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  • Author: Samir Jahjah, Bin Wei, Vivian Zhanwei Yue
  • Publication Date: 06-2012
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper empirically analyzes how exchange rate policy affects the issuance and pricing of international bonds for developing countries. We find that countries with less flexible exchange rate regimes pay higher sovereign bond spreads and are less likely to issue bonds. Quantitatively, changing a free-floating regime to a fixed regime decreases the likelihood of bond issuance by 4.6% and increases the bond spread by 1.3% on average. Furthermore, countries with real exchange rate overvaluation have higher bond spreads and higher bond issuance probabilities. Moreover, such positive effects of real exchange rate overvaluation tend to be magnified for countries with fixed exchange rate regimes. Our results suggest that choosing a less flexible exchange rate regime in general leads to higher borrowing costs for developing countries, especially when their currencies are overvalued.
  • Topic: Development, Exchange Rate Policy, Fiscal Policy, Bonds
  • Political Geography: Global Focus
  • Author: David M. Arseneau
  • Publication Date: 02-2011
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper uses disaggregated data from a broad cross-section of countries to empirically assess differences in energy consumption profiles across countries. We find empirical support for the energy ladder hypothesis, which contends that as an economy develops it transits away from a heavier reliance on traditional fuel sources towards an increase in the use of modern commercial energy sources. We also find empirical support for the hypothesis that structural transformation--the idea that as an economy matures, it transforms away from agriculture-based activity into industrial activity and, finally, fully matures into a service-oriented economy--is an important driver for the distribution of end-use energy consumption. However, even when these two hypotheses are taken into account, we continue to find evidence suggesting that the patterns of energy consumption in the BRIC economies are importantly different from those of other economies.
  • Topic: Development, Energy Policy, Infrastructure, Services, BRIC
  • Political Geography: Russia, China, Europe, India, Asia, Brazil, South America, Global Focus
  • Author: Malin Adolfson, Stefan Laseen, Jesper Linde, Lars E.O. Svensson
  • Publication Date: 07-2011
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We show how to construct optimal policy projections in Ramses, the Riksbank's open-economy medium-sized DSGE model for forecasting and policy analysis. Bayesian estimation of the parameters of the model indicates that they are relatively invariant to alternative policy assumptions and supports our view that the model parameters may be regarded as unaffected by the monetary policy specification. We discuss how monetary policy, and in particular the choice of output gap measure, affects the transmission of shocks. Finally, we use the model to assess the recent Great Recession in the world economy and how its impact on the economic development in Sweden depends on the conduct of monetary policy. This provides an illustration on how Rames incoporates large international spillover effects.
  • Topic: Development, Economics, Monetary Policy, Finance
  • Political Geography: Global Focus
  • Author: Lee E. Ohanian, Andrea Raffo
  • Publication Date: 12-2011
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We build a dataset of quarterly hours worked for 14 OECD countries. We document that hours are as volatile as output, that a large fraction of labor adjustment takes place along the intensive margin, and that the volatility of hours relative to output has increased over time. We use these data to reassess the Great Recession and prior recessions. The Great Recession in many countries is a puzzle in that labor wedges are small, while those in the U.S. Great Recession - and those in previous European recessions - are much larger.
  • Topic: Development, International Cooperation, Labor Issues, Business , Labor Policies
  • Political Geography: Global Focus
  • Author: Geoffrey N. Keim, Beth Anne Wilson
  • Publication Date: 11-2007
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Projections of sustained strong growth in India depend importantly on the utilization of the huge increase in India's working-age population projected over the next two decades. To date, however, India's economic growth has been concentrated in high-skill and capital-intensive sectors, and has not generated strong employment growth. In this paper, we highlight the tension between India's performance in output and employment, describe the characteristics of India's demographic dividend, and discuss impediments to India's shift away from agriculture.
  • Topic: Development, Economics, Markets
  • Political Geography: South Asia, India
  • Author: Beth Anne Wilson, Jane T. Haltmaier, Shaghil Ahmed, Brahima Coulibaly, Ross Knippenberg, Sylvain Leduc, Mario Marazzi
  • Publication Date: 09-2007
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper assesses China's role in Asia as an independent engine of growth, as a conduit of demand from the industrial countries, and as a competitor for export markets. We provide both macroeconomic and microeconomic evidence. The macroeconomic analysis focuses on the impact of U.S. and Chinese demand on the output of the Asian economies by estimating growth comovements and VARs. The results suggest an increasing role of China as an independent source of growth. The microeconomic analysis decomposes trade into basic products, parts and components, and finished goods. We find a large role for parts and components trade consistent with China playing an important and increasing role as a conduit. We also estimate some regressions that show that China's increasing presence in export markets has had a negative effect on exports of some products for some other Asian economies, but not for other products, including those of the important electronic high-technology industry.
