THE INTERNATIONAL TRANSMISSION OF VOLATILITY SHOCKS: AN EMPIRICAL ANALYSIS

This paper proposes an empirical model which can be used to estimate the international transmission of volatility shocks. Using this model we estimate that a one standard deviation increase in the volatility of the shock to US real GDP leads to a decline in UK GDP of 1% relative to trend and a 0.7% increase in UK CPI relative to trend at the two‐year horizon. Using a nonlinear open‐economy DSGE model, we find that these empirical estimates are consistent with the response to a perturbation to the volatility of foreign “supply” type shocks, while an increase in the volatility of demand shocks has a negligible impact.     

THE DEMAND FOR LIQUID ASSETS,CORPORATE SAVING,AND INTERNATIONAL CAPITAL FLOWS

The recent period of capital outflows from emerging economies has coincided with an increase in their corporate saving. In this paper, we model corporate saving as a demand for liquid assets by credit‐constrained firms in a dynamic open‐economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with a number of stylized facts found in high‐growth, high‐investment emerging economies.     

The Effect of Trade on Employment and Wages in Italian Industry

The paper analyses the labour market impact of international trade on the Italian manufacturing sector. Using data for a panel of manufacturing industries the effects of trade‐induced changes in sales on employment and wages are investigated. The evidence suggests that the industry adjustment to demand shocks took place mainly through employment changes. However, increased exposure to foreign competition had a small effect on the Italian labour market, while technological change seems to have a major role in explaining the increase in unemployment.     

CAPITAL INFLOWS,FINANCIAL STRUCTURE AND HOUSING BOOMS

We use a panel VAR to study the effect of shocks to capital inflows, which are identified using sign restrictions, on the housing market in OECD countries. To explore how effects of these shocks change with the structure of the mortgage market and the degree of mortgage securitization, we allow the VAR coefficients to vary with mortgage‐market characteristics. Our results indicate that capital‐inflow shocks have a significant and positive effect on real house prices, real credit available to the private sector, and real residential investment. The responses of these variables are stronger in countries with more developed mortgage markets and in countries where securitization is allowed.     

DEEP FINANCIAL INTEGRATION AND VOLATILITY

We investigate the relationship between foreign direct ownership of firms and firm‐ and region‐level output volatility using a novel panel data set for European countries. We document a positive, highly robust, relationship between firm‐level foreign ownership and volatility of value added. This relationship holds cross‐sectionally and in panels with firm fixed effects where the relationship captures within‐firm variation over time. Considering domestic firms with assets in foreign countries, we document that it is international diversification, rather than the nationality of the owner, that explains this positive correlation. Our results can also be found at the aggregate level, where we show that region‐level volatility is correlated positively with foreign investment in the region. We show that this positive relation between aggregate volatility and foreign investment can be explained by the granularity of the firm size distribution and the fact that foreign ownership is concentrated among the largest firms.     

OIL AND THE MACROECONOMY: A QUANTITATIVE STRUCTURAL ANALYSIS

We model an open economy where macroeconomic variables fluctuate in response to oil supply shocks, as well as aggregate demand and supply shocks generated domestically and abroad. We use several robust predictions of the model to identify five fundamental shocks underlying the fluctuations of the (real) oil price, the US activity and the global business cycle. The estimates show that supply shocks generated in the global economy explain the largest fraction of the oil price fluctuations, about four times more than canonical oil supply shocks. The correlation between oil prices and the US activity varies with the type of shock.     

Foreign Direct Investment,Trade, and Skilled Labour Demand in Eastern Europe

In this paper, we study the effects of inward foreign direct investment (FDI) and trade on relative skilled labour demand in Poland, Hungary, and the Czech Republic. Our estimates show significant heterogeneity in the FDI effect across the three economies: the effect is always significantly positive for Hungary, weakly negative for Poland, and negligible for the Czech Republic. As to trade, we find much more homogeneity in coefficient estimates, which are generally negative for all countries, although significant only in the case of Hungary.     

