How does export activity affect prices in domestic consumer markets? To explore this questions, I exploit a natural experiment provided by India's rice export restrictions during 2007-2011. I first document that the binding restrictions had a considerable negative impact on producers. However, there is little evidence to suggest that the lower prices transmitted to consumers. To estimate the causal impact of export activity on domestic consumer prices, I use a difference-in-differences framework. I show that, following the imposition of export restrictions, Indian districts with higher exposure to export trade experienced a greater increase in prices paid by consumers in local markets. To measure the intensity of exposure to trade, I use a novel strategy exploiting spatial variation in districts' proximities to export trade routes along India's road network. The estimated price effects are substantial - prices increased by an additional 5 to 6.5 percent in districts exposed to export activity. Further, the impact of export activity on prices is most pronounced for higher-quality products. I illustrate that the presence of strong complementarities between exports and intra-national trade is the main mechanism driving my results. By exploiting synergies with export activity, intra-national trade encounters lower trade costs, which are then translated to lower prices faced by consumers in domestic markets. My findings suggest that promoting export activity could be a means to reduce intra-national trade barriers for large developing economies.
{"title":"The Effect of Export Activity on Domestic Prices: Evidence from India's Rice Sector","authors":"Utsav Manjeer","doi":"10.2139/ssrn.3783493","DOIUrl":"https://doi.org/10.2139/ssrn.3783493","url":null,"abstract":"How does export activity affect prices in domestic consumer markets? To explore this questions, I exploit a natural experiment provided by India's rice export restrictions during 2007-2011. I first document that the binding restrictions had a considerable negative impact on producers. However, there is little evidence to suggest that the lower prices transmitted to consumers. To estimate the causal impact of export activity on domestic consumer prices, I use a difference-in-differences framework. I show that, following the imposition of export restrictions, Indian districts with higher exposure to export trade experienced a greater increase in prices paid by consumers in local markets. To measure the intensity of exposure to trade, I use a novel strategy exploiting spatial variation in districts' proximities to export trade routes along India's road network. The estimated price effects are substantial - prices increased by an additional 5 to 6.5 percent in districts exposed to export activity. Further, the impact of export activity on prices is most pronounced for higher-quality products. I illustrate that the presence of strong complementarities between exports and intra-national trade is the main mechanism driving my results. By exploiting synergies with export activity, intra-national trade encounters lower trade costs, which are then translated to lower prices faced by consumers in domestic markets. My findings suggest that promoting export activity could be a means to reduce intra-national trade barriers for large developing economies.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"110 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131844092","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Based on an axiomatic approach we propose two related novel one-parameter families of indicators of change which put in a relation classical indicators of change such as absolute change, relative change and the log-ratio.
{"title":"On Absolute and Relative Change","authors":"Silvan Brauen, Philipp Erpf, Micha Wasem","doi":"10.2139/ssrn.3739890","DOIUrl":"https://doi.org/10.2139/ssrn.3739890","url":null,"abstract":"Based on an axiomatic approach we propose two related novel one-parameter families of indicators of change which put in a relation classical indicators of change such as absolute change, relative change and the log-ratio.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133156127","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I provide new evidence that incomplete consumption risk sharing across countries is an important determinant of carry trade returns. I show that there is a strong co-movement in idiosyncratic volatilities over time, and that shocks to the common idiosyncratic volatility (CIV) factor, defined as the equally weighted average of the idiosyncratic volatilities in the cross-section, are priced. I find that high-interest rate currencies deliver low returns when the CIV increases, which are bad times for investors. Low-interest rate currencies provide a hedge by yielding positive returns. CIV shocks remain an empirically powerful risk factor in explaining the cross-section of carry trade returns after controlling for global foreign exchange (FX) volatility risk. Furthermore, CIV risk is correlated with cross-country income risk faced by households. My findings are consistent with a heterogeneous-agent model with persistent, uninsurable idiosyncratic shocks in consumption growth. The calibrated model quantitatively accounts for the cross-sectional differences in average returns across CIV-beta sorted portfolios for plausible market prices of CIV risk.
