The macroeconomic effects of the ECB’s evolving QE programme: a model-based analysis

This paper analyses the macroeconomic effects of the European Central Bank’s asset purchase programme in its initial version and subsequent modifications under the lens of a dynamic macroeconomic model, which includes assets of different types and maturity, and explicitly introduces asset purchases of long-term bonds (held by euro area and non-euro area residents) by the central bank. With imperfect substitutability between asset classes, portfolio rebalancing in the context of quantitative easing (QE) affects bond yields, stock prices, the exchange rate and the private sector’s saving decision. QE as announced in January 2015 generates 0.4% effective euro depreciation and raises real GDP in the euro area by 0.2% and prices by 0.3% by 2017 in the model. The subsequent extensions of the QE programme (extension in time and increase in volume) more than double the medium-term output and inflation effects according to the simulations.     

Exchange Rates and Trade Balance Adjustment: A Multi-Country Empirical Analysis

This study assesses the response of the trade balance to exchange rate fluctuations across a large number of countries. Fixed-effects regressions are estimated for three country groups (industrial, developing and emerging markets) on annual data for 87 countries from 1994 to 2010. The trade balance improves significantly after a real depreciation, and to a similar degree, in the long run for all countries, but the adjustment is significantly slower for industrial countries. Emerging markets and developing countries display relatively fast adjustment. Disaggregation into exports and imports shows that the delayed adjustment in industrial countries is almost entirely on the export side. The rate of adjustment in emerging markets is slowing over time, consistent with their eventual graduation to high-income status. The ratio of trade to GDP is also highly sensitive to the real effective exchange rate, with a real depreciation of 10 % raising the trade/GDP ratio across the sample by approximately 4 %. This result, which presumably reflects movements in the prices of tradables relative to non-tradables, raises questions about the widespread use of the trade/GDP ratio as a trade policy indicator, without adjustment for real exchange rate effects.     

THE YEN‐DOLLAR EXCHANGE RATE AND MALAYSIAN MACROECONOMIC DYNAMICS

This paper empirically assesses the effect of the yen‐dollar exchange rate on selected macroeconomic variables, namely, real output, price level, and money supply, for Malaysia. The results, which are based on a vector autoregressive framework, suggest that variations in the yen‐dollar rate can have significant influences on Malaysia's macroeconomic variables. More specifically, the yen‐dollar depreciation leads to contraction in real GDP and money supply. These results are fairly robust to alternative model specifications. We believe that, apart from providing important insights into the interactions between the yen‐dollar rate and domestic macroeconomic variables, our results contribute to the debate on choice of exchange rate regimes for Malaysia.     

On budgetary policies, growth, and external deficits in an interdependent world

We investigate the effects of budgetary policies in a two-country model of overlapping generations and endogenous growth. In the presence of capital mobility, endogenous growth rates are equalized, but output levels do not converge. A worldwide rise in the public debt to GDP ratio or the share of government consumption reduces savings and growth. A relative rise in one country's debt to GDP ratio or its GDP share of government consumption results in a fall in external assets and its relative savings rate. In the short run, the fall in the savings rate is higher, and the country experiences higher current account deficits as a percentage of GDP.     

Assessing systemic risk and its determinants for advanced and major emerging economies: the case of ΔCoVaR

The paper examines conditional risk relationships among sovereign CDS prices and stock market indices for 11 economies with particular relevance for international portfolio investment holdings (Canada, China, Brazil, France, Germany, Italy, Japan, Russia, Spain, the USA, and the UK). The analysis is based on delta conditional value at risk (ΔCoVaR). The UK, France, and Italy significantly contribute to the overall systemic risk in both markets. The USA, the UK, and Russia appear to be important contributors to it in the stock market. In the meantime, the advanced economies exhibit much higher resilience to the systemic risk propagation in comparison with China, Brazil and Russia. Gross government debt to GDP, state fragility index, EU membership and world gross GDP share of a country in distress are key determinants of ΔCoVaRs for the sovereign CDS prices. Stock market total value traded to GDP and world gross GDP share of a country in distress drive ΔCoVaRs in the stock market. In both cases geographic distance tends to deter systemic risk propagation. Inflation, trade and financial openness as well as common language and time zone differences are less important predictors of bilateral ΔCoVaR exposures.     

