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on Transition Economics |
| By: | Kamila Kuziemska-Pawlak; Jakub Mućk |
| Abstract: | This paper proposes an extension of the fundamental equilibrium exchange rate (FEER) model that accounts for the trade linkages within the Global Value Chains (GVCs). In the modified FEER framework, both backward and forward linkages are taken into consideration. To demonstrate the empirical relevance of the complex nature of existing trade linkages, the proposed FEER model is applied to analyze exchange rate fluctuations of the selected Central and Eastern European countries against the euro. It is documented that in Czechia, Hungary, and Poland the standard FEER framework predicts rapid appreciation of the equilibrium exchange rate after 2010, which implies deepening undervaluation of the actual real exchange rate towards the end of the analysed period. Instead, when the GVCs' linkages are taken into account in the framework, actual real exchange rates are broadly in line with the fundamental equilibrium exchange rates, and hence the missing real appreciation of the Czech krone, the Hungarian forint and the Polish zloty is to a large extent an equilibrium phenomenon. |
| Keywords: | exchange rate, current account, foreign trade, Global Value Chains |
| JEL: | C32 C33 F12 F31 F32 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2024100&r= |
| By: | Mr. Armand P Fouejieu; Shakill Hassan; Mr. Ruben V Atoyan; Yiran Zha |
| Abstract: | The European continent is warming at more than twice the global average. The human and economic costs of higher temperature and more frequent and extreme natural disasters—already substantial in Europe—are expected to increase further unless suitable adaptation strategies are implemented. This paper shows that while Europe's overall vulnerability to climate risks is lower than other regions’, the countries in Central and Eastern Europe face greater human and economic costs from climate disasters compared to their advanced European peers, which are likely to further increase in the future. We use an ensemble of climate models to project future climates for each country in Europe, and identify the country whose present climate best approximates this projection. We rely on this information on countries’ representative future exposure to climate risks to calibrate country-level macro analyses of natural disasters, and how investment in adaptative infrastructure can help mitigate these shocks. We find that adaptation infrastructure can significantly reduce output losses from natural disasters, mitigate medium-term economic scarring, and support sustainable long-term growth. However, we show that effective implementation of adaption strategies in EMEs/LICs is likely to be constrained by limited domestic financial resources, weaker institutional quality, and may create policy trade-offs, if not accompanied by external support. |
| Keywords: | Macroeconomics of climate; adaptation; investment; public debt; climate analogues. |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/109&r= |
| By: | Christiane Baumeister; Florian Huber; Massimiliano Marcellino |
| Abstract: | The substantial fluctuations in oil prices in the wake of the COVID-19 pandemic and the Russian invasion of Ukraine have highlighted the importance of tail events in the global market for crude oil which call for careful risk assessment. In this paper we focus on forecasting tail risks in the oil market by setting up a general empirical framework that allows for flexible predictive distributions of oil prices that can depart from normality. This model, based on Bayesian additive regression trees, remains agnostic on the functional form of the conditional mean relations and assumes that the shocks are driven by a stochastic volatility model. We show that our nonparametric approach improves in terms of tail forecasts upon three competing models: quantile regressions commonly used for studying tail events, the Bayesian VAR with stochastic volatility, and the simple random walk. We illustrate the practical relevance of our new approach by tracking the evolution of predictive densities during three recent economic and geopolitical crisis episodes, by developing consumer and producer distress indices that signal the build-up of upside and downside price risk, and by conducting a risk scenario analysis for 2024. |
| JEL: | C11 C32 C53 Q41 Q47 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32524&r= |
| By: | Karol Szafranek; Michał Rubaszek |
| Abstract: | The Russian invasion of Ukraine triggered severe disruptions in the European energy markets and caused significant shifts in global natural gas flows. In this paper we investigate to what extent this European shock has affected the dynamics and altered the estimates of the elasticities on the U.S. natural gas market. For that purpose, we use the Bayesian Structural Vector Autoregression framework proposed by Baumeister and Hamilton (2019, BH) for the crude oil market and applied by Rubaszek, Uddin, and Szafranek (2021, RSU) to analyze the dynamics of U.S. natural gas market till year 2020. We modify the RSU model to account for natural gas trade and next derive the posterior of the model using observations till 2023. This allows us to approximate the impact of the European energy crisis on the U.S. market. Our result are twofold. First, we show that due to our modification the RSU model the estimates of the elasticities on the U.S. natural gas market change, while simply updating the same prior beliefs with most recent data impacts the posterior estimates to a very limited extent. Second, we find that even as major shock as the European energy crisis has only marginally contributed to the dynamics of the U.S. natural gas market. This result confirms earlier studies, which show that the U.S. natural gas market is barely affected by shocks to the European natural gas market. |
| Keywords: | Natural gas market, structural VAR, Impulse-response function, Bayesian inference |
