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Employment and exchange rates: the role of openness and technology

Alexandre, Fernando; Bação, Pedro; Cerejeira, João; Portela, Miguel
Fonte: FEUC. Grupo de Estudos Monetários e Financeiros Publicador: FEUC. Grupo de Estudos Monetários e Financeiros
Tipo: Trabalho em Andamento
Português
Relevância na Pesquisa
76.01%
Real exchange rate movements are important drivers of the reallocation of resources between sectors of the economy. Economic theory suggests that the impact of exchange rates should vary with the degree of exposure to international competition and with the technology level. This paper contributes by bringing together these two views, both theoretically and empirically. We show that both the degree of openness and the technology level mediate the impact of exchange rate movements on labour market developments. According to our estimations, whereas employment in high-technology sectors seems to be relatively immune to changes in real exchange rates, these appear to have sizable and significant effects on highly open low-technology sectors. The analysis of job flows suggests that the impact of exchange rates on these sectors occurs through employment destruction.; Fundação para a Ciência e Tecnologia

Assessing Real Exchange Rate Misalignments

Kubota, Megumi
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
76.18%
There is a renewed debate on the role of exchange rate policies as an industrial policy tool in both academic and policy circles. Policy practitioners usually examine real exchange rate misalignments to monitor the behavior of this key relative price and, if possible, exploit distortions in the traded and non-traded relative price to promote growth. Anecdotal evidence shows that some countries have pursued very active exchange rate policies to promote the export sector and enhance growth by undervaluing their currencies. The main goal of this paper is to provide a systematic characterization of real exchange rate undervaluations. The long-run real exchange rate equation is estimated using: (a) Johansen time series cointegration estimates, and (b) pooled mean group estimates for non-stationary panel data. The paper constructs a dataset of real undervaluation episodes. It first evaluates whether (and if so, to what extent) economic policies can be used to either cause or sustain real undervaluations. In this context the paper empirically models the likelihood and magnitude of sustaining real exchange rate undervaluations by examining their link to policy instruments (such as exchange rate regimes and capital controls...

Does Higher Openness Cause More Real Exchange Rate Volatility?

Calderón, César; Kubota, Megumi
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
86.24%
The "New Open Economy Macroeconomics" argues that: (a) non-monetary factors have gained importance in explaining exchange rate volatility, and (b) trade and financial openness may have a potential role of mitigating and/or amplifying real and nominal shocks to real exchange rates. The goal of the present paper is to examine the ability of trade and financial openness to exacerbate or mitigate real exchange rate volatility. The authors collected information on the real effective exchange rate, its fundamentals, and (outcome and policy measures of) trade and financial openness for a sample of industrial and developing countries for the period 1975-2005. Using instrumental variables techniques, the analysis finds that: (a) High real exchange rate volatility is the result of highly volatile productivity shocks, and sharp oscillations in monetary and fiscal policy shocks. (b) Countries more integrated with international markets of goods and services tend to display more stable real exchange rate fluctuations. (c) Financial openness seems to amplify the fluctuations in real exchange rates. (d) The composition of trade and capital flows plays a role in explaining the smoothing properties of trade and financial openness. Although the former is mainly driven by manufacturing trade...

Exchange Rates during the Crisis

Weber, Sebastian; Wyplosz, Charles
Fonte: Banco Mundial Publicador: Banco Mundial
Português
Relevância na Pesquisa
76.19%
Nearly two years after the onset of the financial crises, many central banks have brought their policy interest rates down to, or close to zero. Various governments have seen their budget deficits soar. Both policies have affected exchange rates, partly through market expectations. With a majority of exchange rates officially floating, exchange rate movements do not necessarily reflect official decisions as was the case in the 1930s. Yet, also in the 2008 crisis, authorities have directly intervened in the foreign exchange market, sometimes in order to defend a falling currency but in other instances with the aim to limit appreciation pressure, akin of competitive devaluations. This paper documents the exchange rate interventions during the height of the 2008/09 financial crisis and identifies the countries which have particular high incentives to intervene in the foreign exchange market to competitively devalue their currency. While various countries had increased incentives to devalue, we find that direct exchange rate interventions have been rather limited and contagion of devaluation has been restricted to one regionally contained case. However...

Import Protection, Business Cycles, and Exchange Rates : Evidence from the Great Recession

Bown, Chad P.; Crowley, Meredith A.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
76.16%
This research estimates the impact of macroeconomic fluctuations on import protection policies over 1988:Q1-2010:Q4 for the United States, European Union, and three other industrialized economies. First, estimates on a pre-Great Recession sample provide evidence of three key relationships for the US and EU. Increases in domestic unemployment rates and real appreciations in bilateral exchange rates led to substantial increases in antidumping and related forms of import protection. Furthermore, economies historically imposed these bilateral import restrictions on trading partners going through their own periods of weak economic growth. Second, estimates from the pre-Great Recession model predict a major trade policy response during 2008:Q4-2010:Q4, given the realized macroeconomic shocks. New US and EU trade barriers were projected to cover up to an additional 15 percentage points of nonoil imports, well above the baseline level of 2-3 percent of import coverage immediately preceding the crisis. Third, re-estimating the model on data from the Great Recession period illustrates why the realized trade policy response differed from model predictions based on historical data. While exchange rate movements played an important role in limiting new import protection...

