Determinants of global spillovers from US monetary policy

This paper assesses the global spillovers from identified US monetary policy shocks in a global VAR model. US monetary policy generates sizable output spillovers to the rest of the world, which are larger than the domestic effects in the US for many economies. The magnitude of spillovers depends on the receiving country's trade and financial integration, de jure financial openness, exchange rate regime, financial market development, labour market rigidities, industry structure, and participation in global value chains. The role of these country characteristics for the spillovers often differs across advanced and non-advanced economies and also involves non-linearities. Furthermore, economies that experience larger spillovers from conventional US monetary policy also displayed larger downward revisions of their growth forecasts in spring 2013 when the Federal Reserve upset markets by discussing tapering off quantitative easing. The results of this paper suggest that policymakers could mitigate their economies' vulnerability to US monetary policy by fostering trade integration as well as domestic financial market development, increasing the flexibility of exchange rates, and reducing frictions in labour markets. Other policies – such as inhibiting financial integration, industrialisation and participation in global value chains – might mitigate spillovers from US monetary policy, but are likely to reduce long-run growth.     

异质性国际资本流动对经济增长的影响——基于面板平滑转换模型

通过建立面板平滑转换模型(PSTR),以资本账户开放度作为门限变量,以贸易开放度、总国内储蓄率和金融发展程度作为控制变量,研究新兴经济体异质性国际资本流动对经济增长的影响.结果发现:两者之间存在非线性关系,且当资本账户开放度从低体制状态向高体制状态转变时,直接投资的促进作用越来越显著,证券投资的促进作用逐渐减小,其他投资的促进作用由显著到不显著.为此,应平稳有序地推进我国资本账户开放,合理确定吸引国际资本流入的结构,保持较高的贸易开放度和储蓄率,以及合适的金融发展程度.     

Institutional Quality,Trade Openness,and Financial Sector Development in Asia: An Empirical Investigation

We examine the determinants of financial sector development in Asia and the Pacific from 1995 to 2011. In terms of economic growth, over the last twenty years the region has outperformed other parts of the world and has also experienced major developments in its traditionally bank-dominated financial system since the 1997 Asian financial crisis. We apply the dynamic generalized method of moments to a panel data set of twenty-six economies in the region. The estimations were done for the whole panel as well as for subpanels of developed and developing economies. We find that better governance and institutional quality foster financial sector development in developing economies while economic growth and trade openness are key determinants of financial depth in developed economies.     

Effects of Private Ownership,Trade, and Foreign Direct Investment on Labor Productivity Growth in Transition Economies: Evidence from the Croatian Manufacturing Industry

In this study, we investigate the determinants of labor productivity dynamics in transition economies using data from Croatian manufacturing industries. Capital intensity growth and human capital accumulation have been significant contributors to stronger productivity gains. Private-sector development has positively affected productivity growth—but mostly through the increasing role of new private companies. Still, unfinished privatization represents a significant obstacle to stronger productivity gains. The effect of increasing trade openness is significant but negative, most likely owing to weak export competitiveness of Croatian companies. Neither greenfield nor (predominant) brownfield foreign direct investment inflows have contributed to higher labor productivity growth. Further privatization and structural reforms seem to be the most promising policy measures that need to be undertaken in order to achieve higher productivity gains.     

金融发展、汇改最优次序与长期经济增长--基于118个经济体的面板模型的分析

本文构建由金融发展、资本开放、汇率制度与产出增长组成的理论模型,选取世界上118个经济体1972-2016年的宏观数据,综合运用动态面板、面板门槛与面板IV模型进行实证分析。本文得出主要结论为:第一,在汇率制度弹性对长期经济增长的边际影响中,金融发展水平呈显著为正的调节效应;第二,对于金融发展水平较高的国家,汇率制度弹性在资本项目开放度与长期经济增长之间存在显著正向的调节效应;第三,在金融发展水平较高时,对外贸易开放度在汇率制度弹性与长期经济增长之间存在显著为正的中介效应。借鉴历史发展经验,本文归纳出"先发展国内金融市场,再开放浮动汇率,最后加强资本开放"的汇改最优次序,为我国克服汇率制度改革难点、推进资本项目开放、维持经济基本面稳定增长提出合理化政策建议。     

