This paper provides an empirical assessment of race-to-the-bottom unilateralism. It suggests that decades of unilateral tariff cutting in Asia‟s emerging economies have been driven by a competition to attract FDI from Japan. Using spatial econometrics, I show that tariffs on parts and components, a crucial locational determinant for Japanese firms, converged across countries following a contagion pattern. Tariffs followed those of competing countries if the latter were lower, if FDI jealousy was high, and when competing countries were at a similar level of development.
The aim of this paper is to compute the conditional forecasts of a set of variables of interest on future paths of some variables in dynamic systems. We build a large dynamic factor models for a quarterly data set of 30 macroeconomic and financial indicators. Results of forecasting suggest that conditional FAVAR models which incorporate more economic information outperform the unconditional FAVAR in terms of the forecast errors.
This paper presents a novel dynamic factor model for non-stationary data. We begin by constructing a simple dynamic stochastic general equi- librium growth model and show that we can represent and estimate the model using a simple linear-Gaussian (Kalman) filter. Crucially, consistent estimation does not require differencing the data despite it being cointe- grated of order 1. We then apply our approach to a mixed frequency model which we use to estimate monthly U.S. GDP from May 1969 to January 2016 using 171 series with an emphasis on housing related data. We suggest our estimates may, at a quarterly rate, in fact be more accurate than mea- surement error prone observations. Finally, we use our model to construct pseudo real-time GDP nowcasts over the 2007 to 2009 financial crisis. This last exercise shows that a GDP index, as opposed to real time estimates of GDP itself, may be more helpful in highlighting changes in the state of the macroeconomy.
The aim of this research is to identify the determinants of excess liquidity defined as excess reserves in the banking sector in Bosnia and Herzegovina (B&H). The empirical analysis is carried out through the use of the dynamic panel analysis based on the generalized method of moments (GMM) methodology on a dataset of 19 commercial banks operating in B&H in the period from 2006 to 2015. The estimated relationships between excess liquidity and selected variables in models’ specifications are as expected. The findings indicate that the size of the bank, non-performing loans and total loans are the key determinants of excess liquidity amongst internal factors. The results also reveal that among the domestic macroeconomic variables CPI is statistically significant indicator of excess liquidity. The commercial banks also rely on foreign markets and the finding arising from this study confirms a significant influence of Eonia on excess liquidity position in B&H. The presented research results and their economic interpretation may have valuable implications on the optimal liquidity management in the commercial banks in B&H and appropriate liquidity supervision. It will also provide beneficial foundation for more thorough liquidity analysis and its possible linkages with other risks within the banking sector.
The paper assesses the role of taxes on investment in Colombian firms. The analysis is carried out at the firm level for the period 2003-2014. During this period, the national government set five different tax reforms, including changes in the statutory tax rates, tax credits and incentives for corporate investment. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the cost of capital by computing the effective marginal tax rates (EMTRs) at firm level. Then, we estimate the impact of the cost of capital on investment through a panel data regression. Endogeneity is controlled by an instrumental variable approach, simulating post-reform effective marginal tax rates under pre-reform firm characteristics. Results are robust with different control variables, although some significant differences by size and economic sector of the firm are found.
The large regional variation of minimum wage changes in 2002—08 implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital in low-wage firms, reduce employment growth, but also accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in governance or management practice, but is difficult to reconcile with the idea that competitive pressure is a substitute for governance quality.
What were the economic benefits and costs of preventing a stock market meltdown during the summer of 2015 by the Chinese government intervention? We answer this question by estimating the value creation for the stocks purchased by the government between the period starting with the market crash in mid-June and the market recovery in September. We find that the government intervention increased the value of the rescued firms with a net benefit between RMB 5,697 and 6,635 billion, which is about 10% of the Chinese GDP in 2014. The value creation came from the increased stock demand by the government, the reduced default probabilities, and the increased liquidity.
Worldwide, people are gaining access to a formal bank account, which allows account-based instead of cash payments. Based on a novel randomized control trial, we document that the payment method is an important determinant of savings behavior. In rural India, we study the effect on savings of allocating identical weekly payments on a bank account (treated) or in cash (control). The treatment impact is huge: savings increase by 110% within three months, and the effect is long-lasting. Villagers paid in cash do not save more in other assets, but increase consumption. Therefore, we infer that being paid on a bank account has a net positive impact on total savings. When we twist the design and start paying everyone in cash, savings and consumption patterns no longer differ between the treated and control. We interpret these findings as the outcome of the default option, and shed light on six plausible underlying mechanisms.
This paper examines the relationship between the composition of exporters' currency pricing portfolio - number and value of product sales in different currencies at a destination - and their success in trade as measured by continuing to their exporting activity. Detailed investigation of currency choice data of Russian exporters between 2005-2009 shows that many exporters use only one currency pricing per destination. Among those who use more than one currency pricing, higher diversification is indeed associated with up to 18% higher odds of survival as an exporter at the product-destination. Nevertheless, many exporters still use only one currency pricing per destination. This puzzle is explained in this paper by incorporating the concept of "exchange rate hedging costs" into the existent literature on currency choice. These costs are firm-specific and relate to the complexity on the part of the firm of using more than one currency. The firms that have high exchange rate hedging costs will be using only one currency, but still continue exporting to the destination.
This paper evaluates different channels of oil price pass through into inflation for the countries Azerbaijan, Kazakhstan and Russia. We propose a methodology to disentangle the effects of different channels after an oil price shock hits international markets. We measure the relative importance of the two distinct channels through which oil price shocks are transmitted into inflation in these economies. For that, we employ an approach which is in the spirit of the methodology proposed by Sims and Zha(1995). The empirical evidence shows that the level of inflation in these oil-exporting countries responds significantly to oil price shocks. The fiscal and cost channels are major amplifiers of the effects of oil price shocks on inflation. By providing new evidence from emerging oil-exporting countries, the paper also has important policy implications on the maintenance of price stability by central banks.
