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Nico Zorell

8 April 2011
WORKING PAPER SERIES - No. 1322
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Abstract
Drawing on a large sample of countries, this paper explores whether closer economic ties between countries foster business cycle synchronisation and disentangles the role of the various channels, including trade and financial linkages as well as the similarity in sectoral specialisation. Overall, our results confirm that trade integration fosters business cycle synchronisation. Similar patterns of sectoral specialisation also lead to closer business cycle co-movement. By contrast, it remains difficult to find a direct relationship between bilateral financial linkages and output correlation. However, our results suggest that financial integration affects business cycle synchronisation indirectly by raising the similarity in sectoral specialisation. Through this indirect link, financial integration tends to raise business cycle comovement between countries.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
27 April 2012
WORKING PAPER SERIES - No. 1430
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Abstract
In this paper we provide a new explanation for the increase in world trade over the last two decades. We show analytically in a general equilibrium model with heterogeneous firms that a fall in variable offshoring costs boosts trade in differentiated final goods through an intra-industry reallocation of resources towards the more productive firms. That is what we call the export-magnification effect of offshoring. More specifically, lower barriers to offshoring reduce the average costs of inputs for offshoring firms and allow more firms to source cheap foreign intermediates, which improves firm-level price competitiveness. This, in turn, translates into higher export quantities of incumbent exporters (intensive margin) and the entry of new exporters (extensive margin). The increase in final goods trade comes on top of the boost to trade in intermediates. Hence the mechanism proposed in this paper is consistent with the fact that the share of intermediate goods in international trade has remained broadly stable over recent years.
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F15 : International Economics→Trade→Economic Integration
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
28 January 2016
OCCASIONAL PAPER SERIES - No. 167
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Abstract
Although monetary union created the conditions for improving economic and financial integration in the euro area, in the context of the financial and sovereign crises, it has also been accompanied by the emergence of severe imbalances in savings and investment, credit and housing booms in some countries and the allocation of resources towards less productive sectors. The global financial crisis and the euro area sovereign debt crisis then led to major and abrupt adjustments as the risks posed by the large imbalances materialised. Although the institutional shortcomings in the EU that permitted the emergence of imbalances have been largely addressed since 2008, the adjustment process is not yet complete. From a macroeconomic perspective, the imbalances in the external accounts have led to the accumulation of high levels of external liabilities that need to be reduced, which, in turn, is weakening investment and therefore weighing on growth prospects and growth potential. From a macroprudential perspective, the lingering imbalances have added to systemic risk and rendered the euro area more vulnerable to risks. This Occasional Paper analyses the dynamic patterns in macroeconomic imbalances primarily from the former perspective, addressing in particular the connections between macroeconomic and sectoral adjustments of imbalances and the challenges for economic growth and performance over a longer horizon.
JEL Code
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
13 October 2017
OCCASIONAL PAPER SERIES - No. 198
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Abstract
Over recent years, several euro area countries have registered large and persistent net foreign liabilities. This paper examines the risks arising from these external stock imbalances, the prospects for their smooth unwinding and the menu of policy options. The paper demonstrates that external stock imbalances remain a source of vulnerabilities in the (former) programme countries and, to a lesser extent, the euro area countries in central and eastern Europe. The net foreign liabilities of these economies stand at levels that are typically associated with an increased susceptibility to external crises. Mechanical projections indicate that the net foreign liabilities of the (former) programme countries will remain at elevated levels over the next decade despite some gradual adjustments, while those of the central and eastern European (CEE) countries could return to more sustainable levels more quickly. There are also vulnerabilities related to the composition of external positions, most notably the unfavourable debt-equity mix in the (former) programme countries. However, the long maturity of public external debt – which is often owed to official creditors – and, in the CEE countries, the prevalence of stable foreign direct investment should mitigate external sustainability risks. Furthermore, the net payments associated with the external positions of the euro area debtor countries are relatively low at the current juncture, although the burden could increase markedly if euro area interest rates were to normalise again. Against this backdrop, a timely and well-designed policy response would provide critical support to the orderly unwinding of the remaining external stock imbalances in the euro area. An optimal policy mix would consist of measures simultaneously fostering GDP growth and sustainable current account improvements in the debtor economies, in particular reforms aimed at enhancing productivity growth and export performance.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
22 March 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 2, 2018
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Abstract
The European Commission’s 2018 assessment of macroeconomic imbalances and progress on reforms provides confirmation that greater efforts are needed in many EU Member States in order to advance economic growth and resilience on a more sustainable basis.
JEL Code
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
5 November 2018
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 7, 2018
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Abstract
Potential output is typically seen by economic analysts as the highest level of economic activity that can be sustained over the long term. Changes in potential output can be driven by factors such as labour supply, capital investment and technological innovation. Recent estimates by international institutions suggest that the euro area economy is currently operating close to its potential. The ongoing economic expansion appears to have largely absorbed the spare capacity created by the global financial crisis and the sovereign debt crisis. At the same time, the estimated rate of potential output growth also appears to have recovered most of its pre-crisis momentum, underpinned mainly by an expansion of the labour force, a decline in trend unemployment and stronger productivity gains. Looking ahead, projections by international institutions suggest that actual euro area GDP growth will continue to outpace potential growth in the near term. Hence, supply constraints are likely to become increasingly binding going forward, which would be conducive to a gradual strengthening of euro area inflation.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E23 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
8 August 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2019
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Abstract
This box examines the country-specific recommendations (CSRs) for economic policies in euro area countries under the 2019 European Semester. Overall, the 2019 CSRs place greater emphasis on investment-enhancing structural policies and financial sector policies. However, continued weak CSR implementation by Member States remains a challenge. The implementation of structural reforms needs to be substantially stepped up to increase the economic resilience and growth potential of the euro area.
JEL Code
E02 : Macroeconomics and Monetary Economics→General→Institutions and the Macroeconomy
E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F02 : International Economics→General→International Economic Order
12 August 2019
WORKING PAPER SERIES - No. 2306
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Abstract
Macroeconomic imbalances increase the vulnerability of an economy to adverse shocks, which in turn can lead to crises with severe economic and social costs. We propose an early warning model that predicts such crises. We identify a set of macroeconomic indicators capturing domestic and external imbalances that jointly predict severe recessions (i.e. growth crises) in a multivariate discrete choice framework. The approach allows us to quantify an economy's macroeconomic vulnerabilities at any point in time. In particular, the model would have pointed early on to emerging vulnerabilities in all the euro area countries that registered severe recessions in the years after 2007. We also show that the model can be applied beyond the euro area crisis in that its main results remain robust to changes in assumptions and sample composition.
JEL Code
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications
O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe
23 March 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 2, 2021
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Abstract
The EU’s recovery package has the potential to mitigate the heterogeneous fallout from the COVID-19 pandemic. Its effectiveness will depend on the achievement of an adequate balance of mutually reinforcing investments and reforms. To ensure a timely and efficient absorption of recovery funds for productive public spending, special attention should be paid to bolstering administrative capacity and reducing implementation bottlenecks.
JEL Code
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
H12 : Public Economics→Structure and Scope of Government→Crisis Management
O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth