157 research outputs found
EXCHANGE RATE FLUCTUATIONS AND ECONOMIC ACTIVITY IN DEVELOPING COUNTRIES: THEORY AND EVIDENCE
No full textThis paper examines the effects of exchange rate fluctuations on real output growth and price inflation in a sample of twenty-two developing countries. The analysis introduces a theoretical rational expectation model that decomposes movements in the exchange rate into anticipated and unanticipated components. The model demonstrates the effects of demand and supply channels on the output and price responses to changes in the exchange rate. In general, exchange rate depreciation, both anticipated and unanticipated, decreases real output growth and increases price inflation. The evidence confirms concerns about the negative effects of currency depreciation on economic performance in developing countries.Exchange Rate, Output Growth, Price Inflation, Supply vs. Demand Shifts
On the benefits of nominal appreciations: Contrasting evidence across developed and developing countries
No full textAbstractThe paper studies determinants of flexibility of the nominal effective exchange rate and the effects of exchange rate shocks on macroeconomic variables and key components of the external balances using data for a sample of advanced and developing countries. The composite evidence points to the positive effects of appreciation through cheaper imports in support of higher growth and lower price inflation in advanced and developing countries. However, the negative effects of appreciation are more pervasive on the external balances in developing countries. The implication is developing countries remain highly dependent on exports of commodities. In contrast, advanced countries are more diversified and ahead in capitalizing on currency appreciation to mobilize investment growth, a channel that boosts competitiveness and mitigates the adverse effect of appreciation on external stability. The evidence attests to the need to create an environment that is more conducive to investment growth in developing countries
Is Increased Nominal Flexibility Stabilizing? Some International Evidence.
No full textThis paper studies the impact of the increased rigidity on macroeconomic fluctuations. The author uses this evidence to test the validity of two major "Keynesian" explanations. The first is the conventional sticky wage/sticky price explanation that suggests that the increased nominal rigidity, ceteris paribus, is destabilizing. The second is a recently developed explanation that suggests that the increased flexibility is destabilizing. The author's results are consistent with the conventional implications. Copyright 1991 by The London School of Economics and Political Science.
Variations in the Response of Real Output to Aggregate Demand Shocks: A Cross-Industry Analysis.
No full textUsing industry data, this paper investigates the determinants of the response of real output to aggregate demand shocks across industries of the U.S. economy. The purpose of this investigation is to verify the empirical validity of two competing explanations for this response: a new classical explanation and a new Keynesian explanation. The author finds that the impact of aggregate demand shocks on industrial real output is negatively related to the mean inflation of industrial output price and positively related to the variability of the demand for this output. In addition, some industry-specific factors are important in differentiating the cyclical behavior of real output across industries. This evidence does not provide a clear support for any of the competing explanations considered in this paper. The evidence, however, sheds some light on important factors that differentiate the response of real output to aggregate demand shocks across industries of the economy. Copyright 1991 by MIT Press.
On the effects of monetary policy shocks in developing countries
No full textAbstractUsing annual data for a sample of developing countries, the time-series evidence indicates the allocation of monetary policy shocks, both expansionary and contractionary, between price inflation and output growth. Subsequently, cross-country regressions evaluate factors that underlie the difference in these allocations and their implications. The real effects of monetary shocks increase as the elasticity of aggregate demand increases with respect to monetary shocks. Nonetheless, capacity constraints hamper the output adjustment to monetary shocks and increase price inflation. Across countries, trend output growth increases with the output response to monetary shocks. Consistent with the stabilizing function of monetary policy, the variability of output growth decreases in the face of monetary fluctuations across countries. In contrast, monetary fluctuations increase the trend and variability of price inflation across countries
Monetary shifts and co-movements in spending, growth, and inflation: Evidence from developing and advanced countries
No full textUsing annual data, the paper studies the time-series evidence regarding the allocation of monetary growth shifts between demand components, real growth and price inflation in a sample of developing and advanced countries. The evidence reveals patterns of interaction between demand shifts and the real and inflationary effects of monetary policy. These patterns provide sharp differences in the distribution of monetary shocks across economic variables in developing and advanced countries. The paper evaluates the evidence and draws policy implications regarding potential constraints on monetary policy
ON THE DESIGN AND EFFECTS OF MONETARY POLICY IN THE MIDDLE EAST
No full textIn trying to evaluate the autonomy of central banks in the Middle East, the paper examines the determinants and implications of monetary policy across a sample of countries in the region: Algeria, Egypt, Jordan, Kuwait, Morocco, Saudi Arabia, Syria and Tunisia. Monetary policy is often established as a tool to facilitate government objectives. However, some of the announced objectives – price stability, economic growth, and full employment – may be contradictory. The governments may then set the reaction function for the monetary authority to devote more attention to specific objectives that they judge to be more urgent for economic performance. Models that attempt to identify the reaction function for the monetary authority differentiate between two types of policies: rules or accommodative policies versus discretion or stabilizing policies. An accommodative policy provides a regular supply of credit to an expanding economy. A stabilizing policy, in contrast, varies the money supply to counter shocks that may deviate the economy from its objectives. The present paper seeks to shed some light on the design of monetary policy across countries that have kept a sufficient data record for empirical investigation. The empirical investigation proceeds in two steps. The first step seeks to identify the reaction function for the design of monetary policy. The second step seeks to evaluate the varying effects of monetary policy in the light of variations in the policy design. Specifically, empirical models are estimated to identify the effects of growth in money supply on real output growth and price inflation.Monetary policy, Economic growth, Middle-East countries
Price Flexibility and Aggregate Stability: Some Evidence Contrasting Developing and Developed Countries.
No full textThis paper explores the empirical validity of theoretical channels through which price flexibility may have caused differences in the stability of output in developing and developed countries. The relation between these two variables suggests several principles. Where the size of stochastic disturbances that impinge on the economic system does not play an important role in determining the degree of price flexibility, the increased flexibility is clearly stabilizing. Developing countries generally are characterized by larger stochastic disturbances and a higher flexibility of the price level than developed countries. The larger variability of disturbances is indeed destabilizing. Further, this destabilizing effect has dominated the stabilizing effect that is associated with the increased flexibility of the price level in developing countries, and this results in a clear positive correlation between price flexibility and output variability.
COST-OF-LIVING ADJUSTMENTS AND BUSINESS CYCLES: DISAGGREGATED EVIDENCE
No full textFor a sample of U.S. industries, nominal wage and price inflation follow aggregate price inflation closely during economic expansions. Hence, fluctuations in profit markup and real output are moderate in the face of expansionary demand shocks. In contrast, workers real standard of living decreases during recessions, while producers attempt to maintain, or even increase, industrial real-price inflation. The increase in profit markup correlates with larger output contraction during recessions.
What differentiates industrial business cycles? A cross-country investigation
No full textTheoretical explanations appear in sharp contrast concerning the determinants of demand-driven industrial business cycles. Aggregate factors are likely to differentiate cyclical fluctuations for a given industry across countries. Industry-specific factors are likely to differentiate cyclical fluctuations across industries of a given economy. The differences are evaluated using data for industries producing private domestic output across a group of major industrial countries. Aggregate factors dominate industryspecific factors in explaining industrial cyclical fluctuations in response to aggregate demand shifts. Consistent with the various explanations, higher variability of aggregate demand moderates the response of industrial output to aggregate demand shifts across countries. Contrary to the implications of the new classical imperfect information model, cyclical fluctuations in industrial output appear also smaller in response to higher trend price inflation across countries. Business cycles appear, therefore, to be highly correlated across industries within countries.
- …
