|
on Open Economy Macroeconomics |
| By: | Stefano Grassi (University of Rome Tor Vergata, Italy); Marco Lorusso (University of Perugia, Italy; Newcastle University Business School, UK); Francesco Ravazzolo (BI Norwegian Business School, Norway; Free University of Bozen-Bolzano, Italy; RCEA) |
| Abstract: | We propose and estimate an open economy general equilibrium model that includes international trade between Canada and the US. For both countries, we consider a rich fiscal policy sector with two different types of public expenditure: productive and unproductive government spending. We estimate our model using a new adaptive methodology based on the Mixture of Student's t by Importance Sampling weighted Expectation-Maximization (MitISEM). Our findings regarding the Canadian economy indicate that, irrespective of the type of government expenditure, an increase in domestic public spending leads to an improvement of the domestic trade balance. Notably, we find that the domestic real exchange rate appreciates in response to a positive shock in the domestic unproductive government expenditure, whereas it depreciates after an increase in the domestic productive government spending. Our analysis indicates that a decrease in trade openness, for example resulting from a possible trade war, has important consequences for the propagation of productive and productive government spending shocks on the economy. |
| Keywords: | Open-Economy Model; Fiscal Policy; Adaptive Importance Sampling; ExpectationMaximization. |
| JEL: | E62 F41 C12 C22 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bzn:wpaper:bemps111 |
| By: | Christian Bayer (University of Bonn, CEPR, CESifo & IZA); Alexander Kriwoluzky (Freie Universität Berlin & DIW Berlin); Gernot J. Müller (University of Tübingen, CEPR & CESifo); Fabian Seyrich (Frankfurt School of Finance & Management & DIW Berlin) |
| Abstract: | The distributional and disruptive effects of energy supply shocks are potentially large. We study the effectiveness of alternative fiscal responses in a two-country HANK model calibrated to the euro area. Subsidies can stabilize the domestic economy, but they are fiscally costly and generate negative spillovers to the rest of the monetary union: What the subsidizing country gains, other countries lose. Transfers based on historical gas consumption in the form of a Slutsky compensation are less effective domestically than subsidies, but do not harm economic activity abroad. Moreover, transfers increase domestic welfare, while subsidies decrease it. |
| Keywords: | Energy Crisis, Subsidies, Transfers, HANK2, Monetary Union, International Spillovers, Heterogeneity, Inequality, Households |
| JEL: | D31 E64 F45 Q41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:361 |
| By: | Pablo A. Cuba-Borda; Albert Queraltó; Ricardo M. Reyes-Heroles; Mikaël Scaramucci |
| Abstract: | We explore how shocks to trade costs affect inflation dynamics in the global economy. We exploit bilateral trade flows of final and intermediate goods together with the structure of static trade models that deliver gravity equations to identify exogenous changes in trade costs between countries. We then use a local projections approach to assess the effects of trade cost shocks on consumer price (CPI) inflation. Higher trade costs of final goods lead to large but short-lived increases in inflation, while increases in trade costs of intermediate goods generate small but persistent increases in inflation. We develop a multi-country New Keynesian model featuring trade in final and intermediate goods and show that it can replicate the inflation responses we identify in the data. We estimate the model using historical data and use it to explore the drivers of U.S. inflation in the aftermath of the COVID-19 pandemic. We find that trade costs account for one percentage point of additional inflation in 2022 and the bulk of inflationary pressures in 2023. |
| Keywords: | inflation; international trade; trade costs; New Keynesian model; post-pandemic inflation; monetary policy; gravity equations |
| JEL: | E10 E30 F10 F40 F60 |
| Date: | 2025–03–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99656 |
| By: | Corpus, John Paul; Cassimon, Danny |
| Abstract: | We examine the effect of net capital inflows on industrialization in the ASEAN-4 countries of Indonesia, Malaysia, Philippines, and Thailand. Using panel data covering 1980–2018, we estimate the influence of both aggregate and disaggregated net capital inflows on the manufacturing sector’s share in employment and real output. We find that aggregate net capital inflows have a negative influence on the manufacturing share of employment. Disaggregating capital inflows reveals that the negative effects emanate from non-FDI inflows, particularly portfolio investment and portfolio debt inflows. Meanwhile, FDI inflows have a positive effect on the manufacturing share of output. Our findings are consistent with existing evidence on the effects of aggregate capital inflows and non-FDI inflows on the manufacturing sector. We make a novel contribution for the ASEAN-4 by tracing the negative effects of non-FDI inflows to portfolio investment and portfolio debt, and uncovering the positive ffect of FDI on manufacturing’s output share. Our findings imply that policymakers in developing countries must pay attention to the influence that capital inflows exert on structural change and their industrialization efforts. |
| Keywords: | capital inflows, structural change, premature deindustrialization, ASEAN-4 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iob:wpaper:2025.05 |