| JEL: | C11 C32 Q31 Q43 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2024099&r= |
| By: | Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper investigates the effects of global geopolitical risk on stock prices of 29 economies by using the local projections method for the monthly period between 1985M1-2023M9. The results show that a positive unit shock of global geopolitical risk (normalized to one standard deviation) reduces stock prices (normalized to one standard deviation) in a statistically significant way by 0.80 in Latvia, 0.71 in China, 0.62 in the Euro Area, 0.50 in Sweden, 0.42 in the United Kingdom, 0.39 in the United States, 0.38 in Switzerland, 0.34 in Israel, 0.28 in Canada, and 0.21 in Denmark in a year following the shock, whereas it increases those only in Iceland by 0.28 that can be used to hedge against any geopolitical risk. Subsample analyses further suggest that the negative effects of the same shock exist in several economies (including the United States, China and Euro Area) during the first half of the sample period that coincides with the geopolitical events that the United States is involved with, whereas they only exist in Russia, Poland, Euro Area and the United Kingdom for the second half of the sample period, suggesting that the Russo-Ukrainian War has mostly affected the stock prices in these nearby economies. It is implied that the geographical location of geopolitical events as well as the countries involved are important indicators to understand the effects of any global geopolitical risk on stock prices. |
| Keywords: | Geopolitical Risk, Stock Prices, Local Projections Method |
| JEL: | G15 G41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:fiu:wpaper:2407&r= |
| By: | PHAM PHUONG NGOC (Diplomatic Academy of Vietnam, Hanoi, Vietnam); DAINN WIE (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | Trade can significantly reduce informality in developing countries by fostering economic growth and creating formal employment opportunities. A large proportion of workers in developing countries such as Vietnam work in the informal sector, making them vulnerable and less productive. This study examines the short-term impact of the US– China trade war as a positive demand shock on the informality of Vietnam's labor market, using nationally representative data from the Vietnam Labor Force Survey from 2017 to 2019. We create an industry-level measure based on variations in tariff increases applied to Chinese goods, representing the tariff advantages granted to Vietnamese firms. The estimation results show that workers in industries with higher tariff advantages are less likely to be employed as informal or uninsured workers. By applying Goldberg and Pavcnik’s (2003) framework, we interpret these findings as indicating that Vietnamese firms perceived the US–China trade shock as a positive and permanent demand shock. To our knowledge, the empirical evidence presented in this study represents a rare investigation into the effects of the trade war on the labor market of a non-participating country. Additionally, the findings offer important implications for other developing countries by showing how Vietnam’s labor market and informality improved as firms took advantage of the new trade opportunities created by trade diversion. |
| Keywords: | labor market informality; trade war; trade diversion, tariffs |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:23-09&r= |
| By: | Gaia Narciso (Department of Economics, Trinity College Dublin); Carol Newman (Department of Economics, Trinity College Dublin); Finn Tarp (Department of Economics, University of Copenhagen) |
| Abstract: | We present experimental evidence on the impact of a role model intervention to encourage ethnic minorities in Vietnam to start businesses and diversify income sources. We distinguish between relatable ethnic minority role models and ethnic majority role models allowing us to investigate the effect of increasing the social distance of the role model from the target population while keeping the information content constant. We find that relatability is important for inspiring individuals and inducing behavioral change. Diversification into business activities, however, does not always lead to improved household outcomes, particularly for those exposed to natural shocks. |
| Keywords: | role models, RCT, ethnic minorities, Vietnam |
| JEL: | D1 D3 I3 Q12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0424&r= |
| By: | PHAM PHUONG NGOC (Diplomatic Academy of Vietnam, Hanoi, Vietnam); DAINN WIE (National Graduate Institute for Policy Studies, Tokyo, Japan); HANOL LEE (Southwestern University of Finance and Economics, Sichuan, China) |
| Abstract: | This study investigates the impact of a large demand shock on the timing of women’s marital decisions and first childbirth experiences in Vietnam. Using the US-Vietnam Bilateral Trade Agreement (BTA) in 2001 as an exogenous shock, we hypothesize that the reduction in women’s and men’s self-employment would delay family formation and childbirth, with the ultimate impact on marriage remaining ambiguous. Analyzing data from the Vietnam Household Living Standards Surveys, we find that both men and women are less likely to be self-employed in the face of a substantial trade shock. Notably, the decreasing impact on women's self-employment becomes more pronounced than that for men post-2012, a decade after the agreement's enforcement. Employing the Multiple Indicator Cluster Survey and survival analysis, we empirically demonstrate that increased exposure to trade postpones women's timing of marriage and first childbirth. On average, in 2013, the BTA resulted in a 4.43- and 4.45%-point decrease in the probability of entering marriage and becoming a mother, respectively. We also present suggestive evidence that increased exposure to trade liberalization eventually increases the likelihood of marriage and the number of children among women over 40. |
| Keywords: | trade liberalization, fertility, marriage, Vietnam |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:23-12&r= |