Stranded! How Rising Inequality Suppressed US Migration and Hurt Those "Left Behind" by Tamim Bayoumi and Jelle Barkema IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
The fragmentation of production across borders coming from global value chains has resulted in a dramatic increase in trade integration over the last two decades. Conventional competitiveness measures, however, assume that only final products cross borders. This paper argues that, as a result, conventional effective exchange rate calculations underestimate the global nature of competitiveness: too much weight is placed on neighboring countries that belong to the same regional supply chain and too little weight on more distant countries that absorb final goods. We also argue that the nature of the exchange rate regimes across the major currencies, in particular the fact that the dollar has tended to move in close tandem with the renminbi but opposite to the euro, has made it difficult to identify these effects on competitiveness measures in the data. As all major currencies move to greater flexibility, assessments of their relative roles in competitiveness calculations will become more important.
Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.
This paper dives into the Fund's historical coverage of cross-border spillovers in its surveillance. We use a state-of-the-art deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openess and lower inflation are more likely to discuss spillovers in their Article IV staff reports.
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