Asset Prices, News Shocks, and the Trade Balance

Fratzscher, Marcel; Straub, Roland

doi:10.1111/jmcb.12050

Cited by 19 publications

(25 citation statements)

References 74 publications

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“…However, Shiller (2007) argues that this relationship is tenous, as asset prices do not necessarily reflect their fundamentals. Nevertheless, in this case, the so called international wealth-channel, which is found to be particularly strong in the United States (see for example Fratzscher and Straub (2010) and Holinski and Vermeulen (2009)), may explain trade balance's response. The positive shock to the RIR corresponds to a negative asset price shock, which reduces household wealth and consumption, while improving the trade balance.…”

Section: A Positive Shock To the United States Real Interest Ratementioning

confidence: 86%

Investigating Global Imbalances: Empirical evidence from a GVAR approach

Bettendorf

2017

Economic Modelling

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper investigates the development of external imbalances from an international perspective by estimating a Global VAR model for the period 1981Q1-2009Q4 with a setup close to that of an international real business cycle model. The model considers 28 countries of which 10 are aggregated as the Eurozone. We compute generalized impulse response functions, as well as generalized forecast error variance decompositions, in order to measure the effects of shocks on international trade balances. The United States, Eurozone and China are considered as the sources of those shocks. We account for imbalances using real GDP, real effective exchange rates (REER) and real interest rates (RIR) as well as the oil price. Overall, we find evidence for the joint dynamics of our variables as drivers of the imbalances and relate our findings to theories of Global Imbalances. We show that real GDP is a relatively unimportant variable compared to the REER, RIR and the oil price. Moreover, we provide a counterfactual analysis of the US trade balance. Terms of use: Documents inJEL Classification: F10, F32, F41.

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Section: A Positive Shock To the United States Real Interest Ratementioning

confidence: 86%

Investigating Global Imbalances: Empirical evidence from a GVAR approach

Bettendorf

2017

Economic Modelling

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“…Besides, in a country with home bias, the trade balance is more sensitive to economic shocks. 10 Put differently, if investors exhibit little diversification (low risk sharing), new shocks will have a higher impact on the trade balance (Fratzscher and Straub 2013 ). For Germany, Jacobs and Weber ( 2012 ) observe that the local bias also impacts at firm level.…”

Section: Implications Of Home and Local Biasmentioning

confidence: 99%

The home bias and the local bias: A survey

2020

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The home bias like the disposition effect is a well-researched economic phenomenon in investor behaviour which has been examined in finance journal articles for decades. While there is little doubt about the existence of the bias, its magnitude varies across countries and investor groups. The home bias has to be regarded as a multifactorial phenomenon, a combination of numerous causes which all synergistically contribute. In contrast to other biases the home bias can at least partially be explained by reasons beyond irrational investor behaviour. While institutional restrictions play a minor role, informational asymmetries and superior information of domestic investors are important factors. Thus, the performance of investments may well benefit from a home bias, and the bias then no longer would be a puzzle but rather rational behaviour as a lower diversification level may lead to higher returns. The contemporary understanding of the home bias gains in relevance as the ongoing political debate in Germany has to clarify an institutional framework for long-run retirement savings plans of private households based on equity investments.

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“…Sign-restrictions SVARs, although not yet popular in studying real estate markets, have been applied to study other shocks as for example …scal, monetary, news or technology shocks. See for example, among others, Charnavoki and Dolado (2014), or Fratzscher and Straub (2013).…”

Section: Introductionmentioning

confidence: 99%

What Drives Housing Dynamics in China? A Sign Restrictions VAR Approach

Bian

Gete

2014

gwp

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We study housing dynamics in China using vector autoregressions identified with theoryconsistent sign restrictions. We study five potential drivers: 1) Population increases ; 2) a relaxation of credit standards, for example, due to the shadow banking system; 3) increasing preferences towards housing, for example, due to a housing bubble, or to housing being a status asset in the marriage market; 4) an increase in the savings rate; and 5) expected productivity progress. Our results show that fundamental shocks (population, credit and productivity) played a major role in the dynamics of house prices and residential investment before 2009. Preference shocks seem especially relevant in the last several years.

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Asset Prices, News Shocks, and the Trade Balance

Cited by 19 publications

References 74 publications

Investigating Global Imbalances: Empirical evidence from a GVAR approach

Investigating Global Imbalances: Empirical evidence from a GVAR approach

The home bias and the local bias: A survey

What Drives Housing Dynamics in China? A Sign Restrictions VAR Approach

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