Mariarosaria Comunale - Academia.edu (original) (raw)
Papers by Mariarosaria Comunale
In this paper, we examine the relationships between real, credit and house price cycles, by using... more In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and 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 pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality 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. The synchronicity and the cycles of credit may also be considered for signaling recessions.
In this paper we provide an overview of the different approaches identified to capture monetary p... more In this paper we provide an overview of the different approaches identified to capture monetary policy in a period of Zero Lower Bound (ZLB). We focus here on the methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis and different shadow rates.
In the second section of this review we calculate these measures for the euro area and also draw comparisons among different approaches and look at the effects on main macroeconomic variables, with a special focus on inflation. The impact of unconventional monetary policy shocks on inflation is found to be significantly positive by the majority of the studies and by using different methods.
Ultimately, we provide a summary of the literature on the Natural Real Rate of Interest, which may be useful for assessing how long low (real) interest rates in a ZLB may stay in place; also suggesting some possible improvement in the estimations which would lead to more accurate policy recommendations.
In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and fo... more In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identifi cation based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer inflation in the euro area.
This empirical study considers the pass-through of key nominal exchange rates and commodity price... more This empirical study considers the pass-through of key nominal exchange rates and commodity prices to consumer prices in the Commonwealth of Independent States (CIS), taking into account the effect of idiosyncratic and common factors influencing prices. In order to do that, given the relatively short window of available quarterly observations (1999–2014), we choose heterogeneous panel frameworks and control for cross-sectional dependence. The exchange rate pass-through is found to be relatively high and rapid for CIS
countries in the case of the nominal effective exchange rate, but not significant for the bilateral rate with the US dollar. We also show that global factors in combination with financial gaps and commodity prices are important. In the case of large rate swings, the exchange rate pass-through of the bilateral rate with the US
dollar becomes significant and similar to that of the nominal effective exchange rate.
In this paper, we look at the determinants of current accounts in twenty-seven EU countries over ... more In this paper, we look at the determinants of current accounts in twenty-seven EU countries over the period 1994-2014. The twenty-seven countries of interest are divided into three sub-groups, namely: core, periphery and CEE new member states. We also assess the current accounts based on computed equilibrium values, and we provide a measure of misalignment for the medium run. As determinants we include capital flows as well as demographic, fiscal and relative development factors.
The initial Net Foreign Asset position and oil balance seem to matter more in the core countries than in the periphery and CEE new member states. In contrast, the periphery and CEE new member states seem to be more strongly affected by capital flows. Fiscal balance negatively affects only the periphery, while an increase in government spending is positive for the current account for CEE new member states. In the past twenty years these misalignments have shown a cyclical behavior in most EU countries, and the magnitude of the cycles themselves are highly heterogeneous across groups.
Lastly, we compute an adjusted current account equilibrium, which tries to correct the equilibrium value by the role of expectations (proxied by IMF projections). This factor has more of an impact in the UK than in the euro-area countries.
In this article we study the impact of real effective exchange rate misalignments, based on deter... more In this article we study the impact of real effective exchange rate misalignments, based on determinants, including different types of foreign capital inflows, on GDP growth in the EU. This can provide a useful contribution to understanding the causal link between inflows, real effective exchange rate disequilibria and GDP growth during both the boom and the crisis period. For this analysis, we use a panel of 27 EU countries for the period 1994–2012, with annual frequency.
We find that the core countries have been mostly undervalued from the crisis onwards, while the periphery (excluding Ireland) were overvalued starting from 2003–2004, as expected. Concerning the new Member States, these are persistently overvalued for the entire time span. The results seem to be generally driven by the inflows of banking loans more than by FDIs or portfolio investments.
In the second stage, we study the influence of exchange rate misalignments and volatilities on growth. We argue that the real effective exchange rate misalignments associated with the inflows have been a further cause for decline in GDP, in a long-run perspective, while they do not play a role in the short run. The exchange rate volatilities and the undervaluation dummy are not robust in affecting GDP growth, while spillovers and global factors seem to matter in all the specifications both in the short and long run.