{"title":"Common Idiosyncratic Volatility and Carry Trade Returns","authors":"Cristina Tessari","doi":"10.2139/ssrn.3730582","DOIUrl":"https://doi.org/10.2139/ssrn.3730582","url":null,"abstract":"I provide new evidence that incomplete consumption risk sharing across countries is an important determinant of carry trade returns. I show that there is a strong co-movement in idiosyncratic volatilities over time, and that shocks to the common idiosyncratic volatility (CIV) factor, defined as the equally weighted average of the idiosyncratic volatilities in the cross-section, are priced. I find that high-interest rate currencies deliver low returns when the CIV increases, which are bad times for investors. Low-interest rate currencies provide a hedge by yielding positive returns. CIV shocks remain an empirically powerful risk factor in explaining the cross-section of carry trade returns after controlling for global foreign exchange (FX) volatility risk. Furthermore, CIV risk is correlated with cross-country income risk faced by households. My findings are consistent with a heterogeneous-agent model with persistent, uninsurable idiosyncratic shocks in consumption growth. The calibrated model quantitatively accounts for the cross-sectional differences in average returns across CIV-beta sorted portfolios for plausible market prices of CIV risk.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"218 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115075071","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper adds to the growing body of knowledge in media and foreign aid. We aim to determine whether the impact of media-led US aid allocation applies universally to any foreign aid or specific to certain aid types. This paper's contribution is that we created three new media variables and use them to determine the strength of media effect on US Official Development Assistance (ODA), humanitarian assistance, and food aid. We generated the media variables from citations of an aid recipient's events in the four leading US daily newspapers' (the New York Times, the Wall Street Journal, the Washington Post, and the Los Angeles Times) from 1966 to 2014. We used panel data fixed effects estimation technique on a dataset comprising 134 countries to determine the net strength of aid's media effect. Our findings showed that media's impact is ambiguous on the allocation of ODA. We found that the US ODA disbursement is unresponsive to media effect, whereas ODA commitment varies depending on the comparison's context. Media exposure is a critical factor for US humanitarian assistance and food aid disbursements.
{"title":"Determination Crisis: Media Effect Applies to Which Type of Aid? Development Aid, Humanitarian Assistance, or Food Aid.","authors":"S. Nawaz","doi":"10.2139/ssrn.3808124","DOIUrl":"https://doi.org/10.2139/ssrn.3808124","url":null,"abstract":"This paper adds to the growing body of knowledge in media and foreign aid. We aim to determine whether the impact of media-led US aid allocation applies universally to any foreign aid or specific to certain aid types. This paper's contribution is that we created three new media variables and use them to determine the strength of media effect on US Official Development Assistance (ODA), humanitarian assistance, and food aid. We generated the media variables from citations of an aid recipient's events in the four leading US daily newspapers' (the New York Times, the Wall Street Journal, the Washington Post, and the Los Angeles Times) from 1966 to 2014. We used panel data fixed effects estimation technique on a dataset comprising 134 countries to determine the net strength of aid's media effect. Our findings showed that media's impact is ambiguous on the allocation of ODA. We found that the US ODA disbursement is unresponsive to media effect, whereas ODA commitment varies depending on the comparison's context. Media exposure is a critical factor for US humanitarian assistance and food aid disbursements.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124828432","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we suggest that currency factors carry informational value by disentangling the effect each currency has on exchange rate dynamics. First, we confirm the existence of a geographical factor driving American, European and Pacific exchange rates. Second, we reveal two novel stylized facts: 1) The euro and swiss franc factors are highly correlated and exposed, serving as major channels of shock propagation from and to other currencies; 2) The pound factor and, to some extent, the yen factor are the most secluded in the G10 network and have been net absorbers of spillovers from other currencies. Finally, we show that aggregate currency return spillovers peak in consonance with key economic and financial events.
{"title":"Return Spillovers Between Currency Factors","authors":"T. Trancoso, Sofia Gomes","doi":"10.2139/ssrn.3728739","DOIUrl":"https://doi.org/10.2139/ssrn.3728739","url":null,"abstract":"In this paper we suggest that currency factors carry informational value by disentangling the effect each currency has on exchange rate dynamics. First, we confirm the existence of a geographical factor driving American, European and Pacific exchange rates. Second, we reveal two novel stylized facts: 1) The euro and swiss franc factors are highly correlated and exposed, serving as major channels of shock propagation from and to other currencies; 2) The pound factor and, to some extent, the yen factor are the most secluded in the G10 network and have been net absorbers of spillovers from other currencies. Finally, we show that aggregate currency return spillovers peak in consonance with key economic and financial events.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"86 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132791261","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the paper, we show how the estimates of the daily volatility of major exchange rates, EUR/USD, AUD/USD, GBP/USD, and NZD/USD, depend on the hour at which the daily returns are calculated. FOREX market is open 24 hours a day, but traders from different parts of the world, if some local time is fixed, are most active in different times of a day. This is the reason why the dynamics of volatility changes during a trading day. To analyze this feature, we consider daily returns calculated using the exchange rates quoted at each full hour of a day. Volatility (the square root of the conditional variance) is described by means of GARCH models. The approach used enables us to scrutinize changes in the volatility, depending on the hour of a day, which can be useful in risk management. We investigate separately bid and ask prices, so we obtain some results concerning microstructure of the FOREX market as well.
