Hostname: page-component-76fb5796d-25wd4 Total loading time: 0 Render date: 2024-04-25T20:31:37.764Z Has data issue: false hasContentIssue false
  • English
  • Français

INTERNATIONAL MACROECONOMIC FLUCTUATIONS

Published online by Cambridge University Press:  16 May 2014

Soyoung Kim  and
Jaewoo Lee
Soyoung Kim*
Affiliation:
Seoul National University
Jaewoo Lee
Affiliation:
International Monetary Fund
*
Address correspondence to: Soyoung Kim, Department of Economics, Seoul National University, San 56-1, Sillim-Dong, Gwanak-Gu, Seoul 151-746, Korea; e-mail: soyoungkim@snu.ac.kr.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates the international dimension of economic fluctuations and transmission of structural shocks by estimating a structural VAR model for the United States, the euro area, and Japan—the three largest economies—over the post-Bretton Woods period. The main findings are as follows: (1) Supply-side shocks (technology and supply-level shocks) explain most of the fluctuations in cross-country output deviations. (2) Real-demand shocks are the most important source of real-exchange-rate fluctuations. (3) Current account is usually influenced by all types of shocks, with technology shocks playing a stronger role. In particular, technology shocks play a prominent role in the existing global imbalance (the large external deficit of the United States). (4) Technology and supply-level shocks generate opposite-signed correlations between output differential and current account, whereas real and nominal-demand shocks generate opposite-signed correlations between real exchange rate and current account.

