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- 27 March 2007
- WORKING PAPER SERIES - No. 740Details
- In this paper we present a two-country dynamic general equilibrium model of ex ante unequally developed countries. The model explains a key feature recently observed in transition economies - the long-run trend real exchange rate appreciation - through investments into quality. Our exchange-rate projections bear important policy implications, which we illustrate on the collision between the price and nominal exchange rate criterion for the European Monetary Union in a set of selected transition economies in Central and Eastern Europe.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F15 : International Economics→Trade→Economic Integration
F43 : International Economics→Macroeconomic Aspects of International Trade and Finance→Economic Growth of Open Economies
- 28 June 2007
- WORKING PAPER SERIES - No. 771Details
- Policymakers do not always follow a simple rule for setting policy rates for various reasons and thus their choices are co-driven by a decision to follow a rule or not. Consequently, some observations are censored and cause bias in conventional estimators of typical Taylor rules. To account for the censored and discrete process of policy rate setting, I devise a new method for monetary policy rule estimation and demonstrate its ability to outperform the existing conventional estimators using two examples.
- JEL Code
- E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
- 9 August 2007
- WORKING PAPER SERIES - No. 791Details
- In this paper we propose an extension to New International Macroeconomic framework by introducing the vertical investment margin. The dynamic properties of the extended model are discussed in relation to relevant existing models with particular emphasis on the impact of productivity convergence and effects of timing of trade and financial liberalization on the convergence patterns. We compare the mechanisms behind the three investment margins (horizontal investment to new varieties, vertical investment to quality, and investment to export-eligibility) for the long-run equilibrium. Based on such comparison, the proposed extension proves crucial for consistent explanation of long-term trends in macroeconomic aggregates and the real exchange rate development observed in European transition countries.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 19 September 2007
- WORKING PAPER SERIES - No. 807Details
- We study both theoretically and empirically the inter- dependence of lending decisions in different country branches of a multinational bank. First, we model a bank that delegates the management of its foreign unit to a local manager with non-transferable skills. The bank differs from other international investors due to a liquidity threshold which induces a depositor run and a regulatory action if attained. A separate channel of shock propagation exists since lending decisions are influenced by delegation and precautionary motives. This can entail "contagion", i.e. parallel reactions of the loan volumes in both countries to the parent bank home country disturbance. Second, we look for the presence of lending contagion by panel regression methods in a large sample of multinational banks and their affiliates. We find that the majority of multinational banks behave in line with contagion effect. In addition, the presence of contagion seems to be related to the geographical location of subsidiaries.
- JEL Code
- F37 : International Economics→International Finance→International Finance Forecasting and Simulation: Models and Applications
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity