Specific Factors and International Monetary Policy Coordination

The consequences of intersectoral factor immobility for optimal monetary policy are examined in a “New Open Economy Macroeconomics” framework. When labor cannot be reallocated between tradable and nontradable goods production, this rigidity generates a welfare loss, which increases as the sectors become more different. When prices are predetermined, the model becomes a monetary “specific factor” model. Intersectoral factor immobility complicates the optimal monetary policy problem by creating a tradeoff between stabilizing tradable and nontradable sector labor. When labor is mobile between sectors, policy coordination can significantly reduce labor volatility. When it is not mobile, coordination results in less volatility in tradable sector labor, but increased nontradable sector labor volatility.     

The importance of nontradable goods’ prices in cyclical real exchange rate fluctuations

Changes in the price of nontradable goods relative to tradable goods account for roughly 50 percent of the cyclical movements in real exchange rates.     

Implications of Exchange Rate Pass-Through and Nontradable Goods for International Policy Cooperation

This paper investigates the welfare consequences of international policy cooperation by simultaneously introducing the following three elements in a standard two-country general equilibrium model: (i) general degrees of exchange rate pass-through, (ii) nontradable goods and their sector-specific productivity shocks, and (iii) general weights on goods in Cobb–Douglas consumption indices. There are two channels for possible mutual welfare gains from policy cooperation: First, cooperation can compensate for insufficient changes in the terms of trade when the degree of exchange rate pass-through is intermediate. Second, countries can cooperate in reaction to shocks in the nontradable goods sectors. This second channel is revealed by deriving an analytical condition for welfare gains under full pass-through and this condition is characterized by the weights in the consumption indices and the variances of sector-specific productivity shocks. Numerical evaluation demonstrates that when the two countries are symmetric and equal weights on consumption goods are assumed, welfare gains from cooperation increase as symmetric pass-through elasticity increases, which implies that the second channel dominates the first, whose effect on welfare gains is nonmonotonic in pass-through elasticity.     

人民币对美元实际汇率变化:巴拉萨-萨缪尔森效应还是一价定律偏离?

对人民币实际汇率进行分解研究发现,可贸易品与不可贸易品之间的相对价格变动对实际汇率波动的解释能力远小于可贸易品偏离一价定律因素,表明人民币对美元实际汇率变动主要受可贸易品价格波动的影响。进一步放松一价定律假设并在传统的巴萨效应检验模型中加入一价定律偏离因素后,进行回归分析发现,一价定律偏离因素是人民币实际汇率波动的主要影响因素,而巴拉萨-萨缪尔森效应仅在1994年以后的样本区间才显著。本文的研究表明,相对一价定律偏离因素,巴萨效应对实际汇率波动的影响是次要的。     

Real exchange rate determination in eastern Europe

This paper develops a simple theoretical model of exchange rate determination in a transitional economy. The distinguishing feature of the model is the retention of market failures pertaining to the production and consumption of nontradable goods and, therefore, the likelihood of real exchange rate appreciation. Using this framework, the econometric tests are performed for the Czech Republic, Slovenia, Poland, and Hungary, and appropriate macroeconomic and exchange rate policies are recommended to support further liberalization and development of the foreign exchange market.     

Japan's inflation under the Bretton Woods system: How large was the Balassa–Samuelson effect?

Japan's real exchange rate appreciation during the post-WWII manufacturing-led growth period has been regarded as a classical example of the Balassa–Samuelson effect. We choose the most conspicuous sub-period—1956–1970—to confirm the effect. Japan was in a rapid growth period under the U.S. dollar peg (real GDP growth, 9.7% per annum). The nominal anchor was weak as Japan's inflation rate (GDP deflator-based, 5.4%) was markedly higher than the U.S. rate (2.6%) during the 15-year period. The decomposition of the annual 2.7% (geometric) Japan–U.S. inflation rate gap (real exchange rate appreciation of the Japanese yen) reveals that the Balassa–Samuelson effect accounted for 0.7%; most of the real exchange rate appreciation (1.7%) was attributed to greater price increases in Japan's tradables. Although Japan's tradable sector achieved high TFP growth, the joint effect of the tradable–nontradable TFP growth difference between the two economies was too small to generate a sizable Balassa–Samuelson effect. Japan's example may suggest that even in rapidly growing economies, the magnitude of the effect in long-run real exchange rate appreciation is generally modest.     

The impact of market regulations on intra-European real exchange rates

We study the contribution of market regulations to the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (Rev Int Econ 2(3):284–305, 1994a), we show that both product market regulations in nontradable sectors and employment protection tend to raise the real exchange rate. We then carry out an econometric estimation for European countries for 1985–2006 to quantify the contributions of the pure Balassa–Samuelson effect and those of market regulations on real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolutions of product market regulations and employment protection across countries play a very significant role for real exchange-rate variations within the European Union and especially within the euro area, through their impacts on the relative price of nontradable goods.     

