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on Open Economy Macroeconomics |
| By: | Vincenzo Quadrini (Univ. of Southern California, CEPRand NBER); Enrique G. Mendoza (University of Pennsylvania and NBER) |
| Abstract: | Research has shown that the unilateral accumulation of international reserves by a country can improve its own macro-financial stability. However, we show that when many countries accumulate reserves, the induced general equilibrium effects weaken financial and macroeconomic stability, especially for countries that do not accumulate reserves. The issuance of public debt by advanced economies has the opposite effect. We show these results with a two-region model where private defaultable debt has a productive use. Quantitative counterfactuals show that the surge in reserves (public debt) contributed to reduce (increase) world interest rates but also to increase (reduce) private leverage. This in turn increased (decreased) volatility in both emerging and advanced economies. |
| Date: | 2024–11–23 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-038 |
| By: | Oliver de Groot (University of Liverpool and CEPR); C. Bora Durdu (Federal Reserve Board); Enrique G. Mendoza (University of Pennsylvania and NBER) |
| Abstract: | We compare global (fixed-point iteration) and local (first-order, higher-order, risky-steady-state, and quasi-linear) solutions of open-economy incomplete-markets models. Cyclical moments of a workhorse endowment model are broadly in line with the data and similar across solutions calibrated to the same data targets, but impulse responses and spectral densities differ. Alternative local solutions yield nearly identical results. Calibrating them requires nontrivial interest-rate elasticities that make net foreign assets (NFA) “sticky, ” causing them to differ sharply from global solutions in experiments altering precautionary savings (e.g., increasing income volatility, adding capital controls). Analytic and numerical results show that our findings are due to the near-unit-root nature of NFA under incomplete markets and imprecise solutions of their autocorrelation. These findings extend to a Sudden Stops model with an occasionally binding collateral constraint. In addition, quasi-linear methods yield smaller financial premia and macroeconomic responses when the constraint binds. |
| Keywords: | Solution methods; Sudden stops; Precautionary savings; Occasionally binding constraints |
| JEL: | D82 E44 F41 |
| Date: | 2024–11–23 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-037 |
| By: | Patrick Hendy (Reserve Bank of Australia); Benjamin Beckers (Reserve Bank of Australia) |
| Abstract: | Foreign or global economic and financial shocks can be significant drivers of economic outcomes in small open economies such as Australia, and are therefore a considerable source of uncertainty to the Australian economic outlook. Examining the extent to which global shocks affect the Australian financial system and economy and the channels through which these shocks operated over the 1990–2019 period, we find that global shocks drive considerable variation in the exchange rate and the cash rate, but a smaller proportion of variation in economic variables like real GDP. This suggests that, over our sample, the exchange rate and domestic monetary policy have effectively buffered the Australian economy from global shocks. Unlike some other recent literature on global spillovers, we do not find the Australian banking system to be a substantial channel of financial and economic spillovers to Australia. |
| Keywords: | global spillovers; global financial cycle; banks |
| JEL: | C38 F36 F42 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2024-10 |
| By: | Donato Masciandaro (Department of Economics, Bocconi University); Davide Romelli (Department of Economics, Trinity College Dublin); Stefano Ugolini (Department of Economics, Universit' Toulouse Capitole) |
| Abstract: | This paper focuses on an early unique experiment of freely floating State-issued money, implemented in Venice between 1619 and 1666. Building on a new hand-collected database from a previously unexplored archival source, we show that, despite the Venetian ducat's status as an international currency and the government's reputation for fiscal prudence, its external value was significantly, and increasingly, affected by episodes of automatic government deficit monetization through the Banco del Giro during the crises of 1630 (outbreak of the bubonic plague) and 1648-50 (escalation of the Cretan War). This suggests that the institutional context plays an important role in the transmission mechanism between government deficit monetization and exchange rates. |
| Keywords: | Fiscal Dominance, Monetary Policy, Early Modern Venice, Banco del Giro, Fiat Money, Deficit Monetization, Historical Exchange Rates |
| JEL: | F31 E63 N33 N43 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1124 |
| By: | Shohei Momoda (Hiroshima University); Takayuki Ogawa (Osaka University); Ryosuke Shimizu (Ehime University) |
| Abstract: | Recent data suggest that countries with a higher accumulation of robots achieve higher economic growth. This study analyzes the international growth patterns in a two-country economy with task-based automation technology. We show that whenever one country can achieve perpetual growth by fully automating all tasks, another country can not. Thus, automation widens the international disparities in output growth. Using panel data covering 62 countries from 1994 to 2019, we empirically find that countries with more industrial robots are associated with higher economic growth through the increased accumulation of robots. |
| Keywords: | Automation; Growth patterns; International trade. |
| JEL: | F43 F62 O33 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1109 |
| By: | António Afonso; José Alves; João Jalles; Sofia Monteiro |
| Abstract: | This paper examines the impact of current account balances on energy, headline, and core inflation across developed and developing economies from 1980 to 2023. Using Panel OLS fixed effects, Panel-IV 2SLS and Panel Vector Autoregressive models, we find that an improvement in the current account consistently leads to lower inflation, with heterogeneous effects across inflation components, even when controlling for monetary policy. Our analysis also explores regional differences and contrasts the periods before and after the 2008 subprime crisis, revealing that current account surpluses had a stronger deflationary effect in the more recent period. There is also a negative link between cyclical unemployment and inflation supporting the traditional Phillips curve perspective. These results suggest that policies aimed at improving current account balances, particularly in energy-importing countries, could help mitigate inflationary pressures. |
| Keywords: | Current Account, Energy Inflation, Headline Inflation, Core Inflation, Panel Data, VAR, Subprime Crisis, Inflation Dynamics, Monetary Policy. |
| JEL: | E31 F32 Q43 C33 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03592024 |