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Innocent Bystanders How Foreign Uncertainty Shocks Harm Exporters
, 1530
"... In 2013 all ECB publications feature a motif taken from the €5 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Acknowledgements �This ..."
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In 2013 all ECB publications feature a motif taken from the €5 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Acknowledgements �This paper was partly written while the authors were respectively a Senior Economist and a Consultant at the European Central Bank. It represents the views of the authors and should not be interpreted as reflecting those of the European Central Bank, the European
Inspecting the Mechanism: Leverage and the Great Recession
- in the Eurozone’, NBER Working Papers 20572, National Bureau of Economic Research Inc
, 2014
"... Abstract We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. Our parsimonious mo ..."
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Abstract We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. Our parsimonious model can replicate the time-series for nominal GDP, employment, and net exports of Eurozone countries between 2000 and 2012. We then ask how periphery countries would have fared with: (i) more conservative fiscal policies; (ii) macro-prudential tools to control private leverage; (iii) a central bank acting earlier to limit sovereign spreads; and (iv) the possibility to recoup the competitiveness they lost in the boom. To perform these counterfactual experiments, we use U.S. states as a control group that did not suffer from a sudden stop. We find that periphery countries could have stabilized their employment if they had followed more conservative fiscal policies during the boom. This is especially true in Greece. For Ireland, however, given the size of the private leverage boom, such a policy would have required buying back almost all of the public debt. Macro-prudential policy would have been helpful, especially in Ireland and Spain. However, in presence of a spending bias in fiscal rules, macro-prudential policies would have led to less prudent fiscal policies in the boom. Central bank actions would have stabilized employment during the bust but not public debt. Finally, if these countries had been able to regain in the bust the competitiveness they lost in the boom, they would have experienced a shorter and milder recession.
The World Bank Poverty Reduction and Economic Management Network
, 2012
"... bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Produced by the Research Support Team ..."
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bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Produced by the Research Support Team
The Missing Link between Dutch Disease, Appreciation, and Growth
, 2011
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is available exclusively as an online product. To sign up to receive a free e-mail notification when quarterly issues are posted, please subscribe at
Trade Elasticities
, 2010
"... We estimate the aggregate export and import price elasticities implied by a Constant Elasticity of Substitution (CES) demand system, for more than 30 countries at various stages of development. Trade elasticities are given by weighted averages of sector-specific elasticities of substitution, that we ..."
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We estimate the aggregate export and import price elasticities implied by a Constant Elasticity of Substitution (CES) demand system, for more than 30 countries at various stages of development. Trade elasticities are given by weighted averages of sector-specific elasticities of substitution, that we estimate structurally. Both weights and substitution elasticities can be chosen to compute the response of trade to specific shocks to relative prices, bilateral or global. We document considerable, significant cross-country heterogeneity in multi-lateral trade elasticities, which is virtually absent from estimates constrained to mimic aggregate data. The international dispersion in import price elasticities depends mostly on preference parameters, whereas export price elasticites vary with the composition of trade. We simulate the demand-based response of trade to specific exogenous shifts in international prices. We consider shocks to EMU-wide, US or China’s relative prices, as well as country-specific shocks within the EMU zone. The trade responses to an external EMU-shock are considerably heterogeneous across member countries; in contrast, a within-EMU (Greek, Portuguese, German) shock to relative prices has largely homogeneous consequences on Eurozone trade patterns.
International Transmission of Credit Shocks in an Equilibrium Model with Production Heterogeneity
, 2015
"... Many policymakers and researchers view the recent
nancial and real economic crises across North America, Europe and beyond as a global phenomenon. Some have argued that this global recession has a common source: the U.S.
nancial crisis. This paper investigates the extent to which a credit shock in ..."
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Many policymakers and researchers view the recent
nancial and real economic crises across North America, Europe and beyond as a global phenomenon. Some have argued that this global recession has a common source: the U.S.
nancial crisis. This paper investigates the extent to which a credit shock in one country is transmitted to its trade partners. To this end, we develop a quantitative two-country dynamic stochastic general equilibrium model wherein intermediate-good producers face persistent idiosyncratic productivity shocks and occasionally binding collateralized borrowing constraints for investment loans. We nd that a negative credit shock to one country induces a sharp contraction in that countrys economy, whereas the resulting recession in the economy of its trading partner is quantitatively minor. Transmission through goods trade is limited by the calibrated average trade share, which we nd insu ¢ cient to deliver a sizable recession abroad. The degree of credit-shock transmission depends on the home bias in international trade and the type of goods countries trade with each other. We show that lower home bias dampens the domestic recession following a credit shock, but it ampli
es international transmission. Similarly, when traded goods are less substitutable, the domestic recession is less severe while real consequences abroad are greater. Our model also predicts that credit shocks cause larger declines in international trade than do productivity shocks. These results shed light on the great trade collapse over 2008- 2009, suggesting that tightened nancial constraints may have been a contributing factor.
Working Paper Series
, 1789
"... Exploring price and non-price determinants of trade flows in the largest euro-area countries ..."
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Exploring price and non-price determinants of trade flows in the largest euro-area countries
Working Paper Series The great collapse in
, 1833
"... Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB This paper studies the great collapse in value added trade using a structural decomposition anal- ..."
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Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB This paper studies the great collapse in value added trade using a structural decomposition anal-ysis. We show that changes in vertical specialisation accounted for almost half of the great trade collapse, while the previous literature on gross trade has mainly focused on final expenditure, in-ventory adjustment and adverse credit supply conditions. The decline in international production sharing during the crisis may partially account for the observed decrease in global trade elasticities in recent years. Second, we find that the drop in the overall level of demand accounted for roughly a quarter of the decline in value added exports while just under one third was due to compositional changes in final demand. Finally, we demonstrate that the dichotomy between services and manu-facturing sectors observed in gross exports during the great trade collapse is not apparent in value added trade data.
Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone∗
, 2015
"... We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. A parsimonious model can repl ..."
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We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. A parsimonious model can replicate the time-series of nominal GDP, employment, and net exports of Eurozone countries between 2000 and 2012. We then ask how periphery countries would have fared with: (i) more conservative fiscal policies; (ii) macro-prudential tools to control private leverage; (iii) a central bank acting earlier to limit financial segmentation; and (iv) effective fiscal devaluation. To perform these counterfactual experiments, we use U.S. states as a control group that did not suffer from a sudden stop. We find that periphery countries could have stabilized their employment if they had followed more conservative fiscal policies during the boom. This is especially true in Greece. For Ireland, however, given the size of the private leverage boom, such a policy would have required buying back almost all of the public debt. Macro-prudential policy would have been especially helpful in Ireland and Spain. However, in presence of a spending bias in fiscal rules, macro-prudential policies would have led to less prudent fiscal policies in the boom. If spreads had not spiked, employment would have been stabilized in all countries because they would not have been constrained into fiscal austerity. Finally, a fall in export prices- through a fiscal devaluation- would have enabled countries to attenuate the employment bust and to reduce their public debt.