Macroeconomic determinants of stock market capitalization in an emerging market: fresh evidence from cointegration with unknown structural breaks

This article explores the macroeconomic determinants of stock market development in an emerging market (Pakistan) over the period of 1974–2010. We have applied Zivot–Andrews unit root test for integrating properties of the variables and the autoregressive distributed lag bounds testing for cointegration. The direction of causality between the variables is investigated by applying the vector error-correction model Granger causality approach. Our results revealed that variables are cointegrated for long run relationship. Economic growth, inflation, financial development and investment increase stock market development, but trade openness decreases it. The causality analysis confirms that stock market development is a Granger cause of economic growth, inflation, financial development, investment and trade openness. This article indicates the importance of trade openness while formulating a comprehensive financial policy.     

Adjustment patterns to commodity terms of trade shocks: The role of exchange rate and international reserves policies

We analyze the way in which Latin American countries have adjusted to commodity terms of trade (CTOT) shocks in the 1970–2007 period. Specifically, we investigate the degree to which the active management of international reserves and exchange rates impacted the transmission of international price shocks to real exchange rates. We find that active reserve management not only lowers the short run impact of CTOT shocks significantly, but also affects the long run adjustment of REER, effectively lowering its volatility. We also show that relatively small increases in the average holdings of reserves by Latin American economies (to levels still well below other emerging regions current averages) would provide a policy tool as effective as a fixed exchange rate regime in insulating the economy from CTOT shocks. Reserve management could be an effective alternative to fiscal or currency policies for relatively trade closed countries and economies with relatively poor institutions or high government debt. Finally, we analyze the effects of active use of reserve accumulation aimed at smoothing REERs. The result support the view that “leaning against the wind” is potent, but more effective when intervening to support weak currencies rather than intervening to slow down the pace of real appreciation. The active reserve management reduces substantially REER volatility.     

Monetary policy spillovers and the trilemma in the new normal: Periphery country sensitivity to core country conditions

We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies – the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of countries' financial variables to the center economies [policy interest rate, stock market prices, and the real effective exchange rates (REER)] while controlling for global and domestic factors. Next, we examine the association of the estimated sensitivity coefficients with the macroeconomic conditions, policies, real and financial linkages with the center economies, and the level of institutional development. In the last two decades, for most financial variables, the strength of the links with the center economies have been the dominant factor while the movements of policy interest rate also appear sensitive to global financial shocks around the emerging market crises of the late 1990s and since the global financial crisis of 2008. While certain macroeconomic and institutional variables are important, the arrangement of open macropolicies such as the exchange rate regime and financial openness are also found to have direct influence on the sensitivity to the center economies. An economy that pursues greater exchange rate stability and financial openness faces a stronger link with the center economies through policy interest rates and real effective exchange rate (REER) movements. We also find that exchange market pressure (EMP) in peripheral economies is sensitive to the movements of the center economies' REER and EMP during and after the global financial crisis. Open macro policy arrangements, especially exchange rate regimes, also have indirect effects on the strength of financial linkages, interacting with other macroeconomic conditions. Thus, trilemma policy arrangements, including exchange rate flexibility, continue to affect the sensitivity of developing countries to policy changes and shocks in the center economies.     