{"title":"How Does the Daily Volatility of Foreign Exchange Rates Depend on the Time of Day at Which the Daily Returns Are Calculated?","authors":"Małgorzata Doman, R. Doman","doi":"10.2139/ssrn.3651344","DOIUrl":"https://doi.org/10.2139/ssrn.3651344","url":null,"abstract":"In the paper, we show how the estimates of the daily volatility of major exchange rates, EUR/USD, AUD/USD, GBP/USD, and NZD/USD, depend on the hour at which the daily returns are calculated. FOREX market is open 24 hours a day, but traders from different parts of the world, if some local time is fixed, are most active in different times of a day. This is the reason why the dynamics of volatility changes during a trading day. To analyze this feature, we consider daily returns calculated using the exchange rates quoted at each full hour of a day. Volatility (the square root of the conditional variance) is described by means of GARCH models. The approach used enables us to scrutinize changes in the volatility, depending on the hour of a day, which can be useful in risk management. We investigate separately bid and ask prices, so we obtain some results concerning microstructure of the FOREX market as well.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132129683","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we develop a novel trade‐accounting framework that is based on a multi‐country, multi‐industry model of trade. The framework links observed changes in wages, sectoral employment shares, total labor force, and bilateral trade costs to changes in bilateral trade values at the sector level. In our application, we quantify the changes in trade patterns from 1995 to 2010 among 15 advanced and emerging market economies attributable to structural change in China, focusing on three manifestations of trade creation and destruction: China’s replacement of manufactured final goods exports to advanced economies at the expense of other economies; an expansion of China’s imports of manufactured final goods and commodities; and an expansion of China’s imports of parts and components that are then processed and exported as manufactured final goods to the advanced economies. Our main findings are: (a) scale effects have more than compensated for the loss of competitiveness due to higher wages in China; (b) China’s wage growth has been an economically more significant determinant of trade creation and destruction than its reallocation of labor across sectors, and (c) structural change in China has shifted other countries toward more commodity‐intensive production.
{"title":"Structural Change and Global Trade Flows: Does an Emerging Giant Matter?","authors":"Benjamin N. Dennis, T. Işcan","doi":"10.1111/roie.12486","DOIUrl":"https://doi.org/10.1111/roie.12486","url":null,"abstract":"In this paper, we develop a novel trade‐accounting framework that is based on a multi‐country, multi‐industry model of trade. The framework links observed changes in wages, sectoral employment shares, total labor force, and bilateral trade costs to changes in bilateral trade values at the sector level. In our application, we quantify the changes in trade patterns from 1995 to 2010 among 15 advanced and emerging market economies attributable to structural change in China, focusing on three manifestations of trade creation and destruction: China’s replacement of manufactured final goods exports to advanced economies at the expense of other economies; an expansion of China’s imports of manufactured final goods and commodities; and an expansion of China’s imports of parts and components that are then processed and exported as manufactured final goods to the advanced economies. Our main findings are: (a) scale effects have more than compensated for the loss of competitiveness due to higher wages in China; (b) China’s wage growth has been an economically more significant determinant of trade creation and destruction than its reallocation of labor across sectors, and (c) structural change in China has shifted other countries toward more commodity‐intensive production.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125980646","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-06-12DOI: 10.31014/aior.1992.03.02.249
Y. Keho
This study examines the relationship between aggregate imports and the individual components of expenditure in Cote d’Ivoire over the period from 1980 to 2017. The autoregressive distributed lag model is used to test and estimate the long and short-run import elasticities with respect to the expenditure components. The study finds evidence of a long-run relationship between aggregate imports, the expenditure components, domestic and import prices. The long-run import demand in Cote d’Ivoire is affected positively by domestic price, negatively by foreign price and positively by all expenditure components except exports which effect is insignificant. Furthermore, there are significant differences in the long and short-run elasticities of imports with respect to the different components of final expenditure. Final consumption expenditure and investment expenditure are among the major determinants of aggregate import demand in the long run. In the short run, all expenditure components are positively related to import growth, with consumption expenditure having the highest effect on import growth. The findings of the study indicate that the use of aggregate expenditure variable in the import demand function leads to aggregation bias because different components of final expenditure have different import contents. We also show that the relative price formulation is inappropriate in estimating import demand function for Cote d’Ivoire.