Vehicle currency pricing and its positive welfare consequences under optimal monetary policy

Using a two-country general equilibrium model, this paper analytically derives the possibility of positive welfare consequences of vehicle currency use in invoicing international trades. Such vehicle currency use is prominent in the data. The literature points out welfare loss under optimal monetary policy due to vehicle currency pricing relative to the flexible price equilibrium outcome, modeling only tradable goods. By introducing nontradable goods and their sector-specific productivity shocks, this paper provides a closed-form condition under which one country's welfare is higher under optimal monetary policy if its exports are invoiced with the other country's currency than if invoiced with its own currency, given that the other country's exports are invoiced with the producer's currency. That is, this paper derives a condition under which vehicle currency pricing is preferred by the nonvehicle currency country to producer currency pricing.     

Addressing International Empirical Puzzles: the Liquidity of Bonds

Models that assume bonds denominated in different currencies are perfect substitutes can not explain certain empirical puzzles: the exchange rate volatility puzzle is that these models can not explain the observed volatility in real and nominal exchange rates; the Backus-Smith puzzle is that these models can not explain the observed low correlation between real exchange rates and the ratio of home to foreign consumption; the Backus-Kehoe-Kydland puzzle is that these models can not explain the observed low correlation between home and foreign consumption; and finally, the uncovered interest parity puzzle is that these models can not explain the observed deviations from that parity. These long standing puzzles make the models harder to defend. In this paper, we present a symmetric two country portfolio balance model in which home and foreign bonds are imperfect substitutes for money in each country’s transactions technology; this of course makes home and foreign bonds imperfect substitutes for each other. Our calibrated model is capable of addressing the Backus-Smith puzzle and the Backus-Kehoe-Kydland puzzle. It does not fully resolve the exchange rate volatility puzzle, but it makes some headway. And finally it generates deviations from uncovered interest parity, though by some estimates these deviations are not large enough to be consistent with the data.     

Vertical trade and China's export dynamics

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.     

Productivity growth,fixed exchange rates,and export-led growth

This paper studies how the fixed exchange rate regime (FERR) may promote growth when a country experiences faster rates of productivity growth in its tradable sector than its nontradable sector. In a simple two-sector model with money, we show that the FERR can reduce the Balassa-Samuelson effect if wage adjustment is subject to nominal rigidities. The undervaluation thus created suppresses real wage growth but increases the size of the tradable sector and leads to higher growth rates of the entire economy. Using cross-country panel data, our econometric exercises provide robust evidence that supports the results. Meanwhile, other fundamentals, including the external balance position, export share in the tradable sector, and the stage of development, play roles in determining the effects of FERR. Last, we apply the empirical results to run simulations on China from 1994 to 2007 to highlight the role of FERR in the country's export-led growth.     

Chinese exchange rate and price effects on G3 import prices

This paper explores the degree of price and exchange rate interdependence between China and the G3 (US, Japan and the Euro-zone) by undertaking a VAR based shock analysis. A GARCH framework is also employed to derive the conditional variances to uncover the extent of volatility transmission. We address two key issues. First as there have been concerns about low value-added cheap Chinese goods flooding G3 markets, we attempt to measure the impact of Chinese prices on G3 import prices. Second, we focus on the transmission of exchange rate shocks – a subject which we approach by examining shocks in China's bilateral exchange rate with each of these major trading partners (the US, Japan and the Euro Area). Our results indicate that reduced import prices from China are the channel through which aggregate domestic prices in the G3 remain depressed, while the impact of the RMB exchange rate with G3 currencies appears less powerful. This finding implies that the Chinese authorities’ RMB exchange rate policy is relatively unimportant and, in particular, that a revaluation of the RMB would not do much to reduce the US trade deficit. In terms of volatility spillover, the relatively flexible RMB exchange rate against the Euro results in RMB-EUR volatility having a stronger influence than the more tightly controlled RMB-USD rate on the volatility of Chinese export prices.     

Exchange Rate Volatility and Growth in Emerging Europe and East Asia

The paper investigates the impact of exchange rate volatility on growth in Emerging Europe and East Asia. Exchange rate stability has been argued to affect growth negatively as it deprives countries from the ability to react in a flexible way to asymmetric real shocks and increases the probability of speculative capital inflows and overheating. In contrast, exchange rate stability can be argued to affect growth in emerging market economies positively as transactions costs for international trade decline, uncertainty for international capital flows is less and macroeconomic stability is enhanced. Cross country panel estimations provide evidence for a negative impact of the exchange rate volatility on growth in both Emerging Europe and East Asia. Parts of this negative growth effect can be associated with exchange rate volatility caused by macroeconomic instability.     

The effect of exchange rate volatility on international trade in East Asia

In this paper, we empirically investigate the relationship between exchange rate volatility and international trade, focusing on East Asia. Our findings are summarized as follows: first, intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions. Second, one important source of the discouragement is that intermediate goods trade in international production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of East Asian trade. Third, the negative effect of the volatility is greater than that of tariffs and smaller than that of distance-related costs in East Asia.     