Aid, Growth, and Real Exchange Rate Dynamics

Devarajan, Shantayanan; Go, Delfin S.; Page, John; Robinson, Sherman; Thierfelder, Karen
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their paper, "Aid, Growth and Real Exchange Rate Dynamics," this key result is derived without requiring extreme assumptions or additional productivity story. The economic framework is a standard neoclassical growth model, based on the familiar Salter-Swan characterization of an open economy, with full dynamic savings and investment decisions. It does require that the model is fully dynamic in both savings and investment decisions. An important assumption is that aid should be predictable for intertemporal smoothing to take place. If aid volatility forces recipients to be constrained and myopic, Dutch disease problems become an issue.

Real Exchange Rates, Saving and Growth : Is There a Link ?

Montiel, Peter J.; Servén, Luis
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
Relevância na Pesquisa
96.22%
The view that policies directed at the real exchange rate can have an important effect on economic growth has been gaining adherents in recent years. Unlike the traditional "misalignment" view that temporary departures of the real exchange rate from its equilibrium level harm growth by distorting a key relative price in the economy, the recent literature stresses the growth effects of the equilibrium real exchange rate itself, with the claim being that a depreciated equilibrium real exchange rate promotes economic growth. While there is no consensus on the precise channels through which this effect is generated, an increasingly common view in policy circles points to saving as the channel of transmission, with the claim that a depreciated real exchange rate raises the domestic saving rate -- which in turn stimulates growth by increasing the rate of capital accumulation. This paper offers a preliminary exploration of this claim. Drawing from standard analytical models, stylized facts on saving and real exchange rates...

Remittances and the Real Exchange Rate

Lopez, Humberto; Molina, Luis; Bussolo, Maurizio
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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76.12%
Existing empirical evidence indicates that remittances have a positive impact on a good number of development indicators of recipient countries. Yet when flows are too large relative to the size of the recipient economies, as those observed in a number of Latin American countries, they may also bring a number of undesired problems. Among those probably the most feared in this context is the Dutch Disease. This paper explores the empirical evidence regarding the impact of remittances on the real exchange rate. The findings suggest that remittances indeed appear to lead to a significant real exchange rate appreciation. The paper also explores policy options that may somewhat offset the observed effect.

Estimating the Half-Life of Theoretically Founded Real Exchange Rate Misalignments

Kubota, Megumi
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
Português
Relevância na Pesquisa
76.16%
This paper models empirically the short and long-term behavior of the real exchange rate misalignment -- a key variable in academic and policy circles. The equilibrium real exchange rate is derived from a theoretical model with intertemporal external equilibrium and internal equilibrium (in traded and non-traded markets) based on the current account dynamics and Harrod-Balassa-Samuelson productivity, respectively. This provides a bridge between theory and empirics that links the real exchange rate and its fundamentals (terms of trade, the ratio of net foreign assets to gross domestic product, and productivity differentials). The paper contributes to the literature by: (a) estimating an unrestricted vector error correction model that examines the short-term dynamics of real exchange rate misalignments and links these deviations with shocks to fundamentals from 1970 to 2010, and (b) computing the speed of reversion of real exchange rate misalignments with respect to a fundamentals-based equilibrium level. The paper reconciles two strands of the empirical literature that estimate the half-life of purchasing power parity deviations: one...

Real Exchange Rate Uncertainty and Private Investment in Developing Countries

Servén, Luis
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
Português
Relevância na Pesquisa
76.14%
The author examines empirically the link between real exchange rate uncertainty and private investment in developing countries using a large cross country-time series data set. He builds a GARCH-based measure of real exchange rate volatility and finds that it has a strong negative impact on investment, after controlling for other standard investment determinants and taking into account their potential endogeneity. The impact of uncertainty is not uniform, however. There is some evidence of threshold effects, so that uncertainty only matters when it exceeds some critical level. In addition, the negative impact of real exchange rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems.

Aid, Disbursement Delays, and the Real Exchange Rate

Jarotschkin, Alexandra; Kraay, Aart
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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76.01%
Aid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.

Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries

CORSETTI, Giancarlo; DEDOLA, Luca; LEDUC, Sylvain
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: 1269789 bytes; application/pdf
Português
Relevância na Pesquisa
75.9%
This paper investigates the international transmission of productivity shocks in a sample of ve G7 countries. For each country, using long-run restrictions, we identify shocks that increase permanently domestic labor productivity in manufacturing (our measure of tradables) relative to an aggregate of other industrial countries including the rest of the G7. We find that, consistent with standard theory, these shocks raise relative consumption, deteriorate net exports, and raise the relative price of nontradables -in full accord with the Harrod-Balassa-Samuelson hypothesis. Moreover, the deterioration of the external account is fairly persistent, especially for the US. The response of the real exchange rate and (our proxy for) the terms of trade differs across countries: while both relative prices depreciate in Italy and the UK (smaller and more open economies), they appreciate in the US and Japan (the largest and least open economies in our sample); results are however inconclusive for Germany. These findings question a common view in the literature, that a country's terms of trade fall when its output grows, thus providing a mech- anism to contain differences in national wealth when productivity levels do not converge. They enhance our understanding of important episodes such as the strong real appreciation of the dollar as the US productivity growth accelerated in the second half of the 1990s. They also provide an empirical contribution to the current debate on the adjustment of the US current ac- count position. Contrary to widespread presumptions...

The Impact of the Strong Euro on the Real Effective Exchange Rates of the Two Francophone African CFA Zones

Zafar, Ali
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
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76.19%
The author estimates the degree of misalignment of the CFA franc since the introduction of the euro in 1999. Using a relative purchasing power parity-based methodology, he develops a monthly panel time series dataset for both the Economic and Monetary Community of Central Africa (CEMAC) zone and the West African Economic and Monetary Union (UEMOA) zone to compute a trade-weighted real effective exchange rate indexed series from January 1999 to December 2004. The author's main finding is that the real effective exchange rate appreciated by close to 8 percent in UEMOA and 7 percent in CEMAC, influenced by volatility in the euro-dollar bilateral exchange rate and conservative monetary policies in the two zones, resulting in a partial loss of competitiveness in export markets. The lower appreciation in Central Africa can be explained by lower inflation in CEMAC than in UEMOA and by the greater trade with higher inflation East Asian countries, partially offset by the peg to the dollar. However, the inclusion of "unrecorded trade" results in an appreciation of only 6 percent in the UEMOA zone and 6 percent in the CEMAC zone due to higher inflation in the two countries with unmonitored cross-border flows, Ghana and Nigeria. Using time series econometrics...

Correcting Real Exchange Rate Misalignment : Conceptual and Practical Issues

Eden, Maya; Nguyen, Ha
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
76.15%
This paper studies the issue of real exchange rate misalignment and the difficulties in settling international real exchange rate disputes. The authors show theoretically that determining when a country should be sanctioned for real exchange rate "manipulations" is difficult: in some situations a country's real exchange rate targeting can be beneficial to other countries, while in others it is not. Regardless, it is difficult to establish whether a misaligned real exchange rate is intentionally manipulated rather than unintentionally caused by other policies or by various distortions in the economy. The paper continues by illustrating the difficulty in measuring real exchange rate misalignment, and provides a critical assessment of existing methodologies. It concludes by proposing a new method for measuring real exchange rate misalignment based on differences in marginal products between producers of tradable and non-tradable goods.

Spillover Effects of Exchange Rates : A Study of the Renminbi

Mattoo, Aaditya; Mishra, Prachi; Subramanian, Arvind
Fonte: Banco Mundial Publicador: Banco Mundial
Tipo: Publications & Research :: Policy Research Working Paper
Português
Relevância na Pesquisa
76.17%
This paper estimates how changes in China's exchange rates would affect exports from competitor countries in third-country markets -- in other words, the "spillover effect." The authors use recent theory to develop an identification strategy, with a key role for the competition between China and its developing country competitors in specific products and export destinations. Using disaggregated trade data, they estimate the spillover effect by exploiting the variation across different exporters, importers, products, and time periods. They find a spillover effect that is statistically and quantitatively significant. Their estimates suggest that a 10-percent appreciation of China's real exchange rate boosts a developing country's exports of a typical four-digit Harmonized System product category to third markets by about 1.5 to 2 percent on average. The magnitude of the spillover effect varies systematically with the characteristics of products, such as the extent to which they are differentiated.

Inequality, the Price of Nontradables, and the Real Exchange Rate : Theory and Cross-Country Evidence

Min, Hong-Ghi
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
86.16%
The author provides theoretical and empirical evidence of a negative association between income inequality and real exchange rates. First, he builds a theoretical model showing the transmission mechanism from inequality to real exchange rates. Second, using cross-country data, he demonstrates that the theoretical argument has empirical support. The association is large, significant, and robust to alternative specifications of the reduced form model and estimation methodologies. These findings provide empirical support for Poverty Reduction Strategy Papers, government strategies agreed on with the World Bank that hinge on four major objectives: accelerating equity-based growth, guaranteeing access to basic social services for the poor, expanding opportunities for employment and income-generating activities for the poor, and promoting good governance. The author's analysis indicates that "equity-based growth" and "export-driven growth" are compatible policy goals. But the negative relationship between inequality and real exchange rates does not imply that policies aimed at dramatic redistribution will automatically lead to real depreciation of the domestic currency...

