Mr. Paul Cashin, Mr. Kamiar Mohaddes, Mr. Mehdi Raissi, and Maziar Raissi
We employ a set of sign restrictions on the generalized impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, to discriminate between supply-driven and demand-driven oil-price shocks and to study the time profile of their macroeconomic effects for different countries. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures and a short-run increase in real output.
This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary and fiscal transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.
This paper estimates a gravity model to address the issue of whether intra-Arab trade is too little. Although gravity models have been extensively used to measure bilateral trade among countries, they have—to the best of our knowledge—never been used to measure intra-Arab trade. Our results suggest that intra-Arab trade and Arab trade with the rest of the world are lower than what would be predicted by the gravity equation, suggesting considerable scope for regional—as well as multilateral—integration. The results also suggest that intra-GCC and intra-Maghreb trade are relatively low while the Mashreq countries exhibit a higher level of intragroup trade.
Mr. Paul Cashin, Mr. Kamiar Mohaddes, and Mr. Mehdi Raissi
China's GDP growth slowdown and a surge in global financial market volatility could both
adversely affect an already weak global economic recovery. To quantify the global
macroeconomic consequences of these shocks, we employ a GVAR model estimated for 26
countries/regions over the period 1981Q1 to 2013Q1. Our results indicate that (i) a one percent
permanent negative GDP shock in China (equivalent to a one-off one percent growth shock) could
have significant global macroeconomic repercussions, with world growth reducing by 0.23
percentage points in the short-run; and (ii) a surge in global financial market volatility could
translate into a fall in world economic growth of around 0.29 percentage points, but it could also
have negative short-run impacts on global equity markets, oil prices and long-term interest rates.
This paper investigates the global macroeconomic consequences of falling oil prices due to the oil
revolution in the United States, using a Global VAR model estimated for 38 countries/regions
over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved
through imposing dynamic sign restrictions on the impulse responses of the model. The results
show that there are considerable heterogeneities in the responses of different countries to a U.S.
supply-driven oil price shock, with real GDP increasing in both advanced and emerging market
oil-importing economies, output declining in commodity exporters, inflation falling in most
countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S.
oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by
0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing
countries, which exceeds the decline in expenditure by oil exporters.
Concentration risk is an important feature of many banking sectors, especially in emerging and
small economies. Under the Basel Framework, Pillar 1 capital requirements for credit risk do not
cover concentration risk, and those calculated under the Internal Ratings Based (IRB) approach
explicitly exclude it. Banks are expected to compensate for this by autonomously estimating and
setting aside appropriate capital buffers, which supervisors are required to assess and possibly
challenge within the Pillar 2 process. Inadequate reflection of this risk can lead to insufficient
capital levels even when the capital ratios seem high. We propose a flexible technique, based on
a combination of “full” credit portfolio modeling and asymptotic results, to calculate capital
requirements for name and sector concentration risk in banks’ portfolios. The proposed approach
lends itself to be used in bilateral surveillance, as a potential area for technical assistance on
banking supervision, and as a policy tool to gauge the degree of concentration risk in different
This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms - strengthening financial intermediation and facilitating the development of liquid domestic capital markets - would advance the effectiveness of monetary transmission mechanisms in the GCC countries.