Globalisation

The effects of the exchange rate on the exports of European firms depend to a large extent on their productivity. The exports of the most productive firms are less affected by exchange rate variations than those of the less productive firms. At the macroeconomic level, this tends to reduce the effects of the exchange rate on trade.

This blog post summarises a study covering the 1995-2007 period focusing on the local effects of Chinese import competition on the French labour market: the competition displaced jobs in the manufacturing sector; it also placed downward pressure on average hourly wages, and modified the wage distribution, with limited impacts on the lowest wages, probably as a result of the lower limit set by the statutory minimum wage.

The relationship between the rather volatile capital flows and domestic credit has become a major challenge from a financial stability point of view. It is at the origin of the implementation, in some economies, of capital flow management measures. Domestic credit sensitivity to cross-border inflows is amplified by the fixed exchange rate arrangements and the strong presence of foreign banks. The implications for countercyclical policies are significant.

By Eric Monnet and Damien Puy

As the world economic growth is experiencing its first synchronized recovery since the 2007-2008 financial crisis, it is time to investigate again the links between business cycle synchronization and financial openness. Would decreasing international capital movements attenuate co-movements between national cycles? An historical perspective on the matter shows that, contrary to the common wisdom, the periods of lower global financial integration were not associated with lower business cycle synchronization.

Over the past five years, global trade and global production have grown at similar rates, whereas before 2008, global trade grew at twice the rate. This slowdown in global trade is largely due to China’s rebalancing towards its domestic demand and its services sector. If we exclude the decline in trade related to increasing protectionism, near-parallel growth for global trade and production is the new “normal.”

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