International trade and factor productivity as determinants of the real effective exchange rate

Using panel time-series models that deal with the problems of potential endogeneity and cross-sectional dependence, while also allowing for cross-country heterogeneity in the parameters of interest, we demonstrate that trade openness produces a depreciation of the real effective exchange rate.     

Cross‐Country Income Differences Revisited: Accounting for the Role of Intangible Capital

This paper develops a new intangible investment database that is consistent and internationally comparable for a set of 60 economies over the period 1995–2011. I find that over time a growing share of total investment consists of intangible assets, rather than investment in tangible assets, like machinery and buildings. Across countries, the level of economic development of a country is positively associated with its investment intensity in intangibles. By including intangible capital as an additional production factor, this paper finds that we can account for substantially more of the variation in cross‐country income levels. Depending on the assumptions regarding the output elasticities of factor inputs, the observed differences in intangible capital can account for up to 16 percentage points of the cross‐country income variation.     

Determinants of the real exchange rate in the long-run for developing and emerging countries: a theoretical and empirical approach

This paper presents a new framework for the determinants of real exchange in the long-run in developing and emerging countries (DECs). We assume that currencies should be regarded as an asset. In consequence, dealers in the foreign exchange market play a crucial role on its dynamics. To set our model, we connect the model developed by Kaltenbrunner, which is grounded on chapter 17 of the General Theory, with productivity’s differential effect. By doing so, it states that even short-run factors and monetary variables affect the long-run real exchange rate. Moreover, it points out that the hierarchical nature of the international monetary system is crucial to understand exchange rate movements in DECs. Besides presenting such theoretical approach, our contribution is to test it empirically for 45 DECs from 1990 to 2008 by applying econometric techniques appropriate for panel data. We use a new data-set, which comprises, among other variables, foreign portfolio flow, interest rate differential, external vulnerability measures, and international liquidity, on annual basis. The empirical results endorse this framework. Overall, it shows the primacy of financial factors as determinants of the long-run real exchange rate and points to the endogenous and self-perpetuating nature of international monetary system hierarchy.     

Industry‐specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan,China, and Korea

This paper constructs a new dataset of the industry‐specific real effective exchange rate, based on the producer price indices, for Japan, China, and Korea on a monthly basis from January 2001 to February 2013 in order to provide a better indicator for export price competitiveness. By conducting simulation analysis, we found that Korean electrical machinery firms substantially improved their cost competitiveness by lowering their production costs during the Korean won appreciation period, while Japanese firms' large plant investment caused by management misjudgments led to excessive production capacity, which resulted in the deterioration of Japanese export competitiveness. A structural vector autoregression analysis also reveals that industry differences of cost competitiveness as well as nominal exchange rate changes have significant impact on export performances of Japan and Korea.     

The Boom and Bust of the RMB's Internationalization: A Perspective from Cross‐Border Arbitrage

The RMB's internationalization developed very quickly from 2010 to 2015H1, but it slowed down significantly since 2015H2. This paper argues that cross‐border arbitraging activities played a significant role in both the boom and the bust of the RMB's internationalization. A slower pace of the RMB's internationalization based more on real demand might become a new norm in the future. To pursue a more sustainable RMB internationalization in the next decade, the Chinese government should maintain a relatively high economic growth rate, avoid the burst of systemic financial crisis, continue to liberalize the capital account in a gradual and cautious way, accelerate the reform and opening up of the domestic financial market, and integrate the RMB's internationalization with Asian monetary cooperation.