The transmission of international shocks to CIS economies: A global VAR approach

This paper employs a Global Vector Auto Regressive (GVAR) model to study the evolution of the response of the Commonwealth of Independent States (CIS) to foreign output and oil price shocks. During an observation period of two decades, cross-country trade and financial linkages experience notable changes. We find CIS countries to be highly sensitive to global and regional shocks, with that sensitivity increasing after the global financial crisis. CIS countries show the strongest responses to output shocks originating in the US, Russia and within the region itself, but their sensitivity to euro area shocks also increases substantially. Despite growing trade relations with China, the responses of CIS countries to output shocks originating in China are still relatively moderate.     

Macroeconomic shocks and fluctuations in African economies

We estimate a monetary DSGE model to examine the role of macroeconomic shocks in generating fluctuations in ten African countries. The model is estimated with the Bayesian technique using twelve macroeconomic variables. The findings indicate that both the internal and external shocks significantly influence output fluctuations in African economies. Over a four quarter horizon, internal shocks are dominant and over eight to sixteen quarter horizons, external shocks are dominant. Among the external shocks, external debt, exchange rate, foreign interest rate and commodity price shocks account for a large part of output variations in African economies. Money supply and productivity shocks are the most important internal shocks contributing to output fluctuations in African countries.     

International business cycles and risk sharing with uncertainty shocks and recursive preferences

This paper analyzes the effects of output volatility shocks on the dynamics of consumption, trade flows and the real exchange rate, in a two-country, two-good world with consumption home bias, recursive preferences, and complete financial markets. When the risk aversion coefficient exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a country׳s output volatility triggers a wealth transfer to that country, to compensate for the greater riskiness of the country׳s output stream. This risk sharing transfer raises the country׳s consumption, lowers its trade balance and appreciates its real exchange rate. In the recursive preferences framework here, volatility shocks account for a non-negligible share of the fluctuations of net exports, net foreign assets and the real exchange rate. These shocks help to explain the high empirical volatility of the real exchange rate and the disconnect between relative consumption and the real exchange rate.     

Asset markets,relative price shocks and trade anomalies in international real business cycle models

Both relative prices and the flow of goods between countries are significantly smoother in international real business cycle models than in the data. Also, in these models, increases in output cause a worsening of the terms of trade, while in the data, these variables are roughly uncorrelated. Because the imperfect substitutability of goods already limits the ability to pool country-specific risk, restricting access to asset markets has little impact on these anomalies. However, introducing exogenous terms of trade shocks allows the model to explain these trade and price anomalies while retaining the ability to replicate other aspects of the data.     

Assessing the effects of U.S. shocks on the Canadian economy using alternative identification methods

This paper investigates the extent of the transmission of U.S. supply and demand shocks to the Canadian economy using three different identification methods. Our findings are robust across identifications. We show that over the flexible exchange rate period, U.S. shocks tend to intensify Canadian business cycles, while they reduce the mean of Canadian prices and inflation. We also find that overall Canadian output is less sensitive to U.S. disturbances than found in earlier studies. Moreover, when the structural shocks are allowed to be correlated across countries, Canadian shocks explain around 18% of U.S. real GDP growth long run forecast error variance.     

Inequality in Exchange: The Use of a World Trade Flow Table for Analyzing the International Economy

Whether or not the terms of trade between two countries may be unequal is a controversial question in the theory of international economics. In practice, the issue is resolved through statistical observation of the terms of trade. This measurement of the terms of trade follows a long tradition and produces impressive detail. It is, however, restricted in scope, because the first derivative, the change of the terms over time is observed only. Absolute levels depend on which year is chosen as the base year, a choice that is rather arbitrary and carries no theoretical meaning. Equality in the levels of terms of trade remains thus undefined. More precisely, it is always assumed to exist implicitly for whichever base year is being nominated. The paper proposes an answer to this ambiguity based on the relatively new statistical tool of international purchasing power compilation. The terms of trade are crucially dependent on the rate of foreign exchange (for which exports are traded against imports), which is predominantly governed by financial rather than commodity markets. Hence, the paper proposes to separate the two factors of influence and to call terms of trade ‘equal’ if the effective real exchange rate (as derived from the nominal exchange rate by means of purchasing power parities) equals one. On that basis a world trade flow table is constructed, putting the compiled equalities and inequalities in trade into a coherent, global perspective.     

By force of demand: Explaining cyclical fluctuations of international trade and government spending

This paper explores the role of demand shocks, as an alternative to productivity shocks, in driving both domestic and international business cycles within the international real business cycle (IRBC) framework. In addition to those well-documented domestic business cycle fluctuations (e.g., the volatility and cyclicality of output, consumption, investment, labor hours, and labor productivity) and international business cycle properties (e.g., the countercyclical net export and the comovement puzzle), this paper focuses on two additional stylized facts in the industrialized countries: the procyclical trade openness (the GDP fraction of trade volume) and the countercyclical government size (the GDP fraction of government spending). Using a parsimonious dynamic stochastic general equilibrium model, we show that the model׳s predictions under productivity shocks are not consistent with these facts. Instead, a demand-shock-driven model replicates the above facts while matching other domestic and international business cycle properties. An estimated version of the model confirms the quantitatively important impacts of demand shocks.     

