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Working Paper
The Taylor rule and forecast intervals for exchange rates
This paper attacks the Meese-Rogoff (exchange rate disconnect) puzzle from a different perspective: out-of-sample interval forecasting. Most studies in the literature focus on point forecasts. In this paper, we apply Robust Semi-parametric (RS) interval forecasting to a group of Taylor rule models. Forecast intervals for twelve OECD exchange rates are generated and modified tests of Giacomini and White (2006) are conducted to compare the performance of Taylor rule models and the random walk. Our contribution is twofold. First, we find that in general, Taylor rule models generate tighter ...
Working Paper
Understanding the effect of productivity changes on international relative prices: the role of news shocks
The terms of trade and the real exchange rate of the US appreciate when the US labor productivity increases relative to the rest of the world. This finding is at odds with predictions from standard international macroeconomic models. In this paper, we find that incorporating news shocks to total factor productivity (TFP) in an otherwise standard dynamic stochastic general equilibrium (DSGE) model with variable capital utilization can help the model replicate the above empirical finding. Labor productivity increases in our model after a positive news shock to TFP because of an increase in ...
Working Paper
Exchange rate pass-through: evidence based on vector autoregression with sign restrictions
We estimate exchange rate pass-through (PT) into import, producer and consumer price indexes for nine OECD countries, using a method proposed by Uhlig (2005). In a Vector Autoregression (VAR) model, we identify the exchange rate shock by imposing restrictions on the signs of impulse responses for a small subset of variables. These restrictions are consistent with a large class of theoretical models and previous empirical findings. We find that exchange rate PT is less than one at both short and long horizons. Among three price indexes, exchange rate PT is greatest for import price index and ...
Report
Understanding Trade, Exchange Rates and International Capital Flows
Global trade collapsed following the financial crisis in 2008?09. Imports and exports plunged in major trade countries, and global trade suffered the biggest contraction since World War II.
Journal Article
China's sputtering housing boom poses broad economic challenge
China?s economic slowdown and changing demographics cloud its housing market?s long-term prospects. While urbanization and a lack of alternative investment opportunities provide short-run support, the housing sector?s difficulties imperil China?s financial sector and the global recovery.
Journal Article
Foreign direct investment: financial benefits could surpass gains in technology
Many emerging markets offer financial incentives to attract foreign direct investment, believing that such investment provides advanced technology or management skills. However, it appears developing economies such as China could benefit more from multinational corporations? financial resources.
Discussion Paper
Exchange rate pass-through into U.K. import prices: evidence from disaggregated data
In this paper we estimate the rate of exchange rate pass-through (ERPT) into U.K. import prices using disaggregated data at the SITC-2 and SITC-3 digit levels. We show that the ERPT varies at the disaggregate level. Because of this heterogeneity at the disaggregate level, the estimate of the ERPT using aggregate data is found substantially upward-biased in our U.K. data. The upward bias exaggerates the impact of exchange rate movements on the competitiveness of imported goods relative to domestically produced goods. Further, we investigate the source of the heterogeneity of the ERPT at the ...
Working Paper
Lottery-related anomalies: the role of reference-dependent preferences
Previous empirical studies find that lottery-like stocks significantly underperform their nonlottery-like counterparts. Using five different measures of the lottery features in the literature, we document that the anomalies associated with these measures are statedependent: the evidence supporting these anomalies is strong and robust among stocks where investors have lost money, while among stocks where investors have gained profits, the evidence is either weak or even reversed. Several potential explanations for such empirical findings are examined and we document support for the explanation ...
Report
International Conference on Capital Flows and Safe Assets
From just after the Great Depression until the beginning of the 2007?09 financial crisis, the global financial system was relatively quiet, with no major calamity afflicting advanced economies. Although emerging markets periodically confronted crises, these events were usually limited to a small set of countries that tended to recover quickly. The devastating consequences of the financial crisis caught most policymakers and economists off guard. Policymakers and researchers from the U.S., China and Europe who studied triggers of the crisis gathered to discuss global financial industry ...
Journal Article
With reforms in China, time may correct U.S. current account imbalance
The U.S. current account deficit has deepened significantly since the late 1990s. This shortfall?the value of net exports of goods and services, international financial investment net income and transfer payments?was $803 billion at its peak in 2006, or 6 percent of U.S. gross domestic product (GDP). Conversely, China, Germany, Japan and the oil-exporting countries have been running current account surpluses that have risen substantially (Chart 1). This divergence has raised concerns among policymakers, economic researchers and private investors about whether these imbalances are sustainable ...