Propagation of economic shocks through vertical and trade linkages in Korea: An empirical analysis

In the last two decades, manufacturing industries in Korea have become more concentrated, and interconnectedness across industries and across country borders has risen via vertical relationships and trade linkages. Using the industry-level international input–output data, this paper investigates the propagation of economic shocks in such a highly concentrated and interconnected structure, focusing on the role of vertical and trade linkages. The results establish that, first, the role of vertical and trade linkages in propagating economic shocks originated from both domestic sources and external sources is important. Second, the productivity impacts of a few key sources of economic shocks are relatively sizable. These findings highlight that economic shocks in a few key industries and/or major trading partners that are transmitted through vertical and trade linkages can lead to large swings in the overall economy. This paper contributes to the understanding of the potential interactions between the industrial structure and economic growth/stability.     

Deflation,Productivity Shocks and Gold: Evidence from the 1880–1914 Period

In this paper we examine the sources and impact of deflation on the growth experiences of the four dominant countries on the gold standard in the period 1880–1913: the United States, The United Kingdom, France and Germany. We distinguish between good deflation, (driven by positive aggregate supply shocks) and bad deflation (driven by aggregate demand shocks). We use an empirical Blanchard/Quah model which decomposes the behaviour of prices, output and the money stock into the impact of shocks such as a world price level shock, a domestic supply shock, and domestic demand shocks including a shock to the domestic gold stock. Our key finding is that the European economies were essentially classic in the sense that output was mainly supply driven and that money was neutral even when country specific gold stocks are included. In the United States, however, we observe both good and bad deflation.     

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Emerging market economies (EMEs) have persistently experienced different waves of commodity terms of trade disturbances, generating macroeconomic instabilities. The adoption of inflation targeting (IT) by many EMEs has raised questions about its relative suitability in dealing with these shocks compared with other monetary policy regimes. This paper tests the robustness of IT compared with monetary targeting and exchange rate targeting regimes in coping with commodity terms of trade shocks using the panel vector autoregressive technique. The results show that in general, IT countries respond better to commodity terms of trade shocks especially with respect to inflation and output gap. However, exchange rates are more volatile in IT countries than in exchange rate targeting countries. The results suggest that EME countries can reduce the adverse effects of commodity terms of trade fluctuations when they adopt IT, but they also need to pay attention to exchange rate movements.     

Sub-Saharan Africa's rising public debt stock: Is there a cause for concern?

The study investigated public debt sustainability in sub-Saharan Africa (SSA) by testing the reaction of the primary balance to positive and negative shocks in public debts in a panel of 45 SSA countries. The study adopts the innovative nonlinear fiscal reaction function and the dynamic panel threshold model to account for the potential asymmetric phenomenon in the public debt series. In line with extant studies, the study found that public debts in SSA are weakly sustainable and there is a highly procyclical fiscal policy bias in SSA countries, particularly in resource-rich countries, indicating that governments' fiscal policy responses are expansionary during economic upturns and contractionary during recessions, which may aggravate recessions and worsen debt situations across SSA. For robustness, the study compares the results with emerging and developed economies. The results indicate that in advanced economies, public debt is sustainable and that fiscal policy response is countercyclical. The research and policy implications are discussed.     

A Multi-Scale System of Macroeconometric Models: the Inforum Approach

The recent global crisis affected output, but the decline in international trade was even sharper, almost twice as big, so that in the literature it is referred as the Great Trade Collapse. Trade flows have transmitted the crisis through the world economy where international trade runs through much more intricate networks than in the past, involving a greater number of countries, firms, and products. All these relevant economic issues require a clear understanding of the possible positive and negative effects not only on the economy as a whole and on aggregate macroeconomic variables but especially on specific industries and commodities. This type of quantitative analysis can be pursued with several analytical tools and data. Macroeconometric models have a long-standing and remarkable tradition as a tool for analyzing the international transmission mechanism of shocks and policies and for forecasting their effects. In this paper, we present the INFORUM international linking system of models that includes a Bilateral Trade Model (BTM) and a set of multisectoral country models. The INFORUM international system of models is characterised by a detailed industry and commodity classification and the use of econometric equations for estimating the behaviour of economic variables and of bilateral import shares. Moreover, when the complete international system of models is linked through the bilateral trade model, simulation results include feedback effects from country models to all economies in the system through bilateral trade flows. Overall, this multi-scale system of models captures the heterogeneity across industries and countries and produces significant information for economic policy design.     

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 role of oil price shocks on China's real exchange rate

This paper investigates to what extent the oil price shock and three other types of underlying macroeconomic shocks impact the trend movements of China's real exchange rate. By constructing a four-dimensional structural VAR model, the results suggest that real oil price shocks would lead to a minor appreciation of the long-term real exchange rate due to China's lesser dependence on imported oil than its trading partners included in the RMB basket peg regime and rigorous government energy regulations. The real shocks, as opposed to nominal shocks, are found to be dominant in the variations of the real exchange rate.     

Spatial propagation of macroeconomic shocks in Europe

This paper implements a spatial vector autoregressive model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe.     