We built different financial cycle measures, also applied recently in Comunale and Hessel (2014).... more We built different financial cycle measures, also applied recently in Comunale and Hessel (2014).
Our aim is to provide a comprehensive database with definitions of variables that may be of use for cross-country comparative analysis.
The database includes 41 countries (EU28 and OECD members) from 1994 to 2014 with both annual and quarterly frequency.
The main contributions of our database are that: i) it is publicly available and freely downloadable from the website of the Bank of Lithuania and it can be used subject to a clear reference; ii) the data are updated to the most recent year/quarter available; ii) considers not only the EU members as of 2014 (Croatia is therefore included in the sample), but also other non-EU countries part of the OECD (including both advanced and developing economies); iii) is built using both HP filtering techniques and the Principal Component Analysis (PCA), the latter are used to compute synthetic indices, to come up to different applicable indicators; iv) we added also some business cycle measures for comparison reason.
Ultimately, we show an application of our data, checking whether the financial cycle can influence the estimation of inflation in the euro area and what is the difference between adding a business or a financial cycle measure for the exchange rate pass-through (ERPT). We find that the ERPT can be higher in the presence of house price fluctuations at the frequency of the financial cycle.
Discussion Paper No.28/2015, Oct 14, 2015
Using the IMF CGER methodology, we make an assessment of the current account and price competitiv... more Using the IMF CGER methodology, we make an assessment of the current account and price competitiveness of the Central Eastern European Countries (CEEC) that joined the EU between 2004 and 2014. We present results for the “Macroeconomic Balance (MB)” approach, which provides a measure of current account (CA) equilibrium based on its determinants together with misalignments in real effective exchange rates (REERs). We believe that a more refined analysis of the misalignments may useful for the Macroeconomic Imbalance Procedure (MIP). This is especially the case for these countries, which have gone through a transition phase and boom/bust periods since their independence. Because such a history may have influenced a country’s performance, any evaluation must take account of each country’s particular characteristics. We use a panel setup of 11 EU new member states (incl. Croatia) for the period 1994–2012 in static and dynamic frameworks, also controlling for the presence of cross-sectional dependence and checking specifically for the role of exchange rate regimes, capital flows and global factors. We find that the estimated coefficients of the determinants meet with expectations. Moreover, the foreign capital flows, the oil balance, and relative output growth seem to play a crucial role in explaining the current account balance. Some global factors such as shocks in oil prices or supply might have played a role in worsening the current account balances of the CEECs. Having a pegged exchange rate regime (or being part of the euro zone) affects the current account positively. The real effective exchange rates behave in accord with the current account gaps, which clearly display cyclical behaviour. The CAs and REERs come close to
equilibria in 2012 in most of the countries and the rebalancing is completed for some countries that were less misaligned in the past, such as Poland and Czech Republic, but also for Lithuania. When Foreign Direct Investment (FDI) is introduced as a determinant for these countries, the misalignments are larger in the boom periods (positive misalignments) whereas the negative misalignments are smaller in magnitude.
Bank of Lithuania, Working Paper Series No. 18/2015, Apr 14, 2015
Exchange rate assessment is becoming increasingly relevant for economic surveillance in the Europ... more Exchange rate assessment is becoming increasingly relevant for economic surveillance in the European Union (EU). The persistence of different wage, price and productivity dynamics among the Economic and Monetary Union (EMU) countries or EU members with a fixed exchange regime with the euro, coupled with the impossibility of correcting competitiveness differentials via the adjustment of nominal rates, have resulted in divergent dynamics in Real Effective Exchange Rates. This paper explores the role of economic fundamentals, included in the transfer effect theory, in explaining medium/long-run movements in the Real Effective Exchange Rates in the EU over the period 1994–2012 by using heterogeneous, co-integrated panel frameworks in static and dynamic terms. In addition, the paper provides an analysis of the misalignments of the rate for each member state based on the “equilibrium” measure calculated from the permanent component of the fundamentals (the so-called Behavioural Effective Exchange Rate).
We find that the coefficients of the determinants are extremely different across groups in magnitude and sometimes in sign as well and the transfer theory does not hold for periphery and the Central and Eastern European countries (CEECs). The relative importance of the transfer variable and the Balassa-Samuelson measure are crucial for the asymmetries. The resulting misalignments in EU28 are huge and the patterns diverge significantly across groups. The core countries have been undervalued for almost the whole period, which entails from an important increase in competitiveness for those countries. Instead the periphery has experienced high rates, especially in Portugal. In addition, the behaviour of CEECs is also driven, as expected, by the catching-up process and the criteria to the accession to the EU. The misalignments in this case are still extremely wide and reflect these phenomena.
This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar excha... more This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on the inflation in the euro zone, dividing the sample in two groups of countries: core and periphery. Then we test if the euro-US dollar exchange rate is still able to give a different impact on the groups’ performance as in the past US dollar-deutschmark polarization phenomenon studying the intra-euro area differences in exchange rate pass-through (ERPT), as an important element of inflation dynamics.
Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, which deals with the presence of cross-sectional dependence.
We conclude that the euro-US dollar is still an important factor, but not the only key factor, in determining the asymmetry in HICP inflation between core and periphery. The nominal effective exchange rate instead is an important driver for the inflation, but only considering the euro zone as a whole.
The EMU seems to not have insulated enough some member countries from nominal external shocks. The nominal effective exchange rate is also a factor to take into account in order to analyze the recent low inflation in the euro zone, even if the size of the ERPT is relatively small.
Bank of Lithuania Occasional Paper No.01/2015, Mar 4, 2015
In the recent debate about the channels for growth there are two different aspects to take into a... more In the recent debate about the channels for growth there are two different aspects to take into account: the importance of the exports in services and the sophistication of the exports themselves. We analyze in this paper the situation of exports in Lithuania, highlighting the modern/high-tech sectors with a special focus on services.
We found that the percentage of high-tech merchandise exports on the total exports increased in general the last decade, from less than 4% of total merchandise exports to more than 10%.The exports in modern services are instead the only one which experienced a positive growth rate in the worst period of the crisis (2009). Looking at the foreign demand for services, especially for modern services, this changed a lot in the last decade. The main partner for modern services now is Germany, while for total service exports the first destination is Russia, as it is for total goods. For total goods other countries not in the EU mattered more in 2004 than nowadays. Non-EU countries are becoming crucial for exports in modern services.
In addition, we provide a simple econometric setup in which we study the impact on the different type of real exports of the Real Effective Exchange Rate (REER, deflated in several ways) and the trade-weighted (weighted for trade in services and in goods) foreign demand based on real GDP data or Gross Value Added.
The exports of modern services seem to be not explained by the competitiveness or demand factor. In our setups the main determinant is the exports in the previous period. The outcome for modern services is quite robust across the specifications and with different REERs. The exceptions concern the setup with GDP foreign demand estimated by OLS, in which also the foreign demand seems to play a role for exports in modern services. For exports in total services and traditional services instead, foreign demand matter in more cases and using different REERs especially with a more general measure of foreign demand based on real GDP.
The REER for goods and services exports matters more if deflated by CPI both in case of GDP and Gross Value Added-based foreign demand, and mostly in the short-run.
DNB Working Paper n.443, Oct 13, 2014
The current account imbalances that are at the heart of the European sovereign debt crisis are of... more The current account imbalances that are at the heart of the European sovereign debt crisis are often attributed to differences in price competitiveness. However, recent research suggests that domestic demand booms related to the financial cycle may have been more important. As this would have very different policy implications, this paper aims to investigate the relative role of price competitiveness and domestic demand as drivers of the current account imbalances in the euro area. We estimate panel error-correction models for exports, imports and the trade balance. We specifically look at fluctuations in domestic demand at the frequency of the financial cycle. We conclude that although differences in price competitiveness have an influence, differences in domestic demand are more important than is often realized. Fluctuations at the frequency of the financial cycle are more suitable to explain the trade balance than fluctuations at the frequency of the normal business cycle. Our results call for more emphasis on credit growth and macro prudential policy, in addition to the current attention for competitiveness and structural reforms.