VOLATILITY,LABOR MARKET FLEXIBILITY,AND THE PATTERN OF COMPARATIVE ADVANTAGE

This paper studies the link between volatility, labor market flexibility, and international trade. International differences in labor market regulations affect how firms can adjust to idiosyncratic shocks. These institutional differences interact with sector specific differences in volatility (the variance of the firm‐specific shocks in a sector) to generate a new source of comparative advantage. Other things equal, countries with more flexible labor markets specialize in sectors with higher volatility. Empirical evidence for a large sample of countries strongly supports this theory: the exports of countries with more flexible labor markets are biased towards high‐volatility sectors. We show how differences in labor market institutions can be parsimoniously integrated into the workhorse model of Ricardian comparative advantage of Dornbusch, Fischer, and Samuelson (1977, American Economic Review, 67, 823–839). We also show how our model can be extended to multiple factors of production.     

A COMPARISON OF THE EFFECTS OF EXOGENOUS OIL SUPPLY SHOCKS ON OUTPUT AND INFLATION IN THE G7 COUNTRIES

A comparison of the effects of exogenous shocks to global crude oil production on seven major industrialized economies suggests a fair degree of similarity in the real growth responses. An exogenous oil supply disruption typically causes a temporary reduction in real GDP growth that is concentrated in the second year after the shock. Inflation responses are more varied. The median CPI inflation response peaks after three to four quarters. Exogenous oil supply disruptions need not generate sustained inflation or stagflation. Typical responses include a fall in the real wage, higher short‐term interest rates, and a depreciating currency with respect to the dollar. Despite many qualitative similarities, there is strong statistical evidence that the responses to exogenous oil supply disruptions differ across G7 countries. For suitable subsets of countries, homogeneity cannot be ruled out. A counterfactual historical exercise suggests that the evolution of CPI inflation in the G7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production, consistent with a monetary explanation of the inflation of the 1970s. There is no evidence that the 1973–1974 and 2002–2003 oil supply shocks had a substantial impact on real growth in any G7 country, whereas the 1978–1979, 1980, and 1990–1991 shocks contributed to lower growth in at least some G7 countries. (JEL: E31, E32, Q43)     

THE RISE OF THE EAST AND THE FAR EAST: GERMAN LABOR MARKETS AND TRADE INTEGRATION

We analyze the effects of the unprecedented rise in trade between Germany and “the East” (China and Eastern Europe) in the period 1988–2008 on German local labor markets. Using detailed administrative data, we exploit the cross‐regional variation in initial industry structures and use trade flows of other high‐income countries as instruments for regional import and export exposure. We find that the rise of the East in the world economy caused substantial job losses in German regions specialized in import‐competing industries, both in manufacturing and beyond. Regions specialized in export‐oriented industries, however, experienced even stronger employment gains and lower unemployment. In the aggregate, we estimate that this trade integration has caused some 442,000 additional jobs in the economy and contributed to retaining the manufacturing sector in Germany. This is almost exclusively driven by the rise of Eastern Europe, not by China. We also conduct an analysis at the individual worker level, and find that trade had a stabilizing overall effect on employment relationships.     

RELATIVE FACTOR ENDOWMENTS AND INTERNATIONAL PORTFOLIO CHOICE

We present a model of international portfolio choice based on cross‐country differences in relative factor abundance. Countries have varying degrees of similarity in their factor endowment ratios, and are subject to aggregate productivity shocks. Risk‐averse consumers can insure against these shocks by investing their wealth at home and abroad. In a many‐good setup, the change in factor prices after a positive shock in a particular country provides insurance to countries that have dissimilar factor endowment ratios, but is bad news for countries with similar factor endowment ratios, since their incomes will worsen. Therefore countries with similar relative factor endowments have a stronger incentive to invest in one another for insurance purposes than countries with dissimilar endowments. The importance of this effect depends on the size of countries. Empirical evidence linking bilateral international equity investment positions to a proxy for relative factor endowments supports our theory: the similarity of host and source countries in their relative capital–labor ratios has a positive effect on the source country’s investment position in the host country. The effect of similarity is enhanced by the size of host countries.     