人民币汇率对贸易影响的实证分析:一个文献综述

本文从三个角度——研究视角、变量性质、计量模型发展,对当前汇率对贸易差额影响的文献进行梳理,认为下一步的研究,应该将研究的视角选择在不同国家不同地区不同行业上,使用双边变量,在综合考虑其他各种影响贸易的因素,如直接投资、财政补贴等,以结构向量自回归模型为基础,进一步的细分结构性冲击,结合经济理论以及前人的研究结果,综合运用各种约束方法对汇率对贸易影响的问题做进一步的研究。     

An elasticity approach to the analysis of Romanian foreign trade policy during the years of transition

This paper focuses on the effect of exchange rate variations on the economic evolution of a country in transition, facing inflation, output decrease and negative external shocks; the particular case of Romania is considered. The theoretical part is linked to the Fleming-Mundell model for an open economy, but additional assumptions of price mobility and capital immobility are introduced. The usual interest rate versus output graphic framework is switched from one to another, which plots the exchange rate (or real exchange rate) versus output; the author considers that such a representation fits the behavior of an economy in transition towards a market-based system better. A main role, according to this interpretation, is played by the exchange rate elasticities of imports and exports, which influence the images of the equilibria on the goods market and the balance of payment (the IS and BOP curves' slopes). Finally, an empirical analysis is made, as an example, on the Romanian energy imports data series; the attempts to calculate the exchange rate elasticity may be considered as reliable only in the short term. In order to estimate the global exchange rate elasticities of imports and exports, some aggregations of partial sectorial results might be a possible solution. In the Romanian case, the resulting elasticities seem to be lower than for other countries; this poses the question as to the effectiveness of exchange rate policies in managing the Romanian economy.     

Exchange rate dynamics and their effect on macroeconomic volatility in selected CEE countries

To understand the potential for forming an optimum currency area it is important to investigate the origins of macroeconomic volatility. We focus on the contribution of real exchange rate shocks to macroeconomic volatility in selected Central and Eastern European countries. The contribution of real exchange rate shocks relative to other shocks allows us to evaluate whether the real exchange rate is a source of volatility or a buffer against shocks, as the theory suggests. The identification of the contributions is based on variance decomposition in two-country structural VAR models, which are identified by the sign restriction method. For most of the countries in the sample, shocks are predominantly symmetric relative to their effective counterpart, although the role of non-symmetric shocks is non-negligible. In general, for all the countries considered except Bulgaria and Slovenia, the real exchange rate does not generate large volatility over the business cycle and, with the exception of Bulgaria and Romania, is mostly driven by the non-symmetric shocks. These results are consistent with the real exchange rate having a shock-absorbing nature.     

On the feasibility of monetary union among Gulf Cooperation Council (GCC) countries: does the symmetry of shocks extend to the non-oil sector?

GCC countries’ output is heavily dichotomized into oil and non-oil. Oil shocks have similar effects on all member countries but little is known about their responses to non-oil shocks. This paper sets out to determine (1) whether aggregate demand (AD) and non-oil supply shocks (AS) are symmetrical across these countries to justify their suitability for monetary union; and (2) whether there is any commonality of shocks with the United States and the three major European countries, namely France, Germany, and Italy, which can warrant the choice of either the US dollar or the Euro as the anchor for the expected common currency of the bloc. We use bivariate structural vector autoregression models identified with long-run restrictions to extract the shocks. Our results show that (a) AD shocks are unequivocally symmetrical but non-oil AS shocks are weakly symmetrical across GCC countries thereby suggesting a monetary union is feasible, but not overwhelmingly; (b) neither AD nor AS shocks are symmetrical between GCC countries and the selected European countries; (c) GCC’s AD shocks are symmetrical with the US but non-oil AS shock are not. Furthermore, there are no significant changes in the results when we aggregate the GCC countries as a bloc. We therefore surmise that the US dollar is a more appropriate anchor for the new currency than the Euro since US monetary policy can at least help smooth demand shocks in GCC countries.     

Relative Wage Variation and Industry Location in the United Kingdom*

This paper shows that both relative wages and industry structure vary considerably across regions of the United Kingdom. In accordance with the neoclassical model of trade, regions abundant in a factor (i) exhibit lower relative prices of that factor than regions scarce in the factor, and (ii) tend to specialize in a mix of industries intensive in the use of the factor. We show that this specialization leads UK regions to be asymmetrically exposed to external macroeconomic or international trade shocks.     

Constructing Multi‐Country Rational Expectations Models

This article considers some of the technical issues involved in using the global vector autoregression (GVAR) approach to construct a multi‐country rational expectations (RE) model and illustrates them with a new Keynesian model for 33 countries estimated with quarterly data over the period 1980–2011. The issues considered are: the measurement of steady states; the determination of exchange rates and the specification of the short‐run country‐specific models; the identification and estimation of the model subject to the theoretical constraints required for a determinate rational expectations solution; the solution of a large RE model; the structure and estimation of the covariance matrix and the simulation of shocks. The model used as an illustration shows that global demand and supply shocks are the most important drivers of output, inflation and interest rates in the long run. By contrast, monetary or exchange rate shocks have only a short‐run impact in the evolution of the world economy. The article also shows the importance of international connections, directly as well as indirectly through spillover effects. Overall, ignoring global inter‐connections as country‐specific models do, could give rise to misleading conclusions.     