Public Debt and Economic Growth in Emerging Market Economies

This paper empirically studies the relationship between public debt and economic growth for selected emerging market economies by performing panel data estimations. The results reveal a statistically significant positive correlation between public debt and the subsequent growth rate of per capita gross domestic product (GDP). Population and investment are also positively correlated with per capita growth, whereas the initial level of real GDP per capita exerts a negative influence on growth, implying conditional convergence. Other variables such as the inflation rate, the trade balance or the exchange rate do not yield a statistically significant effect with respect to economic growth.     

Exchange rates,stock prices,and money markets: evidence from Singapore

This paper uses a monetary approach to analyze the asymmetric asset-price movements (exchange rates and stock prices) in Singapore, a small open economy with managed exchange rate targeting. The Singapore dollar exchange rates vis-à-vis the developed countries’ currencies are negatively related to stock prices whereas the relationship between the Singapore dollar-Malaysian ringgit exchange rate and stock prices is positive instead. The pattern of asymmetry is explained by the relative exchange-rate elasticity of real money demand and real money supply and evidenced by the distributed-lag regression and VAR analysis. Furthermore, the distributed-lag regression of monthly data suggests that fiscal revenues as well as fiscal expenditures exert positive influences on stock prices.     

跨境资本流动对银行风险的影响--基于风险累积效应和风险传染效应的视角

从风险累积效应和风险传染效应两个视角揭示跨境资本流动对银行风险的影响机理,并基于2000年第一季度至2020年第四季度时间序列数据进行经验检验,结果表明:跨境资本流动、跨境资本流入、跨境资本流出均显著增加了银行风险,且三者对银行风险的影响均存在显著的风险累积效应;跨境资本流动、跨境资本流入、跨境资本流出均通过影响金融机构人民币各项贷款余额同比增速、金融机构外币各项贷款余额同比增速、金融机构本外币各项贷款余额同比增速以及境内住户中长期消费贷款同比增速等信贷渠道显著提高银行风险承担水平,实现银行风险累积,从而增加银行风险;跨境资本流动、跨境资本流入、跨境资本流出均显著提高了股票价格、房地产价格和实际汇率的波动水平,且跨境资本流动通过股票市场、房地产市场和汇率市场将波动水平传染至银行系统,增加了银行风险,股票市场、房地产市场和汇率市场更是强化了这种传染效应。     

Do Capital Inflows Matter to Asset Prices? The Case of Korea*

In the present paper, we investigate whether capital flows induce domestic asset price hikes in the case of Korea. This issue is relevant for crisis‐hit economies trying to prevent a boom–bust cycle as well as in the formulation of macroeconomic policy objectives in emerging market economies. Korea has recently experienced large capital inflows, in particular a surge in portfolio inflows. Furthermore, asset prices, including stock prices, land prices and nominal and real exchange rates, have also appreciated. The empirical results, obtained using a vector autoregression model, suggest that capital inflow shocks have caused stock prices but not land prices to increase. The effects on the nominal and real exchange rates have been limited, which relates to the accumulation of foreign exchange reserves.     

The Exchange Rate and the Monetary Transmission Mechanism in Germany

For the conduct of monetary policy under floating exchange rates it is important to understand the role of the exchange rate in the monetary transmission mechanism (MTM). The timing and the magnitude of the effects of a change in the exchange rate on output and inflation may be quite different from traditional interest rate channels, thereby affecting optimal policy. In this paper we examine the exchange rate channel in the MTM in Germany by estimating an identified VAR model. Two features of the results are highlighted. The effect of a policy shock on the exchange rate accelerates the pass-through of policy into prices and leads to a different response of the various components of GDP. We then show that these qualitative effects can be duplicated in a general equilibrium model for a semi-small open economy with sticky prices and wages that is calibrated to capture the main features of the German economy.     

High‐Frequency Contagion of Currency Crises in Asia*

Using daily data from the Asian currency crisis, the present paper examines high‐frequency contagion effects among six Asian countries. The ‘origin’ (of exchange rate depreciation, or decline in stock prices) and the ‘affected’ (currencies, or stock prices) in the daily spillover relationship were defined and identified. Indonesia is found to be the main origin country, affecting exchange rates of other countries. Contrary to conventional wisdom, evidence of high‐frequency crisis spillover from the Thai exchange rate to other currencies was weak at best. There exists a high‐frequency contagion in stock markets among East Asian countries. Contagion coefficients are positively correlated with trade indices, indicating that investors lower their financial assessment of a country that has trade linkage to a crisis origin country within days, if not hours, of a shock.     

