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We examine the mean-reverting properties of real exchange rates, by comparing the unit root properties of a group of international real exchange rates with two groups of intra-national real exchange rates. Strikingly, we find that while the international real rates taken as a group appear mean-reverting, the intra-national rates are not. This is consistent with the view that while monetary shocks may be mean-reverting over the medium term, underlying real factors do generate long-term trends in real exchange rates.
Exports and Imports --- Foreign Exchange --- Hypothesis Testing --- 'Panel Data Models --- Spatio-temporal Models' --- Financial Aspects of Economic Integration --- Currency --- Foreign exchange --- International economics --- Real exchange rates --- Exchange rates --- Purchasing power parity --- Monetary unions --- Exchange rate analysis --- Economic integration --- United States
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This paper presents a methodology for calculating bilateral equilibrium exchange rates for a panel of currencies in a way that guarantees global consistency. The methodology has three parts: a theoretical model that encompasses the balance of payments and the Balassa-Samuelson approaches to real exchange rate determination; an unobserved components decomposition in a cointegration framework that identifies a time-varying equilibrium real exchange rate; and an algebraic transformation that extracts bilateral equilibrium nominal rates. The results uncover that, by the start of Stage III of the European Economic and Monetary Union (EMU), the euro was significantly undervalued against the dollar and the pound, but overvalued against the yen. The paper also shows that the four major EMU currencies locked their parities with the euro at a rate close to equilibrium.
Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Open Economy Macroeconomics --- 'Panel Data Models --- Spatio-temporal Models' --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- International Investment --- Long-term Capital Movements --- Currency --- Foreign exchange --- Monetary economics --- International economics --- Exchange rates --- Real exchange rates --- Currencies --- Foreign assets --- Purchasing power parity --- Money --- External position --- Investments, Foreign --- United States
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We study the smoothing impact of fiscal stabilizers (proxied by government expenditures or revenues) on business cycle volatility for a panel of EU countries in the period 1970-99. The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. We present evidence that for government expenditure ratios exceeding an estimated value of about 38 percent, a further expansion in the size of the government could actually lead to an increase in cyclical volatility. This may call for a reconsideration of the use of fiscal stabilizers for business cycle smoothing.
Macroeconomics --- Public Finance --- Fiscal Policy --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- 'Panel Data Models --- Spatio-temporal Models' --- National Government Expenditures and Related Policies: General --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Macroeconomics: Production --- Public finance & taxation --- Economic growth --- Expenditure --- Fiscal policy --- Business cycles --- Automatic stabilizers --- Production growth --- Production --- Expenditures, Public --- Economic theory --- Austria
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We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.
Foreign Exchange --- Production and Operations Management --- 'Panel Data Models --- Spatio-temporal Models' --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- Macroeconomics: Production --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Currency --- Foreign exchange --- Macroeconomics --- Real exchange rates --- Exchange rates --- Productivity --- Purchasing power parity --- Total factor productivity --- Industrial productivity --- United States
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This paper uses panel data for 19 OECD countries and finds support for the hypothesis that a greater degree of product variety relative to the United States helps to explain relative per capita GDP levels. The empirical work relies upon some direct measures of product variety calculated from 6-digit OECD export and import data. Although the issue is still far from being settled, the emerging conclusion is that the index of relative product variety across countries is significantly correlated with relative per capita income levels.
Exports and Imports --- Labor --- Macroeconomics --- 'Panel Data Models --- Spatio-temporal Models' --- Open Economy Macroeconomics --- Economic Growth of Open Economies --- Personal Income, Wealth, and Their Distributions --- Trade: General --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- International economics --- Labour --- income economics --- Personal income --- Exports --- Human capital --- National accounts --- International trade --- Income --- United States
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This paper examines the extent to which conclusions of cross-country studies of private savings are robust to allowing for the possible heterogeneity of savings behavior across countries and the inclusion of dynamics. It shows that neglecting heterogeneity and dynamics can lead to misleading inferences about the key determinants of savings behavior. The results indicate that among the many variables considered in the literature only the fiscal variables—the general government surplus as a proportion of GDP and the ratio of government consumption to GDP—are important determinants of private savings rates in the industrial countries in the post-World War II period.