The international transmission channels of US supply and demand shocks: Evidence from a non-stationary dynamic factor model for the G7 countries

We employ a multi-country non-stationary dynamic factor model to assess spillover effects and transmission channels of US supply and demand shocks on a variety of macroeconomic variables in individual non-US G7 countries. We find that trade, financial and confidence channels all play a significant role in the international transmission of US shocks. However, the results point to substantial heterogeneities of shock transmission across the individual G7 economies. In particular, we find negative transmission effects for Italy and Japan as the only two G7 countries not well integrated into global value chains. Moreover, the exchange rate responses of Germany, France and Italy turn out to be far less pronounced in comparison to the other G7 economies which we relate to their membership of the euro area and their coordinated monetary policies prior to the establishment of the euro. Whereas we document a close comovement of stock market dynamics across the G7 countries, we find credit and real estate markets to be less synchronized. We do not find the effects and transmission channels to be fundamentally affected by the post-2008 economic environment.     

Exchange rate volatility and fluctuations in the extensive margin of trade

The existing evidence for exporters׳ entry and exit in response to exchange rate movements is based on either low frequency data or a sample with large devaluations. Using quarterly data of U.S. bilateral trade with 99 countries, this study provides new evidence that the extensive margin of trade fluctuates over the business cycle. First, I show that the extensive margin of exports to the U.S. and the extensive margin of imports from the U.S. are more volatile than the output of almost all trading partners. Next, I find that fixing exchange rates with the U.S. dollar, having a free trade agreement with the U.S., and an increase in country size is significantly associated with the stability of the pattern of trade with the U.S.     

Measuring the Connectedness of the Global Economy

We develop a technique to exploit forecast error variance decompositions to evaluate the macroeconomic connectedness embedded in any multi-country macroeconomic model with an approximate vector autoregressive (VAR) representation. We apply our technique to a large global VAR model covering 25 countries and derive vivid representations of macroeconomic connectedness. We find that the US exerts a dominant influence in the global economy and that Brazil, China, and the Eurozone are also globally significant. Recursive analysis over the period of the global financial crisis shows that shocks to global equity markets are transmitted rapidly and forcefully to real trade flows and real GDP.     

Visiting the effects of oil price shocks on exchange rates: Quantile-on-quantile and causality-in-quantiles approaches

We employ the relatively novel quantile-on-quantile and causality-in-quantiles approaches to empirically address the effects of oil price shocks on exchange rates of developed and developing countries. We find the evidence of the effects of oil shocks on exchange rates vary across quantiles. In addition, the effects and causality of oil price shocks are asymmetric and the slope of the coefficient in quantile-on-quantile analysis shows a relatively extreme fluctuation. Furthermore, for the developed currencies, the Granger causal relationship in both the mean and the variance running from oil shocks to exchange rates is always evident at all quantiles, while for the developing countries, the causal flow in the first and second moments is insignificant at middle quantiles.     

Obstfeld and Rogoff׳s international macro puzzles: a quantitative assessment

Obstfeld and Rogoff (2001) propose that trade frictions lie behind key puzzles in international macroeconomics. We take a dynamic multicountry model of international trade, production, and investment to data from 19 countries to assess this proposition quantitatively. Using the framework developed in Eaton et al. (2016), we revisit the puzzles in a counterfactual world without trade frictions in manufactures. Removing these trade frictions goes a long way toward resolving a number of puzzles. The dependence of domestic investment on domestic saving falls by half or disappears entirely, mitigating the Feldstein and Horioka (1980) puzzle. Changes in nominal GDPs in U.S. dollars become less variable across countries and line up with changes in real GDPs as much as with real exchange rates, mitigating the exchange rate disconnect puzzle. Less dramatically, changes in consumption become more correlated across countries, mitigating the consumption correlations puzzle and changes in real exchange rates become less variable across countries, mitigating the relative purchasing power parity puzzle.     

Do U.S. macroeconomic surprises influence equity returns? An exploratory analysis of developed economies

Given the dominant role the U.S. economy plays in global trade, we explore how U.S. macroeconomic surprises affect stock markets in ten major developed economies as well as in China and India. We do not find strong enough evidence to conclude that U.S. macro shocks materially and consistently influence equity returns and volatilities in the economies studied. Consistent with previous research, it appears that only in few markets are return levels materially influenced by macro surprises generated in the U.S. Also, only a small number of macro shocks seem to be of any consistent significance. For returns levels, inflation, productivity, consumer confidence, and retail sales seem to matter. At the same time, conditional volatilities appear to be influenced by inflation, retail sales, durable goods, industrial production, consumer confidence, gross domestic product, and trade balance surprises. Finally, our exploratory analysis indicates that the degree of bilateral trade connectedness may partially explain the extent to which macroeconomic surprises are transmitted across countries.