Exchange rate regimes and trade: Is Africa different?

This paper revisits the link between exchange rate regimes and trade in the context of Africa's exchange rate arrangements. Applying an augmented gravity model that includes measures of currency unions and pegged regimes, the paper compares Africa's experience with that of the world. Our results suggest that both currency unions and direct pegs promote bilateral trade in Africa vis-à-vis more flexible exchange rate regimes,and that their effect is almost double for the region than that for an average country in the world sample. Further, we find evidence that the effect of conventional pegs is at least as large as that of currency unions in Africa, and that the benefits of fixed exchange rate regimes stem through channels in addition to reduced exchange rate volatility

The trade-growth nexus in the developing countries: a quantile regression approach

This paper applies quantile regression techniques to investigate how the impact of trade openness on the growth rate of per capita income varies with the conditional distribution of growth. Using formal robustness analyses, we first identify robust variables affecting economic growth (investment, government balance, terms of trade, inflation, and population growth) which we then use as controls in the quantile regression estimations. Our findings suggest a heterogeneous trade-growth nexus: for both the short and the long run, the effect of openness on growth is higher in countries with low growth rates compared to those with high growth rates. [author's abstract

Redistribución, desigualdad y crecimiento

This paper takes advantage of a recently-compiled cross-country dataset that distinguishes market inequality from net inequality and allows us to calculate redistributive transfers for a large number of country-year observations. Our main findings are: 1. More unequal societies tend to redistribute more. 2. Lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. 3. R edistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution –including the growth effects of the resulting lower inequality– are on average pro-growth. While we should be cognizant of the inherent limitations of the data set and of cross-country regression analysis more generally, we should be careful not to assume that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support that conclusion.Este artículo emplea un conjunto de datos reciente que distingue entre desigualdad neta y de mercado, y permite calcular las transferencias redistributivas anuales de un gran número de países. Las principales conclusiones son: 1. Sociedades más desiguales tienden a redistribuir más. 2. Una menor desigualdad neta se correlaciona robustamente con un crecimiento más rápido y más durable, dado un nivel de redistribución. 3. El impacto de la redistribución sobre el crecimiento parece ser benigno en general, y hay evidencia de que solo en casos extremos puede tener efectos negativos. Por tanto, sus efectos conjuntos, directos e indirectos –incluidos los efectos de la menor desigualdad resultante–, son favorables al crecimiento. Pese a las limitaciones inherentes al conjunto de datos y al análisis de regresión, no se puede suponer que hay un gran trade-off entre redistribución y crecimiento; los mejores datos macroeconómicos disponibles no respaldan esa hipótesis

Crisis and Recovery

This paper examines the role of the exchange rate regime in explaining how emerging market economies fared in the recent global financial crisis, particularly in terms of output losses and growth resilience. After controlling for regime switches during the crisis, using alternative definitions for pegs, and taking account of other likely determinants, we find that the growth performance for pegs was not different from that of floats during the crisis. For the recovery period 2010-11, pegs appear to be faring worse, with growth recovering more slowly than floats. These results suggest an asymmetric effect of the regime during and recovering from the crisis. We also find that proxies of the trade and financial channels are important determinants of growth performance during the crisis, while only the trade channel appears important for the recovery thus far.Currency pegs;Economic growth;Economic recovery;Exchange rate regimes;Floating exchange rates;exchange rate regime, exchange rate, current account balance, terms of trade, trading partner, exchange rate arrangements, short-term debt, trading partners, exchange rate regime classification, trade shock, flexible exchange rate, exchange rate flexibility, current account deficit, trade integration, real exchange rate, flexible exchange rate regimes, exchange rate overvaluation, reserve holdings, exchange restrictions, transmission of shocks, exchange rate volatility, trade shocks, exchange rate regime classifications, terms of trade shocks, classification of exchange rate, real exchange rates, intermediate exchange rate regimes, exchange reserves, foreign exchange, de facto exchange rate regime, real exchange rate volatility, fixed exchange rate, oil exporter, intermediate exchange rate, exchange rates, external shocks, foreign exchange reserves