  • Topic: Development, Economics, International Trade and Finance, Markets
  • Political Geography: United States, China, Asia
  • Author: Alan J. Ahearne, John G. Fernald, John W. Schindler, Prakash Loungani
  • Publication Date: 12-2006
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper updates our earlier work (Ahearne, Fernald, Loungani and Schindler, 2003) on whether China, with its huge pool of labor and an allegedly undervalued exchange rate, is hurting the export performance of other emerging market economies in Asia. We continue to find that while exchange rates matter for export performance, the income growth of trading partners matters far more. This suggests the potential for exports of all Asian economies to grow in harmony as long as global growth is strong. We also examine changes in export shares of Asian economies to the U.S. market and find evidence that dramatic changes in shares are taking place. Many of these changes are consistent with a 'flying geese' pattern in which China moves into the product space vacated by the Asian NIEs or with greater integration of trade across Asia in the production of final goods. Nevertheless, China's dramatic gains in recent years do increase the pressure on Asian economies, particularly in ASEAN and South Asia, to seek areas of comparative advantage.
  • Topic: Development, Economics, Foreign Exchange, International Trade and Finance, Markets
  • Political Geography: China, South Asia, Asia
  • Author: Neville Francis, Michael T. Owyang, Jennifer T. Roush
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Recent empirical studies using infinite horizon long-run restrictions question the validity of the technology-driven real business cycle hypothesis. These results have met with their own controversy, stemming from their sensitivity to changes in model specification and the general poor performance of long run restrictions in Monte Carlo experiments. We propose a alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long, but finite horizon. In small samples, our identification outperforms its infinite horizon counterpart by producing less biased impulse responses and technology shocks that are more highly correlated with the technology shocks from the underlying model. For U.S. data, we show that the negative hours response is not robust to allowing a greater role for non-technology shocks in the forecast error variance share at a ten year horizon.
  • Topic: Development, Industrial Policy, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Paula J. Dobriansky
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: In 1995, at one of the largest international conferences ever held, women from around the world, representing both governments and the private sector, gathered in Beijing to set forth a platform for the political, economic, and social empowerment of women.
  • Topic: International Relations, Development, Gender Issues
  • Political Geography: United States, Beijing
  • Author: Steven B. Kamin, Sylvain Leduc, Hilary Croke
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Much has been written about prospects for U.S. current account adjustment, including the possibility of what is sometimes referred to as a “disorderly correction”: a sharp fall in the exchange rate that boosts interest rates, depresses stock prices, and weakens economic activity. This paper assesses some of the empirical evidence bearing on the likelihood of the disorderly correction scenario, drawing on the experience of previous current account adjustments in industrial economies. We examined the paths of key economic performance indicators before, during, and after the onset of adjustment, building on the analysis of Freund (2000).
  • Topic: Development, Economics, Industrial Policy, International Trade and Finance
  • Political Geography: United States
  • Author: Sylvain Leduc, Giancarlo Corsetti, Luca Dedola
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to efficient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that a standard international business cycle model with incomplete asset markets augmented with distribution services can account quantitatively for these properties of real exchange rates. Distribution services, intensive in local inputs, drive a wedge between producer and consumer prices, thus lowering the impact of terms-of-trade changes on optimal agents' decisions. This reduces the price elasticity of tradables separately from assumptions on preferences.
  • Topic: Development, Economics, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Alain P. Chaboud, Owen Humpage
  • Publication Date: 01-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We analyze the short-term price impact of Japanese foreign exchange intervention operations between 1991 and 2004, using official data from Japan's Ministry of Finance. Over the period as a whole, we find some evidence of a modest "against the wind" effect, but interventions do not have value as a forecast that the exchange rate will move in a direction consistent with the operations. Interventions conducted between 1995 and 2002, which were large and infrequent, met with a much higher degree of success. For the most recent episode of intervention, in 2003 and 2004, despite the record size and frequency of the overall episode, it is difficult to statistically distinguish the pattern of exchange rate movements on intervention days from that of all the days in that particular subperiod, showing little effectiveness. Still, while the evidence of Japanese intervention effectiveness is modest overall, it appears to be stronger than that found using similar techniques for U.S. intervention operations conducted in the 1980s and 1990s.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Japan, Israel
  • Publication Date: 01-2005
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: On December 26, 2004, a magnitude 9.0 earthquake off the west coast of Northern Sumatra, Indonesia, triggered a tsunami—a series of giant waves—that inundated coastal areas of Indonesia, Thailand, Sri Lanka, India, and Malaysia, as well as Indian Ocean islands and parts of East Africa.