Banks and Banking --- Macroeconomics --- Public Finance --- Macroeconomics: Consumption --- Saving --- Wealth --- 'Panel Data Models --- Spatio-temporal Models' --- Aggregate Factor Income Distribution --- Interest Rates: Determination, Term Structure, and Effects --- National Government Expenditures and Related Policies: General --- Finance --- Public finance & taxation --- Private savings --- Income --- Real interest rates --- Government consumption --- Expenditure --- National accounts --- Financial services --- Saving and investment --- Interest rates --- Consumption --- Economics --- Expenditures, Public --- New Zealand
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Attracting capital and foreign exchange flows is crucial for developing countries. Yet, these flows could lead to real exchange rate appreciation and may thus have detrimental effects on competitiveness, jeopardizing exports and growth. This paper investigates this dilemma by comparing the impact of six types of capital and foreign exchange flows on real exchange rate behavior in a sample of 57 developing countries covering Africa, Europe, Asia, Latin America, and the Middle East. The results reveal that portfolio investments, foreign borrowing, aid, and income lead to real exchange rate appreciation, while remittances have disparate effects across regions. Foreign direct investments have no effect on the real exchange rate, contributing to resolve the above dilemma.
Foreign exchange --- Capital movements --- Exports and Imports --- Foreign Exchange --- 'Panel Data Models --- Spatio-temporal Models' --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Currency --- International economics --- Finance --- Real effective exchange rates --- Capital flows --- Foreign direct investment --- Portfolio investment --- Balance of payments --- Investments, Foreign --- Portfolio management --- Cabo Verde
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This paper extends the Bayesian Model Averaging framework to panel data models where the lagged dependent variable as well as endogenous variables appear as regressors. We propose a Limited Information Bayesian Model Averaging (LIBMA) methodology and then test it using simulated data. Simulation results suggest that asymptotically our methodology performs well both in Bayesian model averaging and selection. In particular, LIBMA recovers the data generating process well, with high posterior inclusion probabilities for all the relevant regressors, and parameter estimates very close to their true values. These findings suggest that our methodology is well suited for inference in short dynamic panel data models with endogenous regressors in the context of model uncertainty. We illustrate the use of LIBMA in an application to the estimation of a dynamic gravity model for bilateral trade.
Econometrics --- Foreign Exchange --- Bayesian Analysis: General --- Simulation Methods --- 'Panel Data Models --- Spatio-temporal Models' --- Model Evaluation and Selection --- Econometric Modeling: General --- Estimation --- Bayesian inference --- Econometrics & economic statistics --- Currency --- Foreign exchange --- Bayesian models --- Gravity models --- Estimation techniques --- Exchange rate arrangements --- Econometric models
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This paper estimates exchange rate pass-through to consumer prices in emerging markets focusing on non-linearities and asymmetries. We document non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices using local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets. We find significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent. More specifically, we find that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent in the linear case. We also investigate the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices. We perform a set of robustness checks, addressing the presence of outliers and potential endogeneity concerns.
Exchange rate pass-through --- Foreign exchange rate pass-through --- Pass-through of exchange rates --- Prices --- Econometric models. --- Foreign Exchange --- Inflation --- Investments: General --- Money and Monetary Policy --- 'Panel Data Models --- Spatio-temporal Models' --- Price Level --- Deflation --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary Policy --- Macroeconomics --- Currency --- Foreign exchange --- Monetary economics --- Depreciation --- Exchange rates --- Inflation targeting --- National accounts --- Monetary policy --- Saving and investment --- United States
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There is evidence that fiscal rules, in particular well-designed rules, are associated with lower sovereign spreads. However, the impact of noncompliance with fiscal rules on spreads has not been examined in the literature. This paper estimates the effect of the Excessive Deficit Procedure (EDP) on sovereign spreads of European Union member states. Based on a sample including the 28 European Union countries over the period 1999 to 2016, sovereign spreads of countries placed under an EDP are found to be on average higher compared to countries that are not under an EDP. The interpretation of this result is not straight-forward as different channels may be at play, in particular those related with the credibility and the design of the EU fiscal framework. The specification accounts for typical macroeconomic, fiscal, and financial determinants of sovereign spreads, the System Generalized Method of Moments estimator is used to control for endogeneity, and results are robust to a range of checks on variables and estimators.
Financial Risk Management --- Macroeconomics --- Public Finance --- Data Processing --- Fiscal Policy --- National Budget, Deficit, and Debt: General --- 'Panel Data Models --- Spatio-temporal Models' --- Data Collection and Data Estimation Methodology --- Computer Programs: General --- Financial Crises --- Data capture & analysis --- Economic & financial crises & disasters --- Data processing --- Fiscal rules --- Financial crises --- Fiscal stance --- Fiscal policy --- Economic and financial statistics --- Electronic data processing --- Portugal
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