A Markov‐switching analysis of Nigeria's business cycles: Are election cycles important?

The study examines Nigeria's business cycles between October 1998 and October 2017 and ascertains the importance of general elections cycles in engendering cyclical fluctuations in different measures of business cycles. A framework based on political business cycles theory was estimated with a dynamic Markov‐switching regression technique. The study finds that election cycles are adequate in predicting cycles in food prices, non‐farm prices, exports, and imports in Nigeria while a significant effect of election cycles on the stock market, general price level, and exchange rate could not be established. The study concludes that cycles in food, non‐farm prices, imports, and exports can be predicted by future general elections while re‐election seeking behaviour of politicians lacks the power to influence stock market performance and exchange rate in Nigeria. Hence, artificial business cycles that result primarily from politicians manipulating certain fiscal tools targeted at stimulating the economy only to increase the re‐election chances could be minimized if monetary and fiscal institutions are strong, effective, and truly independent. This will ensure that policies are not manipulated between elections by politicians but are well targeted at achieving a set of long‐term developmental goals.     

The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia

The Relative Importance of Foreign and Domestic Shocks to Output and Prices in Mexico and Colombia. — This paper utilizes structural VARs to evaluate the relative importance of foreign and domestic sources of variation in output and prices in Mexico and Colombia. The real exchange rate and commodity export price have a large impact on both output and prices in Mexico, while in Colombia their effects are smaller. U. S. output and interest rates are found to play a significant role in determining output in Mexico and Colombia. For Mexico, external variables are found to be of much greater importance in the oil-exporting years after 1978 as compared to the 1960s.     

The stock market and the ringgit exchange rate: a note

This paper presents and tests an augmented monetary model that includes the effect of stock prices on the bilateral exchange rates. The model is applied to the ringgit/US dollar (RM/US) and ringgit/Japanese yen (RM/JY) exchange rates. The empirical analysis is conducted by the Johansen method of cointegration. Using the data from the recent float that ends with 1996:Q4, the study is motivated, among others, by an interesting preliminary finding that although the augmented monetary model is cointegrated, it is subject to parameter instability and that the parameter time dependency can be attributed at least partly to a particular subset of the variables in the system including stock prices. We find that a restricted VAR model which imposes exogeneity restrictions on I(1) variables, such as stock prices, among others, exhibits both cointegration and parameter stability. In addition, we demonstrate that exchange rate adjusts to clear any disequilibrium in the long-run relationship. The empirical findings tend to suggest that the equity market is significant in affecting the exchange rate and in explaining at least in part the parameter instability evidenced in the cointegrating system. Hence, we conclude that models of equilibrium exchange rate should be extended to include equity markets in addition to bond markets.     

Inflation,economic activity and the operation of fiscal,foreign and monetary impulses in the Netherlands — A preliminary analysis, 1953–1973

Summary This paper tests both the strong and weak versions of the fiscal, foreign and monetary impulse hypotheses holding that each of these impulses is either a sufficient or a necessary condition for fluctuations in price and output to occur.Four impulses are distinguished: a fiscal impulse being a linear combination of autonomous changes in government expenditures and taxes, two foreign impulses measured by the growth rates of world trade and import prices, and a monetary impulse measured by (changes in) the growth rate of the stock of domestic or world money.When tested against the Dutch post-war experience of inflation and output fluctuations, all strong impulse hypotheses have to be rejected, as do the weak fiscal and foreign world trade hypotheses with respect to inflation and the weak fiscal hypotheses with respect to output growth. The weak foreign and monetary impulse hypotheses of output fluctuations, however, and the weak foreign import price and monetarist hypotheses of inflation are not rejected.     