  • Topic: International Relations, Development, Economics, International Cooperation
  • Political Geography: Indonesia, Malaysia, India, Sri Lanka, Thailand, East Africa
  • Author: Fang Cai, Francis E. Warnock
  • Publication Date: 12-2004
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We analyze foreigners' and domestic institutional investors' positions in U.S. equities. Controlling for many factors, we uncover a common preference for large firms and firms that are diversified internationally. The domestic preference for internationally diversified firms implies that investors might obtain substantial international diversification by investing at home. Using an international factor model, we show that exposure to foreign equity markets is indeed greater for domestic firms that are more diversified internationally, suggesting that at least some of the home-grown foreign exposure translates into international diversification benefits. After accounting for home-grown foreign exposure, the share of 'foreign' equities in investors' portfolios nearly doubles, reducing (but not eliminating) the observed home bias.
  • Topic: International Relations, Development, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Francis E. Warnock, John D. Burger
  • Publication Date: 02-2004
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We analyze the development of, and foreign participation in, 49 local bond markets. Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. Less developed bond markets have returns characterized by high variance and negative skewness, factors eschewed by U.S. investors. Results based on a three-moment CAPM indicate, however, that it is diversifiable idiosyncratic risk that U.S. investors appear to shun. Taken as a whole our results hint at a virtuous cycle of bond market development: Creditor friendly policies and laws can spark local bond market development that enables the development of derivatives markets and, in turn, attracts foreign participation.
  • Topic: Development, Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Department of Defense (DoD) research, development, and acquisition policies, funding and program decisions, have a major impact on competition and industry transformation. DoD assessments of proposed business combinations (generally, domestic and foreign firm mergers, acquisitions, and joint ventures) must complement such policies and decisions to sustain credible competition in an evolving industrial environment.
  • Topic: Defense Policy, Development, Industrial Policy, Science and Technology
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: The Defense Science Board (DSB) Task Force on Joint Experimentation was established to examine the joint experimentation programs and activities at the Joint Forces Command (JFCOM) and to recommend ways to enhance the contributions of joint experimentation to transformation. The Task Force assessed the goals, process, and substance of JFCOM's experimentation program. The Task Force also provided an external review of the Millennium Challenge 02 (MC02) experiment.
  • Topic: Security, Defense Policy, Development
  • Political Geography: United States
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Sea basing is a critical capability for the United States in a world where flexible, quick-response military action will be required in areas far from fixed bases available or suitable for American military use. The seabase replaces or augments the fixed, in-theater airports and seaports, on which past military operations have focused and depended, with a maneuverability facility at sea - a mobile base of operations, command center, logistics node and transportation hub. A commander can place a seabase where and when he chooses to exploit enemy weaknesses and employ the element of surprise, confusing enemy defensive preparations. A seabase can be a center for reconstitution and redeployment of forces in succeeding stages of complex operations.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: U.S. national security leaders face a complex, dynamic set of demands in protecting the interests of the United States and its allies. Three key trends shape the nature and capability of the military forces required to meet these demands: 1. The limited ability to predict when, where, and under what conditions we will need to commit U.S. military forces, particularly for smaller-scale contingencies; 2. The need for forces that enjoy dominant superiority over potential adversaries, not simply an incremental advantage over an aggregate set of threats; and 3. The rapid development and global availability of information technology (IT). Taken together, these trends underscore the need for enhanced joint capabilities.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This is the second 21st century Defense Science Board report on military training. The report itself has a training goal: instruct and convince the acquisition and personnel communities to recognize instinctively that (1) military proficiency is as dependent on the warriors who operate weapon systems as it is on the weapon system technology, and (2) a superb way to waste personnel or system acquisition money is to ignore training, or to tacitly allow training to pay the bills for acquisition or personnel system flaws in those more measurable arenas.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States