Retailer's Response to Alternate Manufacturer's Incentives Under a Single‐Period,Price‐Dependent,Stochastic‐Demand Framework*

This article considers the joint development of the optimal pricing and ordering policies of a profit‐maximizing retailer, faced with (i) a manufacturer trade incentive in the form of a price discount for itself or a rebate directly to the end customer; (ii) a stochastic consumer demand dependent upon the magnitude of the selling price and of the trade incentive, that is contrasted with a riskless demand, which is the expected value of the stochastic demand; and (iii) a single‐period newsvendor‐type framework. Additional analysis includes the development of equal profit policies in either form of trade incentive, an assessment of the conditions under which a one‐dollar discount is more profitable than a one‐dollar rebate, and an evaluation of the impact upon the retailer‐expected profits of changes in either incentive or in the degree of demand uncertainty. A numerical example highlights the main features of the model. The analytical and numerical results clearly show that, as compared to the results for the riskless demand, dealing with uncertainty through a stochastic demand leads to (i) (lower) higher retail prices if additive (multiplicative) error, (ii) lower (higher) pass throughs if additive (multiplicative) error, (iii) higher claw backs in both error structures wherever applicable, and (iv) higher rebates to achieve equivalent profits in both error structures.     

INSTITUTION‐INDUCED PRODUCTIVITY DIFFERENCES AND PATTERNS OF INTERNATIONAL CAPITAL FLOWS

This paper studies theoretically how the cross‐country differences in the institutional quality (IQ) of domestic credit markets shape the patterns of international capital flows when such IQ differences also cause productivity differences across countries. IQ affects productivity by changing productivity–agency‐cost trade‐offs across heterogeneous investment projects. Such institution‐induced productivity differences are shown to have effects on the investment and capital flows that are opposite of exogenous productivity differences. This implies that the overall effect of IQ could generate U‐shaped responses of the investment and capital flows. Among other things, this means that capital could flow from middle‐income countries to both low‐income and high‐income countries, and that, starting from a very low IQ, a country could experience both a growth and a current account surplus after a successful institutional reform. More generally, the results here provide some cautions when interpreting the empirical evidence on the role of productivity differences and institutional differences on capital flows. It also calls into question the validity of treating the degree of financial frictions as a proxy for the quality of financial institutions, as commonly done in the literature.     

AN ESTIMATED DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODEL OF THE EURO AREA

This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labor supply, investment, preference, cost‐push, and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle fluctuations in the euro area. Using the estimated model, we also analyze the output (real interest rate) gap, defined as the difference between the actual and model‐based potential output (real interest rate). (JEL: E4, E5)     

Could diamonds become an investor’s best friend?

Currently, the role of diamonds in the global financial system is under intense discussion in the financial media because individual investors and portfolio managers have begun to consider them as potential investment assets. To address the growing interest in diamonds, this article examines the historical performance of investments in various diamond quality grades. Furthermore, it investigates their relation to stock market and currency risk. Specifically, we focus on two important practical investment questions: Can diamonds function as a hedge or a safe haven against stock market volatility or fluctuations of the US dollar? Can diamonds be regarded as effective diversifiers in a stock or a currency portfolio context? Key findings are as follows: (1) The investment performance of diamonds is lower than the one of gold and silver. (2) Diamonds have only acted as a weak hedge and a weak safe haven against stock market downturns and currency risk associated with the US dollar. (3) Within global stock and currency portfolios, 1.0 carat fine diamonds show valuable diversification potential in that they can increase portfolio performance to an economically significant extent. Interestingly, this final result is fairly robust to the choice of performance measure.     

中美贸易摩擦对中国短期综合影响:基于投入占用产出局部闭模型的研究

本文利用投入占用产出技术构建投资和消费局部内生化的投入占用产出局部闭模型。基于新模型，文章研究了中美贸易摩擦的两个情境，美国单方面对中国的500亿美元商品和2000亿美元商品加征25%进口关税，对中国带来的短期综合影响。测算结果表明，两种情境下中国对美商品出口额将分别下降4.27%和16.03%，中国的出口增加值分别损失962.85亿元和3829.85亿元，出口拉动的国内非农就业分别减少78.62万人和331.05万人。以先进设备、信息通信技术、计算机等为代表的新兴ICT产业受直接影响较大，与此关联度较高的上下游产业也将受到明显冲击。在中美贸易摩擦频繁的背景下，中国可能将面临通货紧缩和相关行业就业人数减少的风险。面对贸易摩擦困局，中国需积极升级国内消费和优化投资结构。     