Determinants of Real Chinese GDP 1978–2014

In 2014, the IMF reported that China became the largest economy in the world according to Purchasing Power Parity rates. This study aims to explain the Chinese economic miracle. It focuses on frequently suggested factors influencing China’s real gross domestic product (GDP), such as export promotion, exchange rate policy, and foreign direct investment (FDI). The paper employs the Bounds test of the autoregressive distributed lag (ARDL) model to test for cointegration. Once cointegration is established, Granger Causality is investigated using the vector autoregressive model and the Toda and Yamamoto (1995) method. Two different combinations of the real macroeconomic variables exports, exchange rate, imports, and FDI were employed to examine Granger causal relationships. All explanatory variables, except for the exchange rate, were found to have plausible relationships with GDP. The exchange rate and GDP relationship was unexpected; a Renminbi appreciation was associated with an increase in GDP. To investigate this paradox, a third ARDL model was estimated with exports as the dependent variable and the exchange rate, world GDP, and FDI as the independent variables. In this model, we found evidence of cointegration and a plausible relationship between real exports and the real exchange rate. Exchange rate devaluation increased exports and thus indirectly increased GDP. Such findings help to resolve the unexpected results. Nonetheless, according to the Granger causality tests the established statistical evidence is rather weak. We found that both the exchange rate and FDI are no longer strong drivers of economic growth in China.     

Fiscal Consolidation and the Public Sector Balance Sheet in South Africa

Between 1994 and 2008 the South African government reduced its debt/GDP ratio from almost 50% to 27%. Unfortunately this reduction was accompanied by a significant decrease in government's fixed capital/GDP ratio from 90% to 55% – fiscal sustainability might have been restored, but government's balance sheet did not improve. A similar story can be told for State Owned Enterprises. Since the Great Recession the fiscal situation worsened markedly – the public debt ratio again approaches 50%. To restore fiscal sustainability this article suggests that the government faces two options: (1) to create room for future countercyclical policy, the government must cut current expenditure and reduce the public debt/GDP ratio to its pre‐crisis level, or (2) substitute much‐needed infrastructure capital expenditure for current expenditure while stabilising the debt/GDP ratio at its post‐crisis level. Given that the much lower fixed capital/GDP ratio inhibits economic growth, the latter option might be more sensible.     

Discussion of “Aggregate Margin Debt and the Divergence of Price from Accounting Fundamentals”

Burger and Curtis (2017) is an empirical investigation of whether aggregate margin debt correlates with aggregate stock prices and aggregate accounting‐based fundamentals. While the paper convincingly documents a significant relation: aggregate margin debt is higher when aggregate fundamentals‐to‐price ratios are low, it fails to document why. The documented relation could exist because margin traders are the overly exuberant noise traders that push stock prices higher away from fundamental values; or the documented relation could be spurious, and exist because aggregate margin debt rises with aggregate price levels simply because margin loan capacity increases as aggregate price levels increase. With insufficiently granular data (aggregate margin debt measured monthly), the authors are not able to sort out why the relation exists. Thus, interpretation of the findings documented in this paper is difficult.     

Exchange Rate and Inflation Dynamics in a Resource Rich Setting: The Case of Zambia

This paper investigates the relationship between copper prices, the exchange rate and consumer price inflation in Zambia using a structural vector autoregression with quarterly data for 1995–2014 and a combination of sign and zero restrictions to identify relevant global and domestic shocks. The paper makes two contributions. First, it provides new measures of exchange rate pass through (ERPT), based on less restrictive assumptions than previous estimates, to show how changes in the value of the kwacha are reflected in changes in consumer prices (distinguishing food and non‐food inflation). Second, the ERPT is disaggregated to demonstrate that measured ERPT depends on the nature of the shock, with implications for policy responses. Although the price of copper is the most important driver of the exchange rate, the fluctuations it caused are associated with a low pass‐through of about 7% (consistent with a period of relatively low inflation). Exchange rate fluctuations caused by monetary shocks, in contrast, come with a pass‐through of up to 25% (and even more for food prices). A fast response by monetary authorities can mitigate the adverse effects of exchange rate shocks.     

Government Debt and Economic Growth in an Overlapping Generations Model

Prior studies have shown that an increase in government debt raises the real interest rate and lowers the rate of economic growth. In an overlapping generations model of endogenous growth, this paper shows that an increase in government debt may not increase the real interest rate with the real interest rate being greater than the growth and that an introduction of government debt will increase the growth rate of per capita output if the growth rate is greater than the real interest rate and will decrease the growth rate if the growth rate is less than the real interest rate.