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Sven W. Arndt - One of the best experts on this subject based on the ideXlab platform.

  • Policy Challenges in a Dual Exchange Rate Regime
    2016
    Co-Authors: Sven W. Arndt
    Abstract:

    It is known that the effectiveness of macro policies depends on the exchange-rate regime. Pertinent models have typically considered either fixed or floating rates rather than mixed regimes. In recent years, however, the dollar has floated against most currencies, while being fixed against the yuan. This paper argues that a flex-price, dual-rate model consisting of the U.S., China and the Eurozone, combined with distinct adjustment patterns in Tradables and non-Tradables sectors and a tendency for policy makers to treat inflation in housing as pure asset inflation, provides a plausible explanation of the great moderation and its aftermath. JEL Classification: E58, F32, F4

  • The “Great Moderation ” in a Dual Exchange Rate Regime
    2016
    Co-Authors: Sven W. Arndt
    Abstract:

    In the early nineties, the U.S. economy was emerging from a brief slump, monetary policy was easy, and economic activity recovered quickly during the decade, with GDP eventually reaching and then passing the consensus full employment level. Yet aggregate inflation remained surpris-ingly subdued. This moderation in prices at the aggregate level persuaded policy makers to allow the easy-money stance to continue in spite of the presence of inflation in non-Tradables and in housing and construction in particular. This paper uses a flex-price, mixed-exchange rate model to examine some of the major contributing factors to economic developments in the two-decade pe-riod that ended in the financial meltdown and the great recession. It argues that Chinese exchange rate manipulation and China’s preference for holding dollar reserves were important contributing factors. On the U.S. side, failure to understand the importance of differencial inflation patterns in Tradables and non-Tradables sectors, and especially failure to see inflation in housing and construc-tion as goods rather than asset inflation, allowed monetary expansion to last much longer than i

Stephen Weymouth - One of the best experts on this subject based on the ideXlab platform.

  • exchange rate policy attitudes direct evidence from survey data
    Imf Staff Papers, 2008
    Co-Authors: Lawrence J Broz, Jeffry Frieden, Stephen Weymouth
    Abstract:

    Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of Tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that Tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008

  • exchange rate policy attitudes direct evidence from survey data
    Imf Staff Papers, 2008
    Co-Authors: Lawrence J Broz, Jeffry Frieden, Stephen Weymouth
    Abstract:

    Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of Tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that Tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008

Bob Rijkers - One of the best experts on this subject based on the ideXlab platform.

  • risky business political instability and sectoral greenfield foreign direct investment in the arab world
    The World Bank Economic Review, 2016
    Co-Authors: Martijn Burger, Elena Ianchovichina, Bob Rijkers
    Abstract:

    Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Political instability is thus associated with increased reliance on non-Tradables and aggravated resource dependence.

  • risky business political instability and greenfield foreign direct investment in the arab world
    The World Bank Economic Review, 2013
    Co-Authors: Martijn Burger, Elena Ianchovichina, Bob Rijkers
    Abstract:

    Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Political instability is thus associated with increased reliance on non-Tradables and aggravated resource dependence.

  • risky business political instability and greenfield foreign direct investment in the arab world
    2013
    Co-Authors: Martijn Burger, Elena Ianchovichina, Bob Rijkers
    Abstract:

    Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Consistent with these patterns, the significant reduction in investment inflows in Arab Spring affected economies was starkest in the non-resource manufacturing sector. Political instability is thus associated with increased reliance on non-Tradables and aggravated resource dependence. Conversely, how intensified political instability affects aggregate foreign direct investment is critically contingent on the initial sector composition of these flows.

Dani Rodrik - One of the best experts on this subject based on the ideXlab platform.

  • Harvard University The Real Exchange Rate and Economic Growth
    2014
    Co-Authors: Dani Rodrik
    Abstract:

    ABSTRACT I show that undervaluation of the currency (a high real exchange rate) stimulates economic growth. This is true particularly for devel-oping countries. This finding is robust to using different measures of the real exchange rate and different estimation techniques. I also provide some evi-dence that the operative channel is the size of the tradable sector (especially industry). These results suggest that Tradables suffer disproportionately from the government or market failures that keep poor countries from converging toward countries with higher incomes. I present two categories of explanations for why this may be so, the first focusing on institutional weaknesses, and the second on product-market failures. A formal model elucidates the linkages between the real exchange rate and the rate of economic growth. Economists have long known that poorly managed exchange rates canbe disastrous for economic growth. Avoiding significant overvaluation of the currency is one of the most robust imperatives that can be gleaned from the diverse experience with economic growth around the world, and one that appears to be strongly supported by cross-country statistical evi-dence.1 The results reported in the well-known papers by David Dollar and by Jeffrey Sachs and Andrew Warner on the relationship between outward orientation and economic growth are largely based on indices that capture the degree of overvaluation.2 Much of the literature that derives policy rec-ommendations from cross-national regressions is now in disrepute,3 but i

  • the real exchange rate and economic growth
    Brookings Papers on Economic Activity, 2009
    Co-Authors: Dani Rodrik
    Abstract:

    I show that undervaluation of the currency (a high real exchange rate) stimulates economic growth. This is true particularly for developing countries. This finding is robust to using different measures of the real exchange rate and different estimation techniques. I also provide some evidence that the operative channel is the size of the tradable sector (especially industry). These results suggest that Tradables suffer disproportionately from the government or market failures that keep poor countries from converging toward countries with higher incomes. I present two categories of explanations for why this may be so, the first focusing on institutional weaknesses, and the second on product-market failures. A formal model elucidates the linkages between the real exchange rate and the rate of economic growth.

Lawrence J Broz - One of the best experts on this subject based on the ideXlab platform.

  • exchange rate policy attitudes direct evidence from survey data
    Imf Staff Papers, 2008
    Co-Authors: Lawrence J Broz, Jeffry Frieden, Stephen Weymouth
    Abstract:

    Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of Tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that Tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008

  • exchange rate policy attitudes direct evidence from survey data
    Imf Staff Papers, 2008
    Co-Authors: Lawrence J Broz, Jeffry Frieden, Stephen Weymouth
    Abstract:

    Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of Tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that Tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008