Conference Presentations by Mariarosaria Comunale
[preliminary, do not quote]
In this paper, we examine the relationships between real, credit and house price cycles, by using... more In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and 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 pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality 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. The synchronicity and the cycles of credit may also be considered for signaling recessions.
In this paper we provide an overview of the different approaches identified to capture monetary p... more In this paper we provide an overview of the different approaches identified to capture monetary policy in a period of Zero Lower Bound (ZLB). We focus here on the methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis and different shadow rates.
In the second section of this review we calculate these measures for the euro area and also draw comparisons among different approaches and look at the effects on main macroeconomic variables, with a special focus on inflation. The impact of unconventional monetary policy shocks on inflation is found to be significantly positive by the majority of the studies and by using different methods.
Ultimately, we provide a summary of the literature on the Natural Real Rate of Interest, which may be useful for assessing how long low (real) interest rates in a ZLB may stay in place; also suggesting some possible improvement in the estimations which would lead to more accurate policy recommendations.
In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and fo... more In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identifi cation based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer inflation in the euro area.
This empirical study considers the pass-through of key nominal exchange rates and commodity price... more This empirical study considers the pass-through of key nominal exchange rates and commodity prices to consumer prices in the Commonwealth of Independent States (CIS), taking into account the effect of idiosyncratic and common factors influencing prices. In order to do that, given the relatively short window of available quarterly observations (1999–2014), we choose heterogeneous panel frameworks and control for cross-sectional dependence. The exchange rate pass-through is found to be relatively high and rapid for CIS
countries in the case of the nominal effective exchange rate, but not significant for the bilateral rate with the US dollar. We also show that global factors in combination with financial gaps and commodity prices are important. In the case of large rate swings, the exchange rate pass-through of the bilateral rate with the US
dollar becomes significant and similar to that of the nominal effective exchange rate.
In this paper, we look at the determinants of current accounts in twenty-seven EU countries over ... more In this paper, we look at the determinants of current accounts in twenty-seven EU countries over the period 1994-2014. The twenty-seven countries of interest are divided into three sub-groups, namely: core, periphery and CEE new member states. We also assess the current accounts based on computed equilibrium values, and we provide a measure of misalignment for the medium run. As determinants we include capital flows as well as demographic, fiscal and relative development factors.
The initial Net Foreign Asset position and oil balance seem to matter more in the core countries than in the periphery and CEE new member states. In contrast, the periphery and CEE new member states seem to be more strongly affected by capital flows. Fiscal balance negatively affects only the periphery, while an increase in government spending is positive for the current account for CEE new member states. In the past twenty years these misalignments have shown a cyclical behavior in most EU countries, and the magnitude of the cycles themselves are highly heterogeneous across groups.
Lastly, we compute an adjusted current account equilibrium, which tries to correct the equilibrium value by the role of expectations (proxied by IMF projections). This factor has more of an impact in the UK than in the euro-area countries.
In this article we study the impact of real effective exchange rate misalignments, based on deter... more In this article we study the impact of real effective exchange rate misalignments, based on determinants, including different types of foreign capital inflows, on GDP growth in the EU. This can provide a useful contribution to understanding the causal link between inflows, real effective exchange rate disequilibria and GDP growth during both the boom and the crisis period. For this analysis, we use a panel of 27 EU countries for the period 1994–2012, with annual frequency.
We find that the core countries have been mostly undervalued from the crisis onwards, while the periphery (excluding Ireland) were overvalued starting from 2003–2004, as expected. Concerning the new Member States, these are persistently overvalued for the entire time span. The results seem to be generally driven by the inflows of banking loans more than by FDIs or portfolio investments.
In the second stage, we study the influence of exchange rate misalignments and volatilities on growth. We argue that the real effective exchange rate misalignments associated with the inflows have been a further cause for decline in GDP, in a long-run perspective, while they do not play a role in the short run. The exchange rate volatilities and the undervaluation dummy are not robust in affecting GDP growth, while spillovers and global factors seem to matter in all the specifications both in the short and long run.