| By: | Marcin Kolasa (SGH Warsaw School of Economics, IMF International Monetary Fund); Małgorzata Walerych (Institute of Economics, Polish Academy of Sciences); Grzegorz Wesołowski (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | This paper examines the effects of asset purchase programs (APPs) that were implemented in a number of countries during the COVID-19 pandemic in concert with large fiscal stimulus packages. We identify APP shocks for 14 advanced and emerging market economies using high-frequency identification techniques. We next estimate panel local projections, finding that APPs tend to stimulate output, but decrease prices. By using a Kitagawa-Blinder-Oaxaca decomposition, we demonstrate that these responses significantly depend on the magnitude of the simultaneously applied fiscal stimulus. Remarkably, higher government purchases during that period crowded in private consumption and had a large effect on inflation. We show that these empirical findings, some of which are inconsistent with a standard New Keynesian framework, can be rationalized in a simple general equilibrium model with segmented asset markets and fiscal dominance. |
| Keywords: | asset purchases, monetary-fiscal interactions, fiscal dominance, high-frequency identification, local projections, general equilibrium models |
| JEL: | E44 E52 F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2025-08 |
| By: | Ziruo Chen; Bifei Tian; W. Robert Reed (University of Canterbury); Zhengxin Wang |
| Abstract: | This paper empirically investigates the effects of bilateral investment treaties (BITs) on entrepreneurship through the lens of social network analysis (SNA), focusing on two key network characteristics: centrality and brokerage. We begin by developing a set of hypotheses regarding how a country’s position within the BIT network influences entrepreneurial activity. These hypotheses are tested using a panel dataset of 102 countries spanning 2006–2018. We also examine how these relationships are moderated by economic development and trade integration, and whether they vary across different types of entrepreneurship—including formal vs. informal, male vs. female, and domestic vs. international entrepreneurship. Our findings indicate that centrality has a positive effect on entrepreneurship, while brokerage exerts a negative influence. Moreover, both economic development and trade integration are found to weaken these effects. We also observe differential impacts of BIT network structure across the various entrepreneurship subgroups. |
| Keywords: | BITs network; Entrepreneurship; Centrality; Brokerage; Economic development; Trade integration |
| JEL: | F21 L26 F63 F15 |
| Date: | 2025–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:cbt:econwp:25/06 |
| By: | Saad Ahmad (U.S. International Trade Commission); Jeffrey Bergstrand (University of Notre Dame. Kellogg Institute, University of Notre Dame); Jordi Paniagua (Kellogg Institute, University of Notre Dame. University of Valencia); Heather Wickramarachi (U.S. International Trade Commission) |
| Abstract: | We introduce the Multinational Revenue, Employment, and Investment Database (MREID). Utilizing firm-level data from Orbis, MREID offers comprehensive and consistent information on international and domestic revenue, employment, and investment of multinational enterprises (MNEs) for 185 countries, 25 industries, and (initially) a 12-year annual time series. The database covers a range of industries, including agriculture, mining, energy, manufacturing, and services, enabling a full account of MNE activities across sectors and countries. |
| JEL: | F15 F21 F23 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2504 |
| By: | Alloysius Joko PURWANTO (Economic Research Institute for ASEAN and East Asia (ERIA)); Ridwan Dewayanto RUSLI (Cologne University of Applied Sciences and University of Luxembourg); Hafis Pratama Rendra GRAHA (Bandung Institute of Technology); Sirichai KOONAPHAPDEELERT (Chiang Mai University); Reza Miftahul ULUM (University of Indonesia); Citra Endah Nur SETYAWATI (Economic Research Institute for ASEAN and East Asia (ERIA)); Nadiya PRANINDITA (Economic Research Institute for ASEAN and East Asia (ERIA)); Ryan Wiratama BHASKARA (Economic Research Institute for ASEAN and East Asia (ERIA)) |
| Abstract: | This study analyses the impact of the COVID-19 pandemic on a firm's total factor productivity (TFP) using Korean firm-level data from 2016 to 2021. The study reveals that the pandemic had a heterogeneous impact on firm TFP depending on the firm's operational characteristics, specifically whether the firm is a multinational enterprise (MNE) or a pure exporter (non-MNE). Whilst the pandemic had a more significant negative impact on the TFP of pure exporters than other firms, MNEs were less affected by the pandemic shock than pure exporters. This implies that whilst both firms were exposed to negative demand shocks on a global scale, MNEs were better equipped to handle supply-side uncertainties through international diversification. The study identifies certain characteristics of MNEs that helped buffer the pandemic shock, such as shedding labour, high R&D intensity, and more diversification via foreign subsidiaries. These characteristics enabled MNEs to mitigate the pandemic shock and even increase their TFP during the pandemic. |
| Keywords: | Global Pandemic; COVID-19; firm productivity; resource allocation; labour shedding; R&D; MNEs; international diversification; pure exporting firms |
| JEL: | D24 F23 F40 H12 I18 |
| Date: | 2025–03–04 |
| URL: | https://d.repec.org/n?u=RePEc:era:wpaper:dp-2024-38 |