{"title":"Determinants of Import Demand in Cote d’Ivoire: The Role of Expenditure Components","authors":"Y. Keho","doi":"10.31014/aior.1992.03.02.249","DOIUrl":"https://doi.org/10.31014/aior.1992.03.02.249","url":null,"abstract":"This study examines the relationship between aggregate imports and the individual components of expenditure in Cote d’Ivoire over the period from 1980 to 2017. The autoregressive distributed lag model is used to test and estimate the long and short-run import elasticities with respect to the expenditure components. The study finds evidence of a long-run relationship between aggregate imports, the expenditure components, domestic and import prices. The long-run import demand in Cote d’Ivoire is affected positively by domestic price, negatively by foreign price and positively by all expenditure components except exports which effect is insignificant. Furthermore, there are significant differences in the long and short-run elasticities of imports with respect to the different components of final expenditure. Final consumption expenditure and investment expenditure are among the major determinants of aggregate import demand in the long run. In the short run, all expenditure components are positively related to import growth, with consumption expenditure having the highest effect on import growth. The findings of the study indicate that the use of aggregate expenditure variable in the import demand function leads to aggregation bias because different components of final expenditure have different import contents. We also show that the relative price formulation is inappropriate in estimating import demand function for Cote d’Ivoire.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121162417","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Few studies on foreign exchange intervention convincingly address the causal effect of intervention on exchange rates. By using a narrative approach, I address a major issue in the literature: the endogeneity of intraday news which influence the exchange rate alongside central bank operations. Some studies find that interventions work in up to 80% of cases. Yet, by accounting for intraday market moving news, I find that in adverse conditions, the Bank of England managed to influence the exchange rate only in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative approach.
{"title":"Blowing Against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention","authors":"Alain Naef","doi":"10.2139/ssrn.3483895","DOIUrl":"https://doi.org/10.2139/ssrn.3483895","url":null,"abstract":"Few studies on foreign exchange intervention convincingly address the causal effect of intervention on exchange rates. By using a narrative approach, I address a major issue in the literature: the endogeneity of intraday news which influence the exchange rate alongside central bank operations. Some studies find that interventions work in up to 80% of cases. Yet, by accounting for intraday market moving news, I find that in adverse conditions, the Bank of England managed to influence the exchange rate only in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative approach.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124016026","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we apply a differences-in-differences approach to evaluate the response of technology FDI to recessions. We find that research and development (R&D) intensive FDI drops when the destination market is in recession and the source market is in a normal state, and recovers to the pre-recession levels when both destination and source markets are in recession. The result is particularly pronounced in deep and long recessions, during the propagation stage of recessions, and in destination markets with stronger intellectual property protection, looser FDI regulation, and higher financial development. These recession impacts are limited to R&D intensive FDI between advanced markets: there is no evidence that R&D intensive FDI from or to emerging markets respond to either destination or source market recessions.
{"title":"Cross-Border Technology Investments in Recessions","authors":"J. Sun, Huanhuan Zheng","doi":"10.2139/ssrn.3636257","DOIUrl":"https://doi.org/10.2139/ssrn.3636257","url":null,"abstract":"Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we apply a differences-in-differences approach to evaluate the response of technology FDI to recessions. We find that research and development (R&D) intensive FDI drops when the destination market is in recession and the source market is in a normal state, and recovers to the pre-recession levels when both destination and source markets are in recession. The result is particularly pronounced in deep and long recessions, during the propagation stage of recessions, and in destination markets with stronger intellectual property protection, looser FDI regulation, and higher financial development. These recession impacts are limited to R&D intensive FDI between advanced markets: there is no evidence that R&D intensive FDI from or to emerging markets respond to either destination or source market recessions.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130373377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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