We built different financial cycle measures, also applied recently in Comunale and Hessel (2014).... more We built different financial cycle measures, also applied recently in Comunale and Hessel (2014).
Our aim is to provide a comprehensive database with definitions of variables that may be of use for cross-country comparative analysis.
The database includes 41 countries (EU28 and OECD members) from 1994 to 2014 with both annual and quarterly frequency.
The main contributions of our database are that: i) it is publicly available and freely downloadable from the website of the Bank of Lithuania and it can be used subject to a clear reference; ii) the data are updated to the most recent year/quarter available; ii) considers not only the EU members as of 2014 (Croatia is therefore included in the sample), but also other non-EU countries part of the OECD (including both advanced and developing economies); iii) is built using both HP filtering techniques and the Principal Component Analysis (PCA), the latter are used to compute synthetic indices, to come up to different applicable indicators; iv) we added also some business cycle measures for comparison reason.
Ultimately, we show an application of our data, checking whether the financial cycle can influence the estimation of inflation in the euro area and what is the difference between adding a business or a financial cycle measure for the exchange rate pass-through (ERPT). We find that the ERPT can be higher in the presence of house price fluctuations at the frequency of the financial cycle.
Discussion Paper No.28/2015, Oct 14, 2015
Using the IMF CGER methodology, we make an assessment of the current account and price competitiv... more Using the IMF CGER methodology, we make an assessment of the current account and price competitiveness of the Central Eastern European Countries (CEEC) that joined the EU between 2004 and 2014. We present results for the “Macroeconomic Balance (MB)” approach, which provides a measure of current account (CA) equilibrium based on its determinants together with misalignments in real effective exchange rates (REERs). We believe that a more refined analysis of the misalignments may useful for the Macroeconomic Imbalance Procedure (MIP). This is especially the case for these countries, which have gone through a transition phase and boom/bust periods since their independence. Because such a history may have influenced a country’s performance, any evaluation must take account of each country’s particular characteristics. We use a panel setup of 11 EU new member states (incl. Croatia) for the period 1994–2012 in static and dynamic frameworks, also controlling for the presence of cross-sectional dependence and checking specifically for the role of exchange rate regimes, capital flows and global factors. We find that the estimated coefficients of the determinants meet with expectations. Moreover, the foreign capital flows, the oil balance, and relative output growth seem to play a crucial role in explaining the current account balance. Some global factors such as shocks in oil prices or supply might have played a role in worsening the current account balances of the CEECs. Having a pegged exchange rate regime (or being part of the euro zone) affects the current account positively. The real effective exchange rates behave in accord with the current account gaps, which clearly display cyclical behaviour. The CAs and REERs come close to
equilibria in 2012 in most of the countries and the rebalancing is completed for some countries that were less misaligned in the past, such as Poland and Czech Republic, but also for Lithuania. When Foreign Direct Investment (FDI) is introduced as a determinant for these countries, the misalignments are larger in the boom periods (positive misalignments) whereas the negative misalignments are smaller in magnitude.
Bank of Lithuania, Working Paper Series No. 18/2015, Apr 14, 2015
Exchange rate assessment is becoming increasingly relevant for economic surveillance in the Europ... more Exchange rate assessment is becoming increasingly relevant for economic surveillance in the European Union (EU). The persistence of different wage, price and productivity dynamics among the Economic and Monetary Union (EMU) countries or EU members with a fixed exchange regime with the euro, coupled with the impossibility of correcting competitiveness differentials via the adjustment of nominal rates, have resulted in divergent dynamics in Real Effective Exchange Rates. This paper explores the role of economic fundamentals, included in the transfer effect theory, in explaining medium/long-run movements in the Real Effective Exchange Rates in the EU over the period 1994–2012 by using heterogeneous, co-integrated panel frameworks in static and dynamic terms. In addition, the paper provides an analysis of the misalignments of the rate for each member state based on the “equilibrium” measure calculated from the permanent component of the fundamentals (the so-called Behavioural Effective Exchange Rate).