Openness and the Effects of Fiscal and Monetary Policy Shocks on Real Output in Nigeria (1960–2003)*

Abstract: This study investigates the effects of monetary and fiscal policies on the real output growth in a small open economy. It is a country‐specific, time series study that verifies the implication of increasing economic openness on the efficacy of monetary and fiscal policy. A modified GARCH model was used to estimate the anticipated and unanticipated shocks. Two measures of fiscal and monetary shocks were combined with openness and real oil price shocks in a VECM model to assess the effects of anticipated and unanticipated policy shocks on the output equations. The empirical results showed that anticipated and unanticipated fiscal and monetary shocks had no significant positive effects on real output. This suggests that the open macroeconomic version of the policy ineffectiveness proposition was valid for both monetary and fiscal policy shocks in Nigeria. This is in consonance with earlier works in this area. Furthermore, the degree of openness and oil price shocks had a negative implication on the efficacy of macroeconomic policy in Nigeria; also in agreement with the Dutch Disease Syndrome. Finally, the policy implication of this study therefore is that trade liberalization policy should be implemented cautiously. The Nigerian economy is weak to withstand the unwholesome consequences of full economic integration.     

Macroeconomic Effects of Commodity Price Shocks in a Low‐income Economy: The Case of Tobacco in Malawi

A major concern for developing economies is a dependence on commodities when their prices are volatile as a major change in the international commodity price can have important implications for economic growth. While some cross‐country studies exist, there is lack of country specific studies that take into account the different characteristics of low‐income economies. This paper contributes to the growing literature by considering the case of Malawi and the macroeconomic impact of price shocks in its major export crop of tobacco. Using a structural vector autoregression (SVAR) approach on quarterly Malawian data from 1980:1 to 2012:4, the paper establishes that a positive tobacco price shock has a significant positive impact on the country's gross domestic product, decreasing consumer prices and inducing real exchange rate appreciation. The results are robust to alternative specifications of a SVAR on difference stationary data and cointegrating VAR. The cointegrating VAR confirms the existence of a long run‐relationship among the variables and causality that runs from tobacco prices.     

Cross-country interdependencies in growth dynamics: A model of output growth in the G7 economies, 1960–1994

Cross-Country Interdependencies in Growth Dynamics: A Model of Output Growth in the G7 Economies, 1960–1994. — Recently developed methods in time series analysis are employed to study output growth across the G7 economies. The methods accommodate the interdependencies that exist between economies’ growth, and provide the means for analyzing the sources of shocks to output growth and for examining the time profiles of the shock effects. Sophisticated dynamic adjustments in output are identified, due to lagged responses to shocks, the feedback of effects across countries, and the differential speeds of response to different types of shock. Among the shocks considered, those to world trade and oil prices are shown to significantly affect many countries’ output levels.     

Is Africa different?

Africa's macroeconomic response to external shocks was significantly differrent from that of other developing countries during 1976–1986. Nonparametric tests that correct for differing initial conditions indicate significantly lower economic growth in African economies. Average inflation was also significantly lower, while current-account deficits were larger. Economic policies in African countries are characterized by significantly larger budget deficits and government current expenditure as a share of gross domestic product and by greater inward orientation. African economies in the CFA Franc Zones are distinguished by relatively lower inflation, budget deficits, and less reduction in investment/GNP ratios.     

International Dependency and Economic Fluctuations in East Asian NIEs

Abstract

This paper investigates the sources of economic fluctuations in the four Asian newly industrialized economies (NIEs), namely Hong Kong, Republic of Korea, Singapore and Taiwan. As small open economies, their macro-economic development is highly dependent on technology as well as markets of large countries. Using the common trends model, we examine the impacts of external supply shock, internal supply shock and trade shock on the key national macro-economic variables of these four economies, i.e. output, consumption, investment, export and import. Our empirical evidence suggests that supply-side disturbances, both the country-specific supply shocks and international supply shocks explain the bulk of fluctuations in output.     

Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies

We assess the transmission of monetary policy and the impact of fluctuations in commodity prices on the real economy for the five biggest and fastest growing emerging market economies: Brazil, Russia, India, China and South Africa (BRICS). Using modern econometric techniques, we show that a monetary policy contraction has a negative effect on output, suggesting that it can lean against unexpected macroeconomic shocks even when the financial markets are not well-developed in this group of countries. We also uncover the importance of commodity price shocks, which lead to a rise in inflation and demand an aggressive behaviour from central banks towards inflation stabilisation.     

