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Conference Paper
Exchange-rate effects on China's trade: an interim report
Though China's share of world trade is comparable to that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China's transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective ...
Working Paper
Exchange-Rate Effects on China’s Trade: An Interim Report
Though China’s share of world trade is comparable to that of Japan, little is known about the response of China’s trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China’s transformation from a centrally planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China’s exports and imports in world trade in terms of the real ...
Working Paper
The Federal Reserve's balance sheet and overnight interest rates
This paper provides a comprehensive study of the interplay between the Federal Reserve's balance sheet and overnight interest rates. We model both the supply of and the demand for excess reserves, treating assets of the Federal Reserve as policy tools, and estimate the effects of conventional and unconventional monetary policy on overnight funding rates. We find that, in the current environment with quite elevated levels of reserves, the effect of further monetary policy accommodation on overnight interest rates is limited. Further, assuming a path for removing monetary policy accommodation ...
Working Paper
Productivity, investment, and current accounts: reassessing the evidence
The most widely accepted explanation for the inverse association between private investments and current accounts [Glick and Rogoff, 1995] rests on data for manufactures through 1990. Is this consensus robust to revisions to the national accounts and the expansion of information technologies since 1990? To address this question I replicate their results and I find that post 1990 developments eliminate the support for such a conclusion. I also implement alternative formulations and find, again, a lack of empirical support for their findings. Thus I examine the role of measurement errors and ...
Working Paper
Foreign holdings of U.S. Treasuries and U.S. Treasury yields
Foreign official holdings of U.S. Treasuries increased from $400 billion in January 1994 to about $3 trillion in June 2010. Most of this growth is accounted for by a handful of emerging market economies that have been running large current account surpluses. These countries are channeling their savings through the official sector, which is then acquiring foreign exchange reserves. Any shift in policy to reduce their current account surpluses or dampen the rate of reserves accumulation would likely slow the pace of foreign official purchases of U.S. Treasuries. Would such a slowing of foreign ...
Working Paper
International relative price levels: a look under the hood
This paper examines the structure of international relative price levels using purchasing power parities (PPP) at the product-level from the 2005 World Bank?s International Comparison Program (ICP). Our examination is motivated by questions arising from two applications using economy-wide PPPs: the measurement of real effective exchange rates (REERs) and the correlation between prices and development. Specifically, how would our view on competitiveness be affected if one were to use PPP measures that exclude non-tradable categories? Is it the case that an increase in per-capita income raises ...
Working Paper
The autonomy of trade elasticities: choice and consequences
Fifty years of econometric work on trade assumes that trade elasticities are invariant to changes in spending patterns, that prices can be taken as given, and that expenditures on domestic and foreign goods can be studied independently of each other. To relax these assumptions, this paper assembles a simultaneous model explaining trade among Canada, Japan, and the United States. Spending behaves according to the Rotterdam model which, by design, embodies all of the properties of utility maximization and does not treat trade elasticities as autonomous parameters. Pricing behaves according to ...
Working Paper
Trade elasticities for G-7 countries
This paper reports the results of a project to estimate and test the stability properties of conventional equations relating real imports and exports of goods and services for the G-7 countries to their incomes and relative prices. We begin by estimating cointegration vectors and the error-correction formulations. We then test the stability of these equations using Chow and Kalman-Filter tests. The evidence suggests three findings. First, conventional trade equations and elasticities are stable enough, in most cases, to perform adequately in forecasting and policy simulations. Equations for ...
Working Paper
The econometrics of elasticities or the elasticity of econometrics: an empirical analysis of the behavior of U.S. imports
Fifty years of econometric modeling of U.S. import demand assumes that trade elasticities are autonomous parameters, that both cross-price effects and simultaneity biases are absent, and that expenditures on domestic and foreign goods can be studied independently of each other. To relax these assumptions, the paper assembles a simultaneous model explaining bilateral U.S. import volumes and prices. Spending behaves according to the Rotterdam model which, by design, embodies all of the properties of utility maximization and does not treat trade elasticities as autonomous parameters. Pricing ...
Working Paper
Real exchange rates: measurement and implications for predicting U.S. external imbalances
That international trade flows respond to changes in real exchange rates is beyond question. What is less clear is whether the measurement of real exchange rates matters for characterizing and predicting such responses. To identify the implications of choosing a given measure of the real exchange rate, I examine how the parameter estimates and the forecast performance of a given model vary in response to alternative measures of real exchange rates. I reject a given measure if its use (a) implies estimates inconsistent with economic theory; (b) contradicts the assumptions needed for ...