We find that the coefficients of the determinants are extremely different across groups in magnitude and sometimes in sign as well and the transfer theory does not hold for periphery and the Central and Eastern European countries (CEECs). The relative importance of the transfer variable and the Balassa-Samuelson measure are crucial for the asymmetries. The resulting misalignments in EU28 are huge and the patterns diverge significantly across groups. The core countries have been undervalued for almost the whole period, which entails from an important increase in competitiveness for those countries. Instead the periphery has experienced high rates, especially in Portugal. In addition, the behaviour of CEECs is also driven, as expected, by the catching-up process and the criteria to the accession to the EU. The misalignments in this case are still extremely wide and reflect these phenomena.
This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar excha... more This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on the inflation in the euro zone, dividing the sample in two groups of countries: core and periphery. Then we test if the euro-US dollar exchange rate is still able to give a different impact on the groups’ performance as in the past US dollar-deutschmark polarization phenomenon studying the intra-euro area differences in exchange rate pass-through (ERPT), as an important element of inflation dynamics.
Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, which deals with the presence of cross-sectional dependence.
We conclude that the euro-US dollar is still an important factor, but not the only key factor, in determining the asymmetry in HICP inflation between core and periphery. The nominal effective exchange rate instead is an important driver for the inflation, but only considering the euro zone as a whole.
The EMU seems to not have insulated enough some member countries from nominal external shocks. The nominal effective exchange rate is also a factor to take into account in order to analyze the recent low inflation in the euro zone, even if the size of the ERPT is relatively small.
Bank of Lithuania Occasional Paper No.01/2015, Mar 4, 2015
In the recent debate about the channels for growth there are two different aspects to take into a... more In the recent debate about the channels for growth there are two different aspects to take into account: the importance of the exports in services and the sophistication of the exports themselves. We analyze in this paper the situation of exports in Lithuania, highlighting the modern/high-tech sectors with a special focus on services.
We found that the percentage of high-tech merchandise exports on the total exports increased in general the last decade, from less than 4% of total merchandise exports to more than 10%.The exports in modern services are instead the only one which experienced a positive growth rate in the worst period of the crisis (2009). Looking at the foreign demand for services, especially for modern services, this changed a lot in the last decade. The main partner for modern services now is Germany, while for total service exports the first destination is Russia, as it is for total goods. For total goods other countries not in the EU mattered more in 2004 than nowadays. Non-EU countries are becoming crucial for exports in modern services.
In addition, we provide a simple econometric setup in which we study the impact on the different type of real exports of the Real Effective Exchange Rate (REER, deflated in several ways) and the trade-weighted (weighted for trade in services and in goods) foreign demand based on real GDP data or Gross Value Added.
The exports of modern services seem to be not explained by the competitiveness or demand factor. In our setups the main determinant is the exports in the previous period. The outcome for modern services is quite robust across the specifications and with different REERs. The exceptions concern the setup with GDP foreign demand estimated by OLS, in which also the foreign demand seems to play a role for exports in modern services. For exports in total services and traditional services instead, foreign demand matter in more cases and using different REERs especially with a more general measure of foreign demand based on real GDP.
The REER for goods and services exports matters more if deflated by CPI both in case of GDP and Gross Value Added-based foreign demand, and mostly in the short-run.
DNB Working Paper n.443, Oct 13, 2014
The current account imbalances that are at the heart of the European sovereign debt crisis are of... more The current account imbalances that are at the heart of the European sovereign debt crisis are often attributed to differences in price competitiveness. However, recent research suggests that domestic demand booms related to the financial cycle may have been more important. As this would have very different policy implications, this paper aims to investigate the relative role of price competitiveness and domestic demand as drivers of the current account imbalances in the euro area. We estimate panel error-correction models for exports, imports and the trade balance. We specifically look at fluctuations in domestic demand at the frequency of the financial cycle. We conclude that although differences in price competitiveness have an influence, differences in domestic demand are more important than is often realized. Fluctuations at the frequency of the financial cycle are more suitable to explain the trade balance than fluctuations at the frequency of the normal business cycle. Our results call for more emphasis on credit growth and macro prudential policy, in addition to the current attention for competitiveness and structural reforms.