International Interdependence and Business Cycle Transmission in ASEAN

This study investigates the international transmission of business cycles among the ASEAN countries of Indonesia, Malaysia, Philippines, Singapore and Thailand, and between the ASEAN nations and their major trading partners, the United States, Australia, Japan, and the European Union. The research uses trade flows to show the pattern of economic interdependence, and principal components analysis, vector autoregressions, and spectral analysis to explore the possibility of a unique ASEAN business cycle. Binational VARs are used to examine the relative impacts of each country upon the others. Spectral analysis is used to check for the possibility of “mode-locking” between the countries that may serve to bring about some synchronization. Interestingly, there is evidence of the existence of a specific ASEAN regional business cycle. However, the VARs give only weak evidence of transmission of business cycles among the ASEAN economies and between the ASEAN economies and their major trading partners. The apparent weakness of the transmission is explained by the fact that commodity price fluctuations, wars, and major political disturbances, due to the process of nation-building, have interrupted the natural generation of business cycles, dominated the interdependence effects between nations, and hindered the measurement of international business cycle transmission. J. Japan. Int. Econ., September 1999, 13(3), pp. 230–253. Department of Economics, Old Dominion University, Norfolk, Virginia 23529 Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: F41, F47, E32.     

Cointegration Tests of Purchasing Power Parity: the Case of the Thai Baht*

This paper will examine the validity of the purchasing power parity (PPP) hypothesis for the Thai baht vis-à-vis the currencies of Thailand's key trading partners under the new exchange rate regime using the cointegration technique. The major conclusions obtained from this empirical analysis may be broadly summarized as follows. First, the empirical evidence, based on the DF and ADF statistics, seems to suggest that the nominal exchange rates and relative prices are well characterized as non-stationary I(1) processes. Second, the cointegration analysis provides no evidence in support of a long-run equilibrium relationship between bilateral nominal exchange rates for the Thai baht vis-à-vis the currencies of Thailand's major trading partners and the corresponding relative price ratios. This implies rejection of PPP for these countries. If this is the case, considerable care should be taken in assessing the long-run implications for the real exchange rate, and thus competitiveness against Thailand's key trading partners, of shocks to the nominal exchange rate.     

美国经济波动对中国经济增长的影响及其传导机制研究

在开放经济条件下,一国的经济波动会通过国际贸易、国际投资等资本的跨国流动传导到别的国家。鉴于美国已经成为中国主要的贸易伙伴和FDI来源国,其经济的波动会对中国的经济产生很大的影响,因此本文运用基于VAR模型的广义脉冲响应函数法与方差分解法,在以双边贸易与投资为传导纽带,暗含汇率变化影响的基础上定量分析了美国经济波动对中国经济冲击的长期传导机制和短期动态影响特征。冲击响应分析结果表明,美国经济对中国经济的影响更大,美国经济的波动主要通过影响中国对美国出口的途径对中国经济增长造成冲击;方差分解结果显示,中国经济对美国经济的贡献更大。     

美国经济波动对东亚经济的影响

经济全球化使世界经济紧密联系在一起,各国经济也更易受到外部经济冲击的影响。本文考察了美国经济波动对东亚8个开放经济体的影响,结果显示,东亚经济大约有18%的波动来源于美国经济的冲击,这主要是因为美国和东亚保持着紧密的贸易和金融联系。由于各经济体在经济总量、汇率制度安排等方面的差异,造成受美国经济波动的影响也不相同。总体看,这些冲击持续的时间大约在15个季度。     

中日韩自由贸易区的经济效应及推进路径——基于SMART的模拟分析

本文在SMART模型框架下建立了一个局部均衡模型,基于HS6分位数据模拟中日韩三国间不同的阶段性双边关税减让方案和长期内关税的全部减让对三国经济的影响。结果表明,中日韩自由贸易协定启动后,三国的农业部门、日本和韩国的纺织品部门以及中国的汽车部门将受到来自其他两国较为明显的冲击。机电产品及其零部件的区域内贸易增长潜力有限,但三国在该领域的垂直专业化分工尚具备进一步拓展的潜力。中日韩自由贸易区谈判首先要克服来自当前高度保护部门的阻力,而在机电产品领域应重点促进区域内投资和技术贸易的便利化,运用发达的地区分工网络提升各国在后危机时代的全球竞争力。     

Inflationary shocks and real output growth in nine Muslim-majority countries: Implications for Islamic banking and finance

Low and stable inflation is important for maintaining the viability of Islamic banking and finance within a dual banking system. Inflationary shocks when transmitted to real output growth cause a shift of investment to fixed return products as a hedge against the uncertainty of returns on equity investment under Islamic profit-loss sharing contracts. This study examines the transmission of inflationary shocks to the real economy for nine Muslim-majority countries (Bahrain, Bangladesh, Egypt, Indonesia, Iran, Malaysia, Pakistan, Saudi Arabia, and Turkey) that have introduced Islamic banking, all except Iran within dual-banking systems. A structural vector autoregressive (SVAR) framework is deployed to understand macroeconomic relationships using annual data from the late 1970s to 2014. The key finding is that inflationary shocks affect real interest and exchange rates which in turn impact real output growth. The paper argues that the absorption of inflationary shocks in real interest and exchange rates is the outcome of rigidities in nominal interest and exchange rates within repressed financial systems. Policy regimes that allow for greater adjustment in nominal interest and exchange rates under a deregulated financial system would offer better shock absorption capacity which would lead to less volatility in inflation, real interest and exchange rates, and real output growth. The resulting more stable macroeconomic environment would be more conducive to the development of an Islamic financial sector that would promote economic growth.