2013年-IMF国际货币组织全球_Emerging_Economy_Business_Cycles_Financial_Integration_and_Terms_of_Trade_Shocks_26页_990kb

Summary of "Emerging Economy Business Cycles: Financial Integration and Terms of Trade Shocks"

Core Content

This working paper investigates how financial integration affects the transmission of terms of trade (TOT) shocks to business cycle volatility in emerging economies. It uses a small open economy real business cycle (RBC) model to analyze the relationship between financial openness and the propagation of TOT shocks, with a focus on empirical patterns in India and Brazil.

Main Viewpoints

• Financial Integration and Business Cycle Volatility: Financial integration reduces the volatility of domestic business cycles in response to TOT shocks. When capital accounts are open, agents can borrow and lend internationally to smooth consumption, which prevents TOT shocks from affecting output, consumption, and investment.

• Trade vs. Financial Openness: Emerging economies exhibit significant heterogeneity in the degree of trade and financial openness. Asian countries tend to have higher trade openness compared to Latin American countries, which are more financially open.

• Terms of Trade Volatility: TOT shocks are more volatile than output in emerging economies. However, in economies with limited financial openness, the volatility of the trade balance to output ratio is lower, indicating that TOT shocks are more effectively absorbed by adjusting trade quantities.

• Current Account Volatility: In financially closed economies, current account volatility is low due to the need to balance trade flows. In contrast, higher financial openness leads to greater current account volatility, as the economy can borrow to offset TOT shocks.

Key Information

Financial Integration and TOT Shocks

• The paper introduces a model where financial integration is represented by a convex adjustment cost to bond holdings. A cost of zero implies full capital mobility, while a cost approaching infinity represents financial autarky.
• The model incorporates both productivity and TOT shocks, with TOT shocks following an AR(1) process.
• The domestic interest rate is composed of a world interest rate and a country premium that depends on the level of aggregate debt.

Empirical Evidence

• Trade Openness: Measured as a percentage of GDP, trade openness varies significantly across emerging economies. For example, India has a trade openness of 31% of GDP, while Malaysia has 197%.
• Financial Openness: Measured as external assets and liabilities as a percentage of GDP, financial openness is also heterogeneous. India has a relatively low financial openness (50% of GDP), while Malaysia has a higher level (186% of GDP).
• TOT Volatility: TOT shocks are more volatile than output, but in economies with limited financial openness, the ratio of TOT volatility to output volatility is lower. This suggests that financial openness plays a key role in how TOT shocks propagate through the economy.

Case Studies

• India: An example of an emerging economy with high trade openness and low financial openness. It has a relatively stable current account and high TOT volatility.
• Brazil: An emerging economy with high financial openness and low trade openness. The model shows that Brazil exhibits higher relative volatility of the trade balance to output compared to India.

Model and Calibration

• A small open economy RBC model is calibrated to India and Brazil to compare the effects of financial integration on business cycle features.
• The model is able to replicate key empirical features of both economies, including the volatility of output, consumption, and the trade balance to output ratio.

Results

• India: The model matches the observed features of the Indian economy, including relatively high consumption volatility, a countercyclical trade balance, and lower TOT volatility relative to output.
• Brazil: The model is able to replicate higher TOT volatility relative to output in Brazil, consistent with its higher financial openness.
• Volatility and Financial Integration: As financial integration increases, output, consumption, and investment volatility decrease, while the volatility of the trade balance to output increases.

Policy Implications

• Financial openness enables emerging economies to better absorb external shocks, particularly TOT shocks, by allowing access to international financial markets.
• This can lead to more stable business cycles, as the economy can smooth consumption and investment through borrowing and lending.

Structure

1. Introduction: Introduces the topic and outlines the research objectives.
2. Openness in Emerging Markets: Examines trade and financial openness across countries and their relationship to TOT volatility.
3. Case of India: Focuses on India's limited financial openness and its response to TOT shocks.
4. Model: Describes the small open economy RBC model with TOT and productivity shocks.
5. Calibration: Applies the model to India and Brazil.
6. Results: Compares model outcomes with empirical data for both countries.
7. Conclusion: Summarizes the findings and discusses policy implications.

Conclusion

The paper concludes that financial integration plays a crucial role in determining the extent to which TOT shocks affect business cycle volatility in emerging economies. Higher financial openness allows for greater absorption of external shocks, reducing the impact on domestic macroeconomic variables. This has important implications for policymakers in emerging economies considering capital account liberalization.