石油价格冲击与中国实际经济波动研究——基于开放RBC模型的分析

中国的石油对外贸易依存度较高,国际油价波动这种外部冲击对经济可能产生各种影响。本文构建了开放经济条件下的RBC(真实经济周期)模型,通过引入石油价格冲击和技术冲击,解释了中国实际经济波动的特征事实,并探讨了石油价格冲击对于中国实际经济波动的作用机制。相较于已有研究,该模型更好地模拟了中国主要宏观经济变量的波动特征。同时,研究发现,除贸易余额冲击外,石油价格冲击对经济也产生负向影响。因此,能源价格改革应遵循循序渐进的原则,防范石油价格波动对实际经济产生较大冲击。     

基于银行-资产双边网络模型的系统性风险及投资策略研究

受近几年的国际金融危机及金融全球化的影响,对金融系统的系统性风险的研究已成为国内外学者的关注热点。考虑到当前基于"银行-资产-银行"间接传播渠道的相关研究相对匮乏,本文基于银行-资产双边网络模型来分析银行系统性风险。首先,使用中国47家上市银行2018年的资产负债表数据构建了中国银行系统的双边网络模型,研究分析各类资产遭受冲击时外部冲击、降价出售效应及银行所持有的各类资产占银行总资产的比例对银行系统性风险的影响。然后,引入系统性冲击方式,通过设置具有不同属性的两大类资产并生成四种冲击事件来构建银行的投资策略模型,从资产视角探讨银行最优的投资策略。研究发现,外部冲击与降价出售效应这两个产生系统性风险的影响因素在一定区间值时会产生叠加效应,使银行系统性风险急剧增加;五种资产类中,贷款类资产对外部冲击最敏感;分析发现在各类资产冲击下都未倒闭的所有银行的资产组合具有一定的相似性;进一步研究发现银行系统中存在着最优的资产组合,使得银行在稳定的同时能获取最大收益,并且资产负债比越大的银行其风险承受能力越强,从而可以选择更激进的投资策略来追求高收益。     

STOCHASTIC GROWTH IN THE UNITED STATES AND EURO AREA

This paper estimates, using data from the United States and the Euro Area, a two‐country stochastic growth model in which both neutral and investment‐specific technology shocks are nonstationary but cointegrated across economies. The results point to large and persistent swings in productivity, both favorable and adverse, originating in the United States but not transmitted to the Euro Area. More specifically, the results suggest that while the Euro Area missed out on the period of rapid investment‐specific technological change enjoyed in the United States during the 1990s, it also escaped the stagnation in neutral technological progress that plagued the United States in the 1970s.     

MADE IN THE WORLD: THE GLOBAL SPREAD OF PRODUCTION

We are moving rapidly into an age of transnational manufacturing, where things made in one country are shipped across national borders for further work, storage, sales, repair, remanufacture, recycle, or disposal; but our laws, policies, and management practices are slow in adjusting to this reality. They are often based on inaccurate premises. This article examines these premises and suggests what they imply for management of manufacturing. First, a common view is that manufacturing investment in the industrialized nations is declining and shifting to the developing countries. This is not true. Investment in manufacturing in both industrialized and developing nations is increasing and, in absolute value, there is a lot more investment in industrialized countries than in developing countries. Second, a related view argued by many is that manufacturing does not have a bright future in the rich countries. I argue that manufacturers can thrive in the industrialized countries if they learn how to add more value for the end users. They must go beyond productivity improvement to producing more technologically advanced and customized products, responding faster to changing customer demands, and appending more services to their products. Doing all this is easier in the industrialized countries because the needed skills and infrastructure are more readily available there. Third, another potentially misleading notion is related to why companies invest in manufacturing abroad. Access to low-cost production is not the main motivation in most cases; rather it is access to market. Superior global manufacturers use their foreign factories for much more: to serve their worldwide customers better, preempt competitors, work with sophisticated suppliers, collect critical marketing, technological, and competitive intelligence, and attract talented individuals into the company. They build integrated global production networks, not collections of disjointed factories that are spread internationally. Thus their investment in manufacturing abroad is not a substitute for investment at home, it is a complement. Building and managing such integrated global factor networks is the next challenge in manufacturing.