencies such as the dollar and the euro strongly influence emerging economies, notably through exchange rate variations and international capital movements. Analysis of the monetary strategies of emerging economies, through case studies of Brazil, India and Nigeria, reveals how these countries use tools such as interest rates, foreign exchange interventions and capital controls to manage the impacts of crises and fluctuations in dominant currencies. The article also highlights the challenges and limitations faced by these countries, including structural and institutional constraints and the reactions of international financial markets.Finally, an econometric analysis using a Vector AutoRegression (VAR) model illustrates the impact of monetary policies on key economic variables, such as GDP, interest rates, inflation and exchange rates. The results show that emerging economies, although sensitive to external shocks, can adjust their policies to stabilize economic growth in the medium and long term. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.23002 |
| By: | George A. Alessandria; Yan Bai; Soo Kyung Woo |
| Abstract: | We study the reasons for the large, coincident increases in unbalanced international trade and overall trade from 1970 to 2019. We show that these two salient features—a rise in net and gross international trade—are largely a consequence of a reduction in intratemporal trade barriers rather than a substantial reduction in the frictions on intertemporal trade or greater asymmetries in business cycles. Beyond explaining changes in the distribution of gross and net trade, the decline in intratemporal trade frictions is consistent with a fall in the dispersion across countries in other key macro time series, including the real exchange rate, terms of trade, export-import ratio, relative spending, and relative GDP. |
| JEL: | E3 F4 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33101 |
| By: | Zhengyang Jiang |
| Abstract: | I propose a model of the reserve currency paradigm that centers on liquidity demand for safe assets. In global recessions, the demand for U.S. safe assets increases and raises their convenience yields, giving rise to stronger dollar and countercyclical seigniorage revenues. The seigniorage revenues raise the U.S. wealth and consumption shares in recessions, despite the U.S. suffering portfolio losses from external positions. This asset demand channel also connects exchange rates to bond holdings, which provides new perspectives on exchange rate disconnect and the exchange rate-capital flow relationship. Under this safe-asset view, exorbitant privilege does not require exorbitant duty. |
| Keywords: | exorbitant privilege, reserve assets, international monetary system, capital flows |
| JEL: | E44 F32 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11279 |
| By: | Menzie D. Chinn; Hiro Ito |
| Abstract: | We re‐examine the determinants of current account balances (CAB) and the saving-investment nexus with focus on emerging market and developing economies (EMDEs). We are in a new age in terms of facing not just economic challenges but also other non-economic challenges such as global climate changes, increasing natural disasters, and wars. We face the need to reexamine the determinants of CAB along with national saving and investment. We first take an event study approach, examining how these variables have evolved historically in the wake of wars, natural disasters, and pandemics. The second is a cross‐country panel investigation of CAB, national saving, and of investment. In the presence of global financial instability, EMDEs tend to experience an improvement in CAB due to a fall in investment. A rise in oil prices increases both national saving and investment, but the change in investment is greater than the change in national saving, which worsens CAB. Contractionary monetary policy by the U.S. Federal Reserve Board tends to lower both national saving and investment, but the impact on CAB is not statistically different from zero. The more frequently a country experiences wars, on average, its CAB tends to improve. When a climatological or geographical disaster occurs, its CAB, national saving, and investment tend to improve. A rise in the level of U.S. monetary policy uncertainty leads to an improvement in CAB, mainly due to a fall in investment. |
| JEL: | F32 F41 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33106 |
| By: | Tselmuun Tserenkhuu; Stephen Kosempel |
| Abstract: | This paper examines the effects of increased life expectancy on the short-run macroeconomic stability of a typical small open economy. We develop a real-business-cycle (RBC) model of a small open economy that is consistent with the main empirical facts of economic fluctuations in open economies. Different from the previous satisfactory open-economy extensions of the baseline RBC model, given its finite lifetimes feature, our framework also helps rationalize some of the key results from recent empirical literature on the relationship between longevity and business cycles. In our model, changes in life expectancy change the planning horizon of individuals and thus affect their intertemporal choices. Consequently, the cyclical volatilities of aggregate variables are also affected. As a numerical exercise, we quantify how increased life expectancy has impacted Canadian business cycle fluctuations over the past forty years. The results indicate that the fluctuations in physical capital, human capital, and consumption all decrease as life expectancy increases. On the other hand, the fluctuation of hours worked, output, and trade balance ratio are found to increase with life expectancy. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1263 |
| By: | Marius Faber; Kemal Kilic; Gleb Kozliakov; Dalia Marin |
| Abstract: | The world economy has become more and more globalized as firms have organized production along global value chains. But more recently, globalization has stalled. This paper shows that higher uncertainty, in combination with better automation technologies, has likely contributed to that trend reversal. We show that plausibly exogenous exposure to uncertainty in developing countries leads to reshoring to high-income countries, but only if industrial robots have made this economically feasible. In contrast, we find no strong evidence of nearshoring or diversification. We address concerns about reverse causality by showing that results hold when using two alternative identification strategies. In a narrative approach, we use only locally generated spikes in uncertainty, for which the narrative around the events suggest that they are plausibly exogenous. In a small open economy approach, we restrict the sample to small developed countries that are unlikely to cause uncertainty in the developing world. Moreover, we show that results are robust to the main threats to identification related to shift-share instruments. |
| Keywords: | global value chains, uncertainty, automation, reshoring, shift-share design |
| JEL: | F14 F15 F16 J23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11419 |
| By: | Renzhi, Nuobu (Capital University of Economics and Business); Beirne, John (Asian Development Bank) |
| Abstract: | This paper empirically investigates how the level of peer-to-peer (P2P) lending affects monetary policy transmission in the People’s Republic of China (PRC). Using state-dependent local projection methods, we find that the macroeconomic effects of unanticipated changes in monetary policy are dampened during the boom phase of the P2P lending market. The impulse responses of industrial production and inflation are significantly negative in the non-boom state. In contrast, the responses of industrial production and inflation are muted in the boom state. Set against the context of stricter regulation on P2P lending since 2017, our results indicate that the significant scaling back of P2P lending activity and its gradual decline in the PRC could enhance the effectiveness of monetary policy transmission. Our paper also suggests that further work is needed to study the interaction between financial innovation and monetary policy |
| Keywords: | peer-to-peer lending; monetary policy transmission; fintech |
| JEL: | E44 E52 F33 F42 |
| Date: | 2024–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0749 |