Monetary Policy Transmission in Mauritius Using a VAR Analysis

Applying commonly used vector autoregression (VAR) techniques, this paper investigates the transmission mechanism of monetary policy on output and prices for Mauritius, using data for 1999-2009. The results show that (i) an unexpected monetary policy tightening-an increase in the Bank of Mauritius policy interest rate-leads to a decline in prices and output but the effect on output is weaker; (ii) an unexpected decrease in the money supply or an unexpected increase in the nominal effective exchange rate result in a decrease in prices; and (iii) variations of the policy variables account for small a percentage of the fluctuations in output and prices. Taken together, these results suggest a rather weak monetary policy transmission mechanism. Finally, we find some differences in the transmission mechanism depending on whether core or headline consumer price index is used in the estimations.Monetary policy;Monetary transmission mechanism;Mauritius;Central bank policy;Consumer price indexes;Economic models;Interest rate increases;Price adjustments;inflation, money supply, money stock, monetary transmission, monetary policy transmission mechanism, inflation targeting, monetary stance, real variables, money ? stock, money demand, monetary policy framework, monetary fund, reserve requirements, monetary control, central bank, monetary economics, monetary policy instrument, real output, price stability, monetary statistics, monetary policy reaction function, nominal variables, national bank, monetary policy rules, foreign exchange, relative price, price level, monetary expansions, inflationary pressures, transmission of monetary policy, coefficient on inflation, open market operations, monetary transmission mechanisms, monetary shock, reduction of inflation

A Bayesian Approach to Model Uncertainty

This paper develops the theoretical background for the Limited Information Bayesian Model Averaging (LIBMA). The proposed approach accounts for model uncertainty by averaging over all possible combinations of predictors when making inferences about the variables of interest, and it simultaneously addresses the biases associated with endogenous and omitted variables by incorporating a panel data systems Generalized Method of Moments estimator. Practical applications of the developed methodology are discussed, including testing for the robustness of explanatory variables in the analyses of the determinants of economic growth and poverty.Forecasting models;Economic models;probability, probabilities, hypothesis testing, bayes factors, equation, maximum likelihood estimation, bayes factor, equations, statistics, econometrics, number of regressors, minimization, bayesian information criterion, covariance, regression model, dynamic panel, consistent estimator, linear regression, bayesian analysis, finite sample, linear regression model, bayes ? theorem, samples, maximum likelihood estimator, goodness of fit, algebra, stochastic process, stochastic processes, parameter value, optimization, normal density, markov chain, independent variables, instrumental variables, autocorrelation, nonlinear models, prediction, integral, number of parameters, difference equation, sampling, experimental data, mean square, statistical theory, probability distributions, maximum likelihood estimators, parameter estimation, correlation, functional form

Growth Empirics Under Model Uncertainty

This paper attempts to identify robust patterns of cross-country growth behavior in the world as a whole and Africa. It employs a novel methodology that incorporates a dynamic panel estimator, and Bayesian Model Averaging to explicitly account for model uncertainty. The findings indicate that: (i) in addition to initial conditions, various economic factors such as higher investment, lower inflation, lower government consumption, better fiscal stance, improved political environment, exogenous terms-of-trade shocks, and fixed geographical factors are robustly correlated with growth; (ii) what is good for growth around the world is, in principle, also good for growth in Africa; and (iii) political and institutional variables are particularly important in explaining African growth.Economic growth;Economic models;debt, probability, samples, debt service, external debt, logarithm, equation, statistics, probabilities, bayes factor, number of variables, sensitivity analysis, debt overhang, deficits, correlations, bayes factors, econometrics, number of regressors, debt relief, bayesian analysis, sampling, fiscal policy, repayment, probability model, debt stocks, survey, bayes ? theorem, bayesian information criterion, financial statistics, interest, standard deviation, finite sample, creditors, statistic, difference equation, goodness of fit, equations, exogenous factor, empirical model, experimental data, simultaneous equation, correlation, hypothesis testing, public expenditure, probability density, statistical significance, access to credit, sampling distribution, prediction, debt forgiveness, dummy variables, debt repayment, nonlinear relationship, surveys, liabilities, sample size, linear models, functional form, statistical theory