According to the Harberger-Laursen-Metzler (HLM) effect an exogenous increase in the terms of trade faced by a small open economy leads to an improvement in that country’s trade balance. In this paper structural vector autoregression techniques are used to investigate whether there is any systematic pattern in the responses of the trade balance to terms of trade shocks for a large number of sma...

Estimating the price elasticity of China’s imports is difficult because many imports are used to produce exports and because the real effective exchange rate has remained fairly stable. To circumvent the first problem, we control for re-exports, and to increase the discriminatory power of the tests, we employ a panel data set including imports from 25 countries. The results indicate that a 10 p...

This paper presents an analytic framework with empirical evidence aiming to improve our understanding of the roles of foreign direct investment (FDI) in shaping productivity growth. Specifically, the study empirically examines the effects of FDI on China’s regional productivity growth. Our analyses based on two versions of our model, one excluding and one including human capital, show that FDI ...

This study examines the impact of globalization on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. The role of globalisation in increasing inequality in economies with financial markets imperfections has been highlighted in the theoretical literature but has not been systemically tested empirically. We provide a first pass at te...

This article examines exchange rate-based stabilization in an economy that has been badly destroyed by war or other calamities. The article does this in the context of post-civil war Lebanon. Both Iraq and Afghanistan are prime candidates for such a policy. This article first demonstrates the validity of the theory and empirical regularities (initial boom followed by an economic contraction) in...

This paper developes a small open economy model in which domestic resource shocks play a vital role in driving the dynamics of the major macroeconomic aggregates. Households rent capital and labour to rms and have access to an international bond market. The model is calibrated to recent Icelandic data and simulated under two alternative exchange rate regimes: oating rates, and monetary union me...

Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the CB is aggressively raising the interest rate in response to higher expected inflation. The constraint...

This paper examines the role of external shocks in explaining macroeconomic fluctuations in African countries. We construct a quantitative, stochastic, dynamic, multi-sector equilibrium model of a small open economy calibrated to represent a "typical" African economy. In our framework, external shocks consist of trade shocks, modeled as fluctuations in the prices of exported primary commodities...

Article history: Received 6 August 2013 Received in revised form 15 February 2014 Accepted 17 February 2014 Available online 5 March 2014 The recent global financial crisis has sparked a renewal of debate on the choice of exchange rate regimes. Creating a tripartite regime classification, the present study examines their determinants for 137 nations spanning the period 1999–2011. I find that tr...

We propose a candidate solution to the imperfect exchange rate passthrough puzzle: habit persistence at the level of individual goods varieties. Deep habits generate a dynamic import demand function that leads to import price markup adjustments, independently of nominal pricing frictions. Augmenting a standard two-country model with deep habits, we obtain low exchange rate pass-through to impor...