Keywords

Structural VARCurrent AccountReal Exchange RateCross-Country Output DeviationTechnology Shocks
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 7 , October 2015 , pp. 1509 - 1539
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Ahmed, Shangil, Ickes, Barry W., Wang, Ping, and Yoo, Byung Sam (1993) International business cycles. American Economic Review 83, 335–359.Google Scholar
Bergin, Paul R. (2003) Putting the “New Open Economy Macroeconomics” to a test. Journal of International Economics 60, 3–34.CrossRefGoogle Scholar
Bergin, Paul R. (2006) How well can the New Open Economy Macroeconomics explain the exchange rate and current account? Journal of International Money and Finance 25 (5), 1–27.CrossRefGoogle Scholar
Bernanke, Ben S. (2004) The Great Moderation. Remarks at the meetings of the Eastern Economic Association, Washington, DC, February 20, 2004, available at http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm.Google Scholar
Blanchard, Olivier J. (2004) The economic future of Europe. Journal of Economic Perspectives 18 (4), 3–26.CrossRefGoogle Scholar
Blanchard, Olivier J., Giavazzi, Francesco, and Sa, Filipa (2005) The U.S. Current Account and the Dollar. NBER working paper 11137.Google Scholar
Blanchard, Olivier J. and Quah, Danny (1989) The dynamic effects of aggregate demand and supply disturbances. American Economic Review 79, 655–673.Google Scholar
Chinn, Menzie D. (2005) Getting Serious about the Twin Deficits. Special council report 10, Council on Foreign Relations.Google Scholar
Christiano, Lawrence J., Eichenbaum, Martin, and Vigfusson, Robert (2007) Assessing structural VARs. NBER Macroeconomic Annual 2006, 1–102.Google Scholar
Clarida, Richard and Gali, Jordi (1994) Sources of real exchange rate fluctuations: How important are nominal shocks. Carnegie-Rochester Series on Public Policy 41, 1–56.CrossRefGoogle Scholar
Corsetti, Giancarlo, Dedola, Luca, and Leduc, Sylvain (2006) Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries. Working paper, European University Institute.CrossRefGoogle Scholar
Corsetti, Giancarlo and Muller, Gernot J. (2006) Twin deficits: Squaring theory, evidence and common sense. Economic Policy 21 (48), 597–638.CrossRefGoogle Scholar
Eichenbaum, Martin and Evans, Charles L. (1995) Some empirical evidence on the effects of shocks to monetary policy on exchange rates. Quarterly Journal of Economics 110 (4), 975–1009.CrossRefGoogle Scholar
Enders, Zeno and Muller, Gernot J. (2009) On the international transmission of technology shocks. Journal of International Economics 78, 45–59.CrossRefGoogle Scholar
Enders, Zeno, Muller, Gernot J., and Scholl, Almuth (2011) How do fiscal and technology shocks affect real exchange rates? New evidence for the United States. Journal of International Economics 83 (1), 53–69.CrossRefGoogle Scholar
Engel, Charles and John H. Rogers (2006) The U.S. current account deficit and the expected share of world output. Journal of Monetary Economics 53, 1063–1093.CrossRefGoogle Scholar
Faruqee, Hamid and Lee, Jaewoo (2009) Global dispersion of current accounts: Is the universe expanding? IMF Staff Papers 56 (3), 574–595.CrossRefGoogle Scholar
Francis, Neville and Ramey, Valerie A. (2005) Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited. Journal of Money, Credit and Banking 52 (8), 1379–1399.Google Scholar
Gali, Jordi (1999) Technology, employment and the business cycle: Do technology shocks explain aggregate fluctuations? American Economic Review 89, 249–271.CrossRefGoogle Scholar
Gil-Alana, Luis Alberiko and Moreno, Antonio (2009) Technology shocks and hours worked: A fractional integration perspective. Macroeconomic Dynamics 13 (5), 580–604.CrossRefGoogle Scholar
Glick, Reuven and Kenneth Rogoff (1995) Global versus country-specific productivity shocks and the current account. Journal of Monetary Economics 35, 159–192.CrossRefGoogle Scholar
Kim, Soyoung (2001) International transmission of U.S. monetary policy shocks: Evidence from VAR's. Journal of Monetary Economics 48 (2), 339–372.CrossRefGoogle Scholar
Kim, Soyoung (2013) Country Characteristics and the Effects of Government Consumption Shocks on the Current Account and Real Exchange Rate. Working paper, Seoul National University.Google Scholar
Kim, Soyoung and Lee, Jaewoo (2008) International Macroeconomic Fluctuations: A New Open Economy Macroeconomics Interpretation. HKIMR working paper 23.CrossRefGoogle Scholar
Kim, Soyoung and Roubini, Nouriel (2000) Exchange rate anomalies in the industrial countries: A solution with a structural VAR Approach. Journal of Monetary Economics 45, 561–586.CrossRefGoogle Scholar
Kim, Soyoung and Nouriel Roubini (2008) Twin deficit or twin divergence? Effects of government budget deficit on the current account and the exchange rate. Journal of International Economics 74 (2), 362–387.CrossRefGoogle Scholar
Lee, Jaewoo and Chinn, Menzie D. (2006) Current account and real exchange rate dynamics in the G7 countries. Journal of International Money and Finance 25, 257–274.CrossRefGoogle Scholar
Lee, Jaewoo and Tang, Man-Keung (2007) Does productivity growth lead to appreciation of the real exchange rate? Review of International Economics 15 (1), 164–187.CrossRefGoogle Scholar
Lubik, Thomas A. and Schorfheide, Frank (2005) A Bayesian look at New Open Economy macroeconomics. NBER Macroeconomics Annual 2005 (20), 313–382.CrossRefGoogle Scholar
Mitra, Sinchan and Sinclair, Tara M. (2012) Output fluctuations in the G-7: An unobserved components approach. Macroeconomic Dynamics 16 (3), 396–422.CrossRefGoogle Scholar
Obstfeld, Maurice and Kenneth Rogoff (1995) Exchange rate dynamics redux. Journal of Political Economy 103, 624–660.CrossRefGoogle Scholar
Pesavento, Elena and Rossi, Barbara (2005) Do technology shocks drive hours up or down? Macroeconomic Dynamics 9 (4), 478–488.CrossRefGoogle Scholar
Sachs, Jeffrey D. (1981) The Current Account in the Macroeconomic Adjustment Process. NBER working paper 0796.Google Scholar
Scholl, Almuth and Uhlig, Harald (2008) New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates. Journal of International Economics 76 (1), 1–13.CrossRefGoogle Scholar
Shapiro, Matthew and Watson, Mark (1988) Sources of business cycle fluctuation. In Fischer, Stanley (ed.), NBER Macroeconomics Annual 1988, Vol. 3, pp. 111–156. Cambridge, MA: MIT Press.Google Scholar
Stock, James H. and Watson, Mark W. (1993) A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica 61 (4), 783–820.CrossRefGoogle Scholar
Stockman, Alan C. (1980) A theory of exchange rate determination. Journal of Political Economy 88 (4), 673–698.CrossRefGoogle Scholar
Stockman, Alan C. and Tesar, Linda L. (1995) Tastes and technology in a two-country model of the business cycle: Explaining international comovements. American Economic Review 85, 168–185.Google Scholar