Current Account Imbalances, Thriftiness And The Real Exchange Rate In A Growing Economy

Marín Martínez, Carmen
Fonte: Conselho Superior de Investigações Científicas Publicador: Conselho Superior de Investigações Científicas
Tipo: Documento de trabajo
Português
Relevância na Pesquisa
75.97%
This paper analyses the theoretical relevance of the dynamical aspects of growth on the discussion about the observed positive correlation between per capita real income and real exchange rates. With this purpose, we develop a simple exogenous growth model where the internal, external and intertemporal equilibrium conditions of a typical macroeconomic model are imposed; this last one through the inclusion of a balanced growth path for the foreign assets accumulation. The main result under this consideration is that the relationship defended by the Balassa-Samuelson hypothesis is no more so straightforward. In our particular approach, the mentioned bilateral relationship depends on a parameter measuring thriftiness in the economy. Therefore, the probability of ending up with a positive relationship between growth and real exchange rates -as the classical economic theory predicts- will be higher when the economy is able to maintain a minimum saving ratio. Moreover, given that our model considers a simple Keynesian consumption function, some explosive paths can also be possible.

The Structural Approach of a Natrex Model on Equilibrium Exchange Rates

Marín Martínez, Carmen
Fonte: Conselho Superior de Investigações Científicas Publicador: Conselho Superior de Investigações Científicas
Tipo: Documento de trabajo
Português
Relevância na Pesquisa
76.02%
Following a general macroeconomic approach, this paper sets a closed micro-founded structural model to determine the long run real exchange rate of a developed economy. In particular, the analysis follows the structure of a Natrex model. The main contribution of this research paper is the development of a solid theoretical framework that analyse in depth the basis of the real exchange rate and the details of the equilibrium dynamics after any shock influencing the steady state. In our case, the intertemporal factors derived from the stock-flow relationship will be particularly determinant. The main results of the paper can be summarised as follows. In first place, a complete well-integrated structural model for long-run real exchange rate determination is developed from first principles. Moreover, within the concrete dynamics of the model, it is found that some convergence restrictions will be necessary. On one hand, for the medium run convergence the sensitivity of the trade balance to changes in real exchange rate should be higher that the correspondent one to the investment decisions. On the other hand, and regarding long-run convergence, it is also necessary both that there exists a negative relationship between investment and capital stock accumulation and that the global saving of the economy depends positively on net foreign debt accumulation. In addition...

Analyzing aggregate real exchange rate persistence through the lens of sectoral data

Mayoral, Laura; Gadea, Maria Dolores
Fonte: Conselho Superior de Investigações Científicas Publicador: Conselho Superior de Investigações Científicas
Tipo: Documento de trabajo Formato: 533643 bytes; application/pdf
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44 pages, 5 figures, 5 tables; In this paper we analyze the persistence of aggregate real exchange rates (RERs) for a group of EU-15 countries by using sectoral data. The tight relation between aggregate and sectoral persistence recently investigated by Mayoral (2008) allows us to decompose aggregate RER persistence into the persistence of its different subcomponents. We show that the distribution of sectoral persistence is highly heterogeneous and very skewed to the right, and that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level. We use quantile regression to investigate whether the traditional theories proposed to account for the slow reversion to parity (lack of arbitrage due to nontradibilities or imperfect competition and price stickiness) are able to explain the behavior of the upper quantiles of sectoral persistence. We conclude that pricing to market in the intermediate goods sector together with price stickiness have more explanatory power than variables related to the tradability of the goods or their inputs.; PPP puzzle, real exchange rates, persistence, heterogeneous dynamics, aggregation bias, nontradability, imperfect competition, pricing-to-market.; Peer reviewed

Does Capital Control Policy Affect Real Exchange Rate Volatility? A Novel Approach Using Propensity Score Matching

Gross, Adam
Fonte: Universidade Duke Publicador: Universidade Duke
Formato: 861273 bytes; application/pdf
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Propensity score matching is a statistical technique recently introduced in the field of economics, which researchers use to assess the treatment effect of policy initiatives. In this study I use propensity score matching to analyze the treatment effect of capital control policy on real exchange rate volatility. I find the treatment effect of adopting relatively liberal capital controls is a decrease in real exchange rate volatility. This is the first empirical study to provide insight into the causal relationship between capital controls and real exchange rates, which may be crucial to macroeconomic policy decisions for emerging economies such as China.; Winner of the 2008 Robert F. Durden Prize