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Trade Integration and Business Cycle Synchronization
This paper reexamines the relationship between trade integration and business cycle synchronization (BCS) using new value-added trade data for 63 advanced and emerging economies during 1995–2012. In a panel framework, we identify a strong positive impact of trade intensity on BCS—conditional on various controls, global common shocks and country-pair heterogeneity—that is absent when gross trade data are used. That effect is bigger in crisis times, pointing to trade as an important crisis propagation mechanism. Bilateral intra-industry trade and trade specialization correlation also appear to increase co-movement, indicating that not only the intensity but also the type of trade matters. Finally, we show that dependence on Chinese final demand in value-added terms amplifies the international spillovers and synchronizing impact of growth shocks in China.
Pass-Through of Imported Input Prices to Domestic Producer Prices
Motivated by stylized facts pointing to a dominant role of imported inputs in transmitting external price shocks to domestic prices, this paper zooms in to study the pass-through of imported input costs to domestic producer prices. Our approach constructs effective input price indices from sector-level price data combined with sector-level information on input-output linkages. Applying an error correction model specification to sector-level output and input prices, the long-run pass-through rate of effective imported input costs to domestic producer prices is estimated to be around 70 percent in Korea and almost 100 percent in selected European countries.
2014 Spillover Report
Global spillovers have entered a new phase. With crisis-related spillovers and risks fading, changing growth patterns are the main source of spillovers in the global economy at this juncture. Two key trends are highly relevant here. First, signs of self-sustaining recovery in some advanced economies indicate that the unwinding of exceptional monetary accommodation will proceed and lead to a tightening of global financial conditions in the coming years. An uneven recovery, though, suggests normalization will proceed at different times in different countries, with possible spillover implications. Second, growth in emerging markets is slowing on a broad basis since its precrisis peak and can carry noticeable spillover effects at the global level. Model code and programs used for the spillover simulations can be made available. Data used for the empirical analysis can be made available unless restricted by copyright or confidentiality issues.
Papua New Guinea
This Selected Issues paper analyzes the sustainability of Papua New Guinea’s current and medium-term fiscal policy and its consistency with government objectives. The Papua New Guinea government faces major challenges in shaping a fiscal policy that promotes stability, meets development needs, and adheres to its debt ceilings over the medium term. It could decide to continue with its current fiscal stance, which would see its resource wealth exhausted quickly through large development spending. This approach would likely require continued borrowing and leave little savings for future generations.
Global Value Chains and the Exchange Rate Elasticity of Exports
This paper analyzes how the formation of Global Value Chains (GVCs) has affected the exchange rate elasticity of exports. Using a panel framework covering 46 countries over the period 1996-2012, we first find some suggestive evidence that the elasticity of real manufacturing exports to the Real Effective Exchange Rate (REER) has decreased over time. We then examine whether the formation of supply chains has affected this elasticity using different measures of GVC integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves competitiveness of a fraction of the value of final good exports. In line with this intuition, we find evidence that GVC participation reduces the REER elasticity of manufacturing exports by 22 percent, on average.
Research Bulletin, June 2014
Articles in the June 2014 issue of the IMF Research Bulletin look at “The Rise and Fall of Current Account Deficits in the Euro Area Periphery and the Baltics” (Joong Shik Kang and Jay C. Shambaugh) and “The Two Sides of the Same Coin?: Rebalancing and Inclusive Growth in China” (Il Houng Lee, Murtaza Syed, and Xin Wang). The Q&A looks at “Seven Questions on the Monetary Transmission Mechanism in Low-Income Countries” (Andrew Berg, Luisa Charry, Rafael A. Portillo, and Jan Vleck). This issue of the Research Bulletin includes updated listings of IMF Working Papers, Staff Discussion Notes, and Recommended Readings from the IMF Bookstore. Readers can also find information on free access to a featured article from “IMF Economic Review.”
Exchange Rates and Trade
We examine the stability and strength of the relationship between exchange rates and trade over time using three alternative approaches, mitigating the endogeneity of the relation. We find that both exchange rate pass-through and the price elasticity of trade volumes are largely stable over time. Economic slack and financial conditions affect the relationship, but there is limited evidence that participation in global value chains has significantly changed the exchange rate–trade relationship over time.
Spillovers from China’s Growth Slowdown and Rebalancing to the ASEAN-5 Economies
After many years of rapid expansion, China’s growth is slowing to more sustainable levels and is rebalancing, with consumption becoming the main growth driver. This transition is likely to have negative effects on its trading partners in the near term. This paper studies the potential spillovers to the ASEAN-5 economies through trade, commodity prices, and financial markets. It finds that countries with closer trade linkages with China (Malaysia, Singapore, and Thailand) and net commodity exporters (Indonesia and Malaysia) would suffer the largest impact, with growth falling between 0.2 and 0.5 percentage points in response to a decline in China’s growth by 1 percentage point depending on the model used and the nature of the shock. The impact could be larger if China’s slowdown and rebalancing coincides with bouts of global financial volatility. There are also opportunities from China’s rebalancing, both in merchandise and services trade, and there is preliminary evidence that some ASEAN-5 economies are already benefiting from these trends.
Regional Economic Outlook, April 2013, Asia and Pacific
Growth in the Asia-Pacific region shows signs of improving as extreme risks emanating from advanced economies have receded and domestic demand remains resilient, supported by relatively easy financial conditions and robust labor markets. A small and gradual pick-up in growth to over 53⁄4 percent is projected in the course of 2013. Risks to the outlook from within the region, such as rising financial imbalances and asset prices in some economies, are coming clearer into focus. Although Asia’s banking and corporate sectors have solid buffers, monetary policymakers should stand ready to respond early and decisively to shifting risks, and macroprudential measures will also have a role to pla...
East Asia and Pacific Economic Update October 2014
In China, growth will gradually moderate, reflecting intensified policy efforts to address financial vulnerabilities and structural constraints, and place the economy on a more sustainable growth path. In the rest of the region, growth will pick up, as exports firm in line with strengthening global activity, and the impact of domestic adjustment in large ASEAN countries eases. Significant uncertainties remain about the sustainability of the global recovery, and global financial conditions are likely to tighten. The short-term priority in several countries is to address the vulnerabilities and inefficiencies created by an extended period of loose financial conditions and fiscal stimulus. In China, the authorities need to strike a balance between containing growing risks from rising leverage and meeting the indicative growth targets. Over the longer term, the focus in most countries must be on structural reforms to enhance export competitiveness. The report’s special section focuses on education & skills development; international migration; and the policy priorities for the Pacific Island Countries.