Empirics of currency crises: A duration analysis approach

This paper empirically analyzes the origins of currency crises for a group of OECD economies from 1970 through 1998. We apply duration analysis to examine how the probability of a currency crisis depends on the length of non‐crisis periods, contagion channels, and macroeconomic fundamentals. Our findings confirm the negative duration dependence of a currency crisis—the likelihood of speculative attack sharply increases at the beginning of non‐crisis periods and then declines over time until it abruptly rises again. The results also indicate the hazard of a crisis increase with high values of the volatility of unemployment rates, inflation rates, contagion factors—which mostly work through trade channels, unemployment rates, real effective exchange rate, trade openness, and size of economy. To address concerns regarding validity of the identified crisis episodes, we exploit crisis episodes that are identified by a more objective approach based on the extreme value theory. Our results are robust under various specifications including two different crisis event sets that are identified on monthly and quarterly basis.     

Determinants of Labor Productivity in MENA Countries

This article scrutinizes the role of various determinants (compensation, human capital, oil rent, trade, financial development, innovation, and industrialization) in labor productivity in the context of Middle East and North Africa (MENA) countries. Dynamic-OLS and fully modified-OLS were applied to analyze panel time series data over the period 1980 to 2014. It was found that size of employment and compensation are negatively associated with labor productivity, while human capital and capital stock are positively associated with it; and that oil rent, financial development, trade openness, and industrial value addition play significant roles in promoting labor productivity. Finally, innovation was found to be an important factor in accelerating labor productivity. These findings are important for labor policy making in MENA economies.     

The Impact of the Global Financial Crisis and the Role of External and Internal Factors in Emerging Economies

This article assesses the impact of trade, capital openness and institutions on emerging economies’ output loss during the “Great Recession.” The fixed-effect estimates of an unbalanced panel of 122 emerging countries observed from 2008 to 2010 yield three main results. First, trade openness has exacerbated output loss. Second, capital openness can help mitigate the negative impact of an external shock, but this is conditional on the level of financial development. Finally, the results also point out that the interrelations between financial and institutional development affect the crisis’s severity.     

Does Financial Openness Matter in the Relationship Between Financial Development and Income Distribution in Latin America?

This article examines the effect of financial development on income distribution by analyzing a sample of Latin American countries according to their degree of financial openness for the 1990–2011 period. The period includes the time before and after financial liberalization for most of the countries in the region. As the literature provides inconclusive results regarding the relationship between financial development and income inequality, we aim to determine whether financial openness plays a role in this relationship. Our results provide an explanation for why some countries regardless of their degree of financial openness cannot achieve a reduction in income inequality.     

贸易开放度会影响极端国际资本流动吗?——基于54个经济体跨国面板数据的分析

随着世界各国频繁出现国际资本大规模流入或流出的现象,极端国际资本流动已成为国际金融领域广泛关注的重要问题。本文参考Forbes&Warnock (2012)的方法,基于54个经济体1991年第一季度至2016年第四季度的国际资本流动数据,构建极端国际资本流动时期数据库,可识别四种极端国际资本流动事件类型:"激增(Surges)""骤停(Sudden Stops)""外逃(Flight)"以及"撤回(Retrenchment)"。基于该数据库,分析贸易开放度对极端国际资本流动的影响。实证结果表明,第一,一国贸易开放度越高,其发生极端国际资本流动事件的可能性越低。第二,在考虑了国家经济发展水平的差异后,贸易开放度对本国资本和外国资本流入和流出的影响存在显著差异。对于发达经济体,贸易开放度对外国资本流动和本国资本流动均有显著影响;对于发展中经济体,贸易开放度仅影响本国的资本流动,对外国资本流动的影响并不显著。第三,贸易开放度对长期资本极端流动与短期资本极端流动的影响并没有显著差异。基于本文的研究结果,建议我国应继续坚持贸易开放政策,且此后分析极端国际资本流动应将其细分为激增、骤停、外逃和撤回四类,对极端国际资本流动的监测应区分本国资本和外国资本异常流动情况。     

Finance and international business cycles

Business cycles are more correlated among countries that have similar financial structures. We first document this empirical regularity using OECD data, and then build a two-country DSGE model with financial frictions that replicates it. Alternative monetary policy regimes and parameter values are explored. Output co-movements increase when the countries involved are linked by a credible exchange rate peg and when they open up to trade; they decrease when their financial openness increases. The model also accounts for a number of stylized facts of international business cycles, such as the positive international correlation of output, investment and employment.     

