Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU

Comunale, Mariarosaria

doi:10.1016/j.jimonfin.2017.02.012

Cited by 56 publications

(27 citation statements)

References 59 publications

(72 reference statements)

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“…In line with this argument, Avdjiev, Binder, and Sousa () find that large foreign capital flows and a higher share of external lending is associated with a greater likelihood of credit booms. Capital flows that fuel the nontradable sectors of the economy would worsen both the internal and the external terms of trade and shift the current account into negative territory (Comunale, ; Dell'Ariccia et al, ).…”

Section: The Resultsmentioning

confidence: 99%

“…Lastly, we run the regressions adding a control for spillovers across member states, applying two different ways to account for this specific issue. First, we add either a weighted measure of GDP growth of the rest of the EU (Equation ), as in Comunale (), or the weighted average of the financial cycles of the rest of the EU (Equation ), as in Comunale (). In the latter, values are based on a principal component analysis from annual data in which we use output gaps, credit and domestic demand growths, and we take the first (common) principal component .…”

Section: The Resultsmentioning

confidence: 99%

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New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Comunale¹

2020

Int. J Fin Econ

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In this paper, we examine the comovements and relationships between real, credit, house, and equity price cycles in European Union countries looking at their link to structural characteristics and their predictive power for future recessions. We make use of new within country synchronicity indices, finding that among the different credit cycles and between the house price cycle and the real cycle, there is a relatively high level of synchronicity. Credit and gross domestic product (GDP) fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher loan-to-value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase procyclicality and increase cycle volatility. Finally, the procyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. Some synchronicity measures and, above all, the credit cycles may also be considered for signalling future recessions. KEYWORDS credit cycles, house and equity price cycles, housing market, panel probit, real cycles, synchronicity JEL CLASSIFICATION E32; E44; F36 1 INTRODUCTION In this study, we investigate the comovements and relationships between real, credit, house, and equity price cycles in European Union (EU) countries looking at their link to structural characteristics and their predictive power for future recessions. We make use of newly calculated within country synchronicity indices for these purposes. Recently, several papers have focused on the importance of a deeper analysis of financial cycles (Borio, 2012; Borio,

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Section: The Resultsmentioning

confidence: 99%

Section: The Resultsmentioning

confidence: 99%

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Comunale¹

2020

Int. J Fin Econ

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“…Moreover, Aghion et al (2009) showed that real exchange rate volatility has a negative impact on productivity growth, while Vieira et al (2013) revealed that high real exchange rate volatility has a negative impact on economic growth, albeit the impact of low volatility is positive. However, Comunale (2017) noted that exchange rate volatility does not have any robust effect on GDP growth.…”

Section: Introductionmentioning

confidence: 99%

Influence of Real Exchange Rate on the Finance-Growth Nexus in the West African Region

Ehigiamusoe

2019

Economies

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This study examines the moderating effects of the real exchange rate and its volatility on the finance-growth nexus in the West African region. It also determines the marginal effects of financial development on economic growth at various levels of the real exchange rates and its volatility. The findings show that financial development has a long-term positive impact on economic growth, but this impact is weakened by real exchange rate and its volatility. The marginal effects of financial development on economic growth vary with the levels of the real exchange rate and its volatility. The higher the real exchange rate and its volatility, the less finance spurs growth. We also provide evidence of this scenario in individual specific countries in the region. The implication of this study is that the development of the financial sector would not provide the desirable economic benefits except it is accompanied by a reduction and stability in the real exchange rates. Based on the findings, the study makes some policy recommendations.

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“…On the other hand, and more commonly, atheoretical filtering techniques can be employed. 20 Starting with Clark and MacDonald's (1998) seminal study, the Hodrick-Prescott (HP) filter, for example, has been used by Nouira andSekkat (2012), Schröder (2013) and Comunale (2017). In this paper too the baseline equilibrium RER values are obtained on the basis of HP-filtered explanatory variables.…”

Section: Deriving Equilibrium Valuesmentioning

confidence: 99%

How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation

Giordano

2021

Scottish J Political Eco

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This paper explores the robustness of Behavioural Equilibrium Exchange Rate (BEER) models -employed to estimate real effective exchange rate (REER) deviations from "equilibrium" values consistent with macroeconomic fundamentals -to the frequency (annual vs. quarterly) of the underlying data. Indeed, data frequency influences both the length of the sample period (which is typically shorter in a quarterly model) and the set of relevant fundamentals to be included in the specification, and can affect the plausibility of some of the BEER modelling assumptions, which are especially restrictive at the quarterly frequency. The paper compares REER misalignment estimates stemming from a carefully specified annual model, estimated since 1980 for 55 countries, and a comparable quarterly model, estimated since 1999, which is a variant of that currently in use at the Bank of Italy (Giordano, 2018). In the overlapping period the annualised quarterly-model misalignments are quite similar to those based on the annual model. Moreover, the in-sample power of quarterly REER misalignments in explaining subsequent, actual REER developments is found to be higher than that of the annual estimates, signalling their greater usefulness in assessing a country's external economic outlook. This paper therefore confirms the robustness of the quarterly BEER model currently employed at the Bank of Italy; moreover, it suggests that the "optimal" frequency of a BEER model depends on the use (research vs. monitoring and policy-making) one makes of the resulting measures.

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Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU

Cited by 56 publications

References 59 publications

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Influence of Real Exchange Rate on the Finance-Growth Nexus in the West African Region

How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation

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