The Balassa–Samuelson model of purchasing power parity and Chinese exchange rates

Our principal purpose here is to assess the extent to which both the official and black market exchange rates for the Chinese economy exhibit compatibility with the Balassa–Samuelson model over the period from 1985 to 2006. We employ annual measures of inflation and industry input on an aggregated, disaggregated and sector basis, all of which have been especially constructed for this study. Both the time series and panel cointegration tests applied to this data are generally inconsistent with the prediction of the Balassa–Samuelson model that the tradable goods sector is compatible with purchasing power parity. However, our analysis also shows that other predictions of the Balassa–Samuelson model – most notably that there will be a strong long-run relationship between the real exchange rate and the relative productivity differential between China and the U.S. – does hold up for the Chinese economy. Moreover, the black market exchange rate appears to be more consistent with the predictions of the Balassa–Samuelson model than the official exchange rate.     

International relocation,difference in production costs,and welfare: An analysis based on a two-country model

This paper examines whether or not the globalization of Japanese companies is a problem for the Japanese economy. To examine this, using the theoretical model, the paper examines whether the globalization of home-located tradable goods firms provides a benefit to the home country from the perspective of welfare. Specifically, since globalization is thought to have begun based on the difference in production costs of the home and the foreign country, we examine how an increase of productivity in the foreign non-tradable goods sector, which is the principal factor in the difference in production costs between the two countries, affects the welfare of the home country. We show that such an increase of productivity not only induces enterprise relocation, but also improves the welfare of the home country. In particular, the latter is demonstrated by an increase in the real flow of dividends that results from holding equities in tradable goods firms located abroad, i.e., the improvement in the income account. Hence, since the prediction of the model indicates that the globalization of firms is not a problem, it can be said that the globalization of Japanese firms is not a problem for the Japanese economy.     

Inflation Differentials in a Currency Area: Facts,Explanations and Policy

The determinants of inflation differentials in a currency area are analyzed both from an empirical and a theoretical perspective. The empirical analysis shows that a sizeable dispersion of HICP inflation rates across euro-area countries arises mostly in the components based on non-traded goods. There is also a significant cross-country heterogeneity in the response to changes in a common latent factor which accounts for a large fraction of the dispersion in national inflation rates. A stylized model of a currency area is used to understand the interrelation among shocks, structures and policies in driving the data generating process. The model shows that the dynamic of the inflation differentials is largely driven by the variability of productivity in the non-tradable sector of the more flexible economy. Conversely, the output differentials is largely driven by the variability in the productivity of the tradable sector, also of the more flexible economy. Optimal policy is investigated together with an analysis of the optimal adjustment to adopting a common currency with initial incorrect real exchange rate parity.     

The Behavior of the Real Exchange Rate Under Fixed and Floating Exchange Rate Regimes

This article investigates the behavior of real exchange rates under fixed and flexible exchange rates. Using data from both the Bretton Woods and the modern floating periods, we decompose real exchange rate movements into components attributable to supply shocks, real demand shocks, monetary shocks, capital flows shocks, and real oil price shocks. Empirical results show that real demand shocks are an important source of real exchange rate movements under both fixed and flexible rates, while monetary shocks are negligible. Supply and oil price shocks seem to be more important under Bretton Woods, while capital flows shocks seem to explain a relatively higher proportion of real exchange rate movements under the modern floating period.     

Exchange rate regimes and real exchange rate volatility: Does inflation targeting help or hurt?

This paper revisits the comparison of the effects of inflation targeters versus hard fixers and intermediate exchange rate regimes. In particular, we are interested in exploring the impact of inflation targeting (IT) on real effective exchange rate (REER) volatility for a panel of 62 developing countries over the period 2006–2012. We also analyze the impact of IT regimes on REER in terms of its two component parts, i.e. relative tradable prices across countries as well as sectoral prices of tradables and nontradables within countries. The paper accounts for self-selection concerns regarding policy adoption and examines the effects of commodity exports and foreign exchange intervention. Notably, IT regimes seem to have experienced greater REER volatility, largely driven by external prices in developed countries. For developing countries, IT regimes show no difference in REER volatility, though there is some evidence that they have lower volatility in internal prices.     

汇率、股票市场及房地产价格波动的关联性研究

文章利用时变相关的多元波动率模型,对美元汇率、上证指数以及地产指数的逐日数据建立三元时变相关的广义自回归条件方差（TV—GARCH）模型,从而得出三者的波动性特征以及其显著的时变相关系数,可知地产价格的收益率波动最大。汇率与地产指数、上证指数的相关关系复杂,可存在正相关或负相关关系,而股票市场与房地产市场间存在正向相关关系,且相关系数的大小随时间变化。