South Korea’s finance–growth nexus: evidence from VARX analysis with financial crisis and openness

South Korea’s finance–growth nexus is empirically investigated by taking the elements of financial crisis and trade and financial openness through the newly developed approach of vector error-correction models (ECMs) with weakly exogenous I(1) variables (VARX). Considering financial development as a more complex phenomenon, we take into estimation two aspects of financial deepening that are measured by its size (private credit to GDP) and efficiency (private credit to total domestic deposits). The main findings are (1) financial efficiency contributes to accelerating economic growth; (2) the causality between economic growth and financial size is bilateral and negative; and (3) financial crisis is negative to both economic growth and financial development, whereas the growth-promoting effects of trade and financial openness are confirmed.     

Ready for capital account convertibility?

This paper investigates whether the impact of capital account convertibility on the long term volatility of economic growth depends on financial development. It estimates a system of three simultaneous equations: mean growth, volatility of growth and financial development. This allows for the study of both, the impact of capital account liberalization on volatility, as well as its direct impact on financial development. Results indicate that economies with low financial development fall prey to excess volatility arising from capital account openness, while capital account openness itself has a significant positive impact on financial development. The results are robust to alternative measures of financial development and volatility and to the removal of outliers.     

The impact of monetary policy shocks on stock prices: Evidence from Canada and the United States

Using structural VAR models with short-run restrictions appropriate for Canada and the United States, we empirically examine whether trade and financial market openness matter for the impact on and transmission to stock prices of monetary policy shocks. We find that, in Canada, the immediate response of stock prices to a domestic contractionary monetary policy shock is small and the dynamic response is brief, whereas in the United States, the immediate response of stock prices to a similar shock is relatively large and the dynamic response is relatively prolonged. We find that these differences are largely driven by differences in financial market openness and hence different dynamic responses of monetary policy shocks between the two countries that we model in this paper.     

Import substitution and economic growth

Despite Latin America's dismal performance between the 1950s and 1980s, the region experienced strong capital deepening. We suggest that these facts can be explained as a consequence of the restrictive trade regime adopted at that time. Our framework is based on a dynamic Heckscher-Ohlin model, with scale economies in the capital-intensive sector. Initially, the economy is open and produces only the labor-intensive good. The trade regime is modeled as a move to a closed economy. The model produces results consistent with the Latin American experience. Specifically, a sufficiently small country experiences no long-run income growth, but an increase in capital.     

World betas, consumption growth, and financial integration

We define a country’s beta as the covariance of domestic consumption growth with world consumption growth scaled by the world’s variance. Beta is related to a country’s risk-taking position in models of international financial integration. Empirically, we find that an increase in beta leads to an increase in average consumption growth. This beta-growth relationship is present only among countries with high levels of financial openness, and is absent among the rest. However, we cannot fully discard the presence of non-financial factors (e.g., trade openness) as determinants of the beta-growth relationship.     

Vulnerability to climate change: Are innovative countries in a better position?

The impact of climate change on organizations and economies remains one of the most significant yet underestimated threats. Although the consequences of climate change have started to gain attention among policy makers, international business research on this issue is lagging behind. Drawing from the knowledge and innovation literatures, we explore the impact of a country’s degree of innovation on its vulnerability to climate change. Using a longitudinal sample of 73 countries for the years of 1998–2013, we examine the impact of innovation, openness to trade, and regulatory quality on a country’s vulnerability to climate change. We find that R&D expenditures as a percentage of GDP (innovation input), openness to trade, and regulatory quality decrease a country’s vulnerability to climate change. We also find that openness to trade moderates the effect of patenting rates (innovation output) on a country’s vulnerability to climate change.