External shocks and limited absorption in a small open economy: the case of Hungary

2012 ◽  
Vol 24 (1) ◽  
pp. 1-14 ◽  
Author(s):  
Istvan Magas
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
External Shocks

scholarly journals Analysis of the Propagation Effects of Remittances on the Vulnerability of External Trade of the Republic of Moldova

2021 ◽  
Vol 7 (2) ◽  
pp. 94-120
Author(s):  
Mircea Diavor ◽  
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Impulse Response Function ◽  
External Shocks ◽  
External Trade ◽  
Republic Of Moldova ◽  
Causality Tests ◽  
Balance Of Trade ◽  
The Republic ◽  
Analytical Tools

In the Republic of Moldova remittances have become a much-discussed subject, the country ranking among the economies with the highest share of remittances in terms of GDP. What is more, remittances, unlike FDI, external trade and other sources of income, seem to have a significant impact on economic growth. Republic of Moldova is a small open economy vulnerable to external shocks. We will examine the effect of remittances on the balance of trade by creating an econometric model. Am attempt has also been made to capture the positive and negative spillovers that migrants’ remittances have on a country’s socio-economic development. Within the research a variety of analytical tools are employed including Granger causality tests, unit root tests, coupled with a structural vector auto regression (SVAR), impulse response function (IRF) analyses and variance decomposition. We find that net trade and remittances are closely associated and follow an almost identical path. Remittances have strong effect on the growth of negative net trade of the Republic of Moldova.

scholarly journals External Shocks and FX Intervention Policy in Emerging Economies

2021 ◽  
Author(s):  
Alex Carrasco ◽  
David Florián Hoyle
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Exchange Rate Regime ◽  
Emerging Market ◽  
Agency Problem ◽  
Small Open Economy ◽  
Balance Sheet ◽  
Policy Instrument ◽  
External Shocks ◽  
Intervention Policy

This paper discusses the role of sterilized foreign exchange (FX) interventions as a monetary policy instrument for emerging market economies in response to external shocks. We develop a model for a commodity-exporting small open economy in which FX intervention is considered as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and their creditors. The severity of banks agency problem depends directly on a bank-level measure of currency mismatch. Endogenous deviations from the standard UIP condition arise at equilibrium. In this context, FX interventions moderate the response of financial and macroeconomic variables to external shocks by leaning against the wind with respect to real exchange rate pressures. Our quantitative results indicate that, conditional on external shocks, the FX intervention policy successfully reduces credit, investment, and output volatility, along with substantial welfare gains when compared to a free-floating exchange rate regime. Finally, we explore distinct generalizations of the model that eliminate the presence of endogenous UIP deviations. In those cases, FX intervention operations are considerably less effective for the aggregate equilibrium.

scholarly journals Financial Markets, External Shocks and Policy Responses: The Case of Brazil 2001

2003 ◽  
Vol 23 (4) ◽  
pp. 547-562
Author(s):  
LAURO VIEIRA DE FARIA
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Practical Importance ◽  
Small Open Economy ◽  
Negative Events ◽  
External Shocks ◽  
Policy Responses ◽  
Brazilian Government ◽  
Exchange Rate Overshooting

ABSTRACT This paper evaluates the macroeconomic response of the Brazilian government in 2001 following the emergence of sharp negative events in both the external and internal sectors with particular focus on monetary and exchange rate policies. It points out that the kind of macroeconomic reaction depicted by the standard Mundell-Fleming model is of little practical importance in a small open economy engulfed in dollar denominated debts and experiencing a confidence crisis like Brazil’s. The Brazilian economy operates as if there were some sorts of ceilings for the exchange rate and for interest rates, in a clear departure from the assumptions embodied in the “pure” model. In this kind of environment another set of actions is required to fight a dangerous exchange rate overshooting and that is proven by the events of 2001. Whilst the actions taken by the monetary authorities proved successful at that moment the paper shows that they came with sizeable real and financial costs as collateral. Therefore, the paper argues in favour of another set of macroeconomic responses which should have been preferred if we were to avoid such costs.

scholarly journals External Shocks and the Macroeconomic Response of Small Open Economy: A Structural-VAR Approach for Pakistan

2017 ◽  
Vol 10 (4) ◽  
pp. 336-344
Author(s):  
Abdul Rahman Nizamani ◽  
Muhammad Akram Gilal ◽  
Ali Gul Khushik ◽  
Syed Munawar Sh ◽  
Abidullah Abid
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Structural Var ◽  
External Shocks

scholarly journals The dynamic impact of external shocks on fiscal reaction function in a small open economy

2020 ◽  
Vol 9 (2) ◽  
pp. 84
Author(s):  
Chee Loong Lee
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Structural Var ◽  
Var Model ◽  
Reaction Function ◽  
External Shocks ◽  
Dynamic Impact ◽  
Budgetary Policy ◽  
Fiscal Reaction Function ◽  
The One

Fiscal authorities in a small open economy should utilize its fiscal instrument feedback to external shocks. This paper analyzes the dynamic respond of budgetary policy to external shocks in Malaysia by a Structural VAR model. On the one hand, the results confirm that external shocks have a significant effect on fiscal reaction function variables. On the other hand, the direct consideration of budgetary reaction of Malaysia to external shocks is limited. Therefore, fiscal authorities should enhance its feedback to external shocks to achieve stable and sustain growth.

Sign in / Sign up

Export Citation Format

Share Document