Working Papers
2018
January 24, 2018
A New Smartphone for Every Fifth Person on Earth: Quantifying the New Tech Cycle
Description: The enormous global demand for smartphones in recent years has created a new global tech cycle. In 2016 alone, global smartphone sales reached close to 1.5 billion, one for every fifth person on earth. In turn, this has engendered complex and evolving supply chains across Asia. We show that the new tech cycle cannot be captured by standard seasonality, but depends on smartphone product release dates. Decomposing cycle from trend, we also show that the sale of smartphones may have peaked in late 2015. Asia, however, continues to gain in importance as the global tech manufacturer.
January 24, 2018
Reserve Currency Blocs: A Changing International Monetary System?
Description: What is the extent of currency diversification in the international monetary system? How has it evolved over time? In this paper, we quantify the degree of currency diversification using regression methods of currency co-movements to determine the extent to which national currencies across the world belong to a reserve currency bloc. We then use these estimates to calculate the economic size of each currency bloc. A key contribution of our paper is that we quantify the size of the Chinese renminbi bloc. Our analysis suggests that the international monetary system has transitioned from a bi-polar system - consisting of the U.S. dollar and the euro - to a tri-polar one that includes the renminbi. The dollar bloc is estimated to continue to dominate, having the largest share in global GDP (40 percent), followed by the renminbi (30 percent) and the euro blocs (20 percent). The geographical area of influence for the RMB bloc appears to be most evident among the BRICS’ currencies. The British pound and the Japanese yen blocs appear to play minor roles.
January 24, 2018
A Narrative Database of Major Labor and Product Market Reforms in Advanced Economies
Description: This paper describes a new database of major labor and product market reforms covering 26 advanced economies over the period 1970-2013. The focus is on large changes in product market regulation in seven individual network industries, employment protection legislation for regular and temporary workers, and the replacement rate and duration of unemployment benefits. The main advantage of this dataset is the precise identification of the nature and date of major reforms, which is valuable in many empirical applications. By contrast, the dataset does not attempt to measure and compare policy settings across countries, and as such is no substitute for other publicly available indicators produced, for example, by the ILO, the OECD or the World Bank. It should also be seen as work in progress, for researchers to build on and improve upon. Based on the dataset, major reforms appear to have been more frequent in product markets than in labor markets in the last decades, and were predominantly implemented during the 1990s and 2000s.
January 24, 2018
On International Integration of Emerging Sovereign Bond Markets
Description: The paper investigates the international integration of EM sovereign dollar-denominated and local-currency bond markets. Factor analysis is used to examine movements in sovereign bond yields and common sources of yield variation. The results suggest that EM dollar-denominated sovereign debt markets are highly integrated; a single common factor that is highly correlated with US and EU interest rates explains, on average, about 80 percent of the total variability in yields. EM sovereign local currency bond markets are not as internationally integrated, and three common factors explain about 74 percent of the total variability. But a factor highly correlated with US and EU interest rates still explains 63 percent of the yield variation accounted for by common factors. That said, there is some diversity among EM countries in the importance of common factors in affecting sovereign debt yields.
January 24, 2018
Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?
Description: We undertake an extended discussion of the latest developments about the existing and new estimation methods of the shadow economy. New results on the shadow economy for 158 countries all over the world are presented over 1991 to 2015. Strengths and weaknesses of these methods are assessed and a critical comparison and evaluation of the methods is carried out. The average size of the shadow economy of the 158 countries over 1991 to 2015 is 31.9 percent. The largest ones are Zimbabwe with 60.6 percent, and Bolivia with 62.3 percent of GDP. The lowest ones are Austria with 8.9 percent, and Switzerland with 7.2 percent. The new methods, especially the new macro method, Currency Demand Approach (CDA) and Multiple Indicators Multiple Causes (MIMIC) in a structured hybrid-model based estimation procedure, are promising approaches from an econometric standpoint, alongside some new micro estimates. These estimations come quite close to others used by statistical offices or based on surveys.
January 24, 2018
New Estimates for Direction of Trade Statistics
Description: In March 2017, the IMF published an upgrade of its Direction of Trade Statistics (DOTS) dataset. This paper documents the new methodology that has been developed to estimate missing observations of bilateral trade statistics on a monthly basis. The new estimation procedure is founded on a benchmarking method that produces monthly estimates based on official trade statistics by partner country reported at different times and frequencies. In this paper we describe the new estimation methodology. Additional data sources have also been incorporated. We also assess the impact of the new estimates on trade measurement in DOTS at global, regional, and country-specific levels. Finally, we suggest some developments of DOTS to strenghten its relevance for IMF bilateral and multilateral surveillance.
January 24, 2018
Can Countries Manage Their Financial Conditions Amid Globalization?
Description: This paper examines the evolving importance of common global components underlying domestic financial conditions. It develops financial conditions indices (FCIs) that make it possible to compare a large set of advanced and emerging market economies. It finds that a common component, “global financial conditions,” accounts for about 20 percent to 40 percent of the variation in countries’ domestic FCIs, with notable heterogeneity across countries. Its importance, however, does not seem to have increased markedly over the past two decades. Global financial conditions loom large, but evidence suggests that, on average, countries still appear to hold considerable sway over their own financial conditions—specifically, through monetary policy. Nevertheless, the rapid speed at which foreign shocks affect domestic financial conditions may also make it difficult to react in a timely and effective manner, if deemed necessary.
January 23, 2018
Economic Convergence in the Euro Area: Coming Together or Drifting Apart?
Description: We examine economic convergence among euro area countries on multiple dimensions. While there was nominal convergence of inflation and interest rates, real convergence of per capita income levels has not occurred among the original euro area members since the advent of the common currency. Income convergence stagnated in the early years of the common currency and has reversed in the wake of the global economic crisis. New euro area members, in contrast, have seen real income convergence. Business cycles became more synchronized, but the amplitude of those cycles diverged. Financial cycles showed a similar pattern: sychronizing more over time, but with divergent amplitudes. Income convergence requires reforms boosting productivity growth in lagging countries, while cyclical and financial convergence can be enhanced by measures to improve national and euro area fiscal policies, together with steps to deepen the single market.
January 23, 2018
Friend or Foe? Cross-Border Linkages, Contagious Banking Crises, and “Coordinated” Macroprudential Policies
Description: This paper examines whether the coordinated use of macroprudential policies can help lessen the incidence of banking crises. It is well-known that rapid domestic credit growth and house price growth positively influence the chances of a banking crisis. As well, a crisis in other countries with high trade and financial linkages raises the crisis probability. However, whether such “contagion effects” can operate to reduce crisis probabilities when highly linked countries execute macroprudential policies together has not been fully explored. A dataset documenting countries’ use of macroprudential tools suggests that a “coordinated” implementation of macroprudential policies across highly-linked countries can help to stem the risks of widespread banking crises, although this positive effect may take some time to materialize.
January 15, 2018
Regulatory Cycles: Revisiting the Political Economy of Financial Crises
Description: Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.