Has the Euro Increased International Price Elasticities?
Oliver Holtemöller, Götz Zeddies
IWH Discussion Papers,
No. 18,
2010
published in: Empirica
Abstract
This paper analyzes the role of common data problems when identifying structural breaks in small samples. Most notably, we survey small sample properties of the most commonly applied endogenous break tests developed by Brown, Durbin, and Evans (1975) and Zeileis (2004), Nyblom (1989) and Hansen (1992), and Andrews, Lee, and Ploberger (1996). Power and size properties are derived using Monte Carlo simulations. Results emphasize that mostly the CUSUM type tests are affected by the presence of heteroscedasticity, whereas the individual parameter Nyblom test and AvgLM test are proved to be highly robust. However, each test is significantly affected by leptokurtosis. Contrarily to other tests, where skewness is far more problematic than kurtosis, it has no additional effect for any of the endogenous break tests we analyze. Concerning overall robustness the Nyblom test performs best, while being almost on par to more recently developed tests in terms of power.
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A Cost Efficient International Lender of Last Resort
Tobias Knedlik
International Research Journal of Finance and Economics,
2010
Abstract
The current reform of the International Monetary Fund’s (IMF) lending instruments has transformed the Fund towards an international lender of last resort (ILOLR). Current research discusses various general frameworks for installing an ILOLR. However, it remains unclear how the ILOLR should actually operate. This paper discusses six different options for the construction of an ILOLR that supports central banks during currency crises. The paper concludes that the most cost efficient version of the ILOLR would be direct intervention by the IMF using IMF resources, with the option of using additional reserves from central banks. The paper considers measures of cost efficiency, such as cost of borrowing, intervention, and sterilization and moral hazard problems.
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Catching the Flu from the United States
Stéphane Dées, Filippo di Mauro, Marco Lombardi
Palgrave Macmillan,
July
2010
Abstract
Looking at historical cross-country interactions, this book examines the role of the US in the world economy. Illustrating that US shocks tend to have a global nature and that Monetary Union only partially shelters the Euro area from its external environment, the US should fully assume its responsibility, minimizing shock transmission.
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The Emergence of Wage Coordination in the Central Western European Metal Sector and its Relationship to European Economic Policy
Vera Glassner, Toralf Pusch
Abstract
In the European Monetary Union the transnational coordination of collective wage bargaining has acquired increased importance on the trade union agenda. The metal sector has been at the forefront of these developments. This paper addresses the issue of crossborder coordination of wage setting in the metal sector in the central western European region, that is, in Germany, the Netherlands and Belgium, where coordination practices have become firmly established in comparison to other sectors. When testing the interaction of wage developments in the metal sector of these three countries, relevant macroeconomic (inflation and labour productivity) and sector-related variables (employment, export-dependence) are considered with reference to the wage policy guidelines of the European Commission and the European Metalworkers’ Federation. Empirical evidence can be found for a wage coordination effect in the form of increasing compliance with the wage policy guidelines of the European Metalworkers’ Federation. The evidence for compliance with the stability-oriented wage guideline of the European Commission is weaker.
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The Extreme Risk Problem for Monetary Policies of the Euro-Candidates
Hubert Gabrisch, Lucjan T. Orlowski
Abstract
We argue that monetary policies in euro-candidate countries should also aim at mitigating excessive instability of the key target and instrument variables of monetary policy during turbulent market periods. Our empirical tests show a significant degree of leptokurtosis, thus prevalence of tail-risks, in the conditional volatility series of such variables in the euro-candidate countries. Their central banks will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy to mitigate such extreme risks while steering their economies out of the crisis and through the euroconvergence process. Such policies provide flexibility that is not embedded in the Taylor-type instrument rules, or in the Maastricht convergence criteria.
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Stages of the 2007/2008 Global Financial Crisis: Is there a Wandering Asset-Price Bubble?
Lucjan T. Orlowski
Einzelveröffentlichungen,
No. 3,
2008
Abstract
This study argues that the severity of the current global financial crisis is strongly influenced by changeable allocations of the global savings. This process is named a “wandering asset bubble”. Since its original outbreak induced by the demise of the subprime mortgage market and the mortgage-backed securities in the U.S., this crisis has reverberated across other credit areas, structured financial products and global financial institutions. Four distinctive stages of the crisis are identified: the meltdown of the subprime mortgage market, spillovers into broader credit market, the liquidity crisis epitomized by the fallout of Bear Sterns with some contagion effects on other financial institutions, and the commodity price bubble. Monetary policy responses aimed at stabilizing financial markets are proposed.
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Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy
Mathias Hoffmann, Oliver Holtemöller
Scandinavian Journal of Economics,
2010
Abstract
We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, and the UK) using a heterogeneous dynamic panel approach.
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Reform of IMF Lending Facilities Increases Stability in Emerging Market Economies
J. John, Tobias Knedlik
Wirtschaft im Wandel,
No. 3,
2010
Abstract
Im Zuge der aktuellen Finanz- und Konjunkturkrise gewann der Internationale Währungsfonds (IWF) stark an Bedeutung. Dies zeigte sich vor allem in der erheblichen Ausweitung der verfügbaren Mittel des Fonds. Im Zuge der Krise wurden auch die Kreditlinien des IWF überarbeitet. Zwei neue Instrumente sind dabei von besonderem Interesse, die Flexible Credit Line (FCL) und die High
Access Precautionary Arrangements (HAPA). Nachdem bereits früher mit präventiven Kreditlinien experimentiert wurde, ist die FCL das erste Kreditinstrument mit vorgelagertem Qualifikationsprozess, das auch auf Nachfrage stieß. Dabei ersetzt die Ex-ante-Qualifikation die bisher bei allen IWF-Krediten übliche Ex-post-Konditionalität. Dies bedeutet, dass qualifizierte Länder im Falle einer Krise direkt auf die IWFMittel zurückgreifen können. Ein langwieriger Verhandlungsprozess ist damit ebenso obsolet wie die häufig kritisierten begleitenden Reformprogramme. Damit erfüllt der IWF nunmehr wesentliche Voraussetzungen für eine präventive Kreditvergabe. Auch die befürchtete Stigmatisierung der Länder, die Interesse an den neuen Krediten zeigten, blieb
bislang aus. Die Indikatoren für Polen, Mexiko und Kolumbien, also jener Länder, die bisher FCLVereinbarungen geschlossen haben, sind positiv. Die neuen Instrumente dürften deshalb die Stabilität in Schwellenländern erhöhen.
Kritisch zu betrachten bleibt jedoch die Gefahr erhöhter Risikobereitschaft durch die Finanzmarktakteure, solange die Kreditinstrumente nicht von einem effektiven regulatorischen Rahmen begleitet werden. Die systemische Bedeutung der neuen
Kreditinstrumente wird zudem durch die bislang geringe Nachfrage geschmälert.
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Money and Inflation: The Role of Persistent Velocity Movements
Makram El-Shagi, Sebastian Giesen
Abstract
While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In the present paper we use a multivariate state space framework, that substantially expands the traditional vector error correction approach, to analyze the short run impact of money on prices. We contribute to the literature in three ways: First, we distinguish changes in velocity of money that are due to institutional developments and thus do not induce inflationary pressure, and changes that reflect transitory movements in money demand. This is achieved with a newly developed multivariate unobserved components decomposition. Second, we analyze whether the high volatility of the transmission from monetary pressure to inflation follows some structure, i.e., if the parameter regime can assumed to be constant. Finally, we use our model to illustrate the consequences of the monetary policy of the Fed that has been employed to mitigate the impact of the financial crisis, simulating different exit strategy scenarios.
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