Prices Of Intermediate Inputs Research Articles

Real Exchange Rates, Income per Capita, and Sectoral Input Shares

Aggregate price levels are positively related to GDP per capita across countries. We propose a mechanism that rationalizes this observation through sectoral differences in intermediate input shares. As productivity and income grow, so do wages relative to intermediate input prices, which increases the relative price of nontradables if tradable sectors use intermediate inputs more intensively. We show that sectoral differences in input intensities can account for about half of the observed elasticity of the aggregate price level with respect to GDP per capita. The mechanism has stark implications for industry-level real exchange rates that are strongly supported by the data.

A POSSIBLE EXPLANATION OF THE MISSING DEFLATION PUZZLE

Following the Great Recession, despite large and persistent slowdown in economic activity, the fall in inflation was modest. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian model to provide an explanation for the puzzle. The new model allows for time‐varying volatility in cross‐sectional idiosyncratic uncertainty and accounts for changes in intermediate input prices. We show that inflation did not fall much because intermediate input prices were increasing. (JEL E31, E32, E52)

Service Regulations, Input Prices and Export Volumes: Evidence from a Panel of Manufacturing Firms

Using a panel of firm‐level data from Spanish manufacturers, this study shows that better service regulation reduces the price of intermediate inputs paid by downstream firms. The beneficial cost effects of services reforms extend to both large and small‐to‐medium sized corporations (SME’s), but the former tend to enjoy greater gains. This feature also manifests itself in international markets. We find evidence of an input cost channel through which service regulations affect the volume of exports of large manufacturers, while the evidence of such a channel is weaker for SME’s. Our estimates indicate that, from 1991 to 2007, large firms increased their volume of exports by an average of 20 per cent as a result of the direct input cost effect of services reforms, such that the firms that benefited the most typically belonged to industries more dependent on service inputs. Furthermore, convergence to the ‘best practice’ regulatory framework in services would have raised exports at least by an additional nine per cent. We conclude that firm size is relevant for the connection between services reforms, intermediate input prices and export volumes.

Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufacturers

We develop a dynamic structural model to analyze the impact of input tariff liberalization on input prices, trading decisions, productivity, and firm performance. While input tariff liberalization directly affects input price benefits of importing, its impact on trade participation generates indirect benefits through additional channels, such as productivity improvements and complementarity between importing and exporting. To disentangle these effects, our model separately measures importing's effect on intermediate input prices and productivity. We apply the model to examine the reaction of Chinese paint manufacturers to China's accession to the World Trade Organization (WTO). We find a mild short-term effect of input tariff liberalization in the industry. The effect is amplified in the long run by induced trade participation, resulting in even higher aggregate productivity and lower input prices. Overall, this effect increases the average present firm value by 2.3 percent.

THE IMPACT OF OIL PRICE ON SECTORIAL OUTPUT IN SOUTH AFRICA

Ponte Academic JournalApr 2018, Volume 74, Issue 4 THE IMPACT OF OIL PRICE ON SECTORIAL OUTPUT IN SOUTH AFRICAAuthor(s): Peter Mukarumbwa ,Kin Sibanda, Dorcas Gonese, Progress Hove-SibandaJ. Ponte - Apr 2018 - Volume 74 - Issue 4 doi: 10.21506/j.ponte.2018.4.7 Abstract:The paper utilised panel data analysis technique to assess the impact of oil prices on sectoral output in South Africa from 1994 to 2016. The paper, considered among other variables, sectoral output, oil prices, sector specific variables (such as intermediate input prices, real gross fixed capital formation, remuneration, unit labor cost and labor productivity) and macroeconomic variables (which include expenditure on health, interest rate and exchange rate). The fixed effect is the appropriate basic estimator as recommended by the Hausman test results. To cater for violation of the assumption of the linear panel regression assumptions (heteroscedasticity, serial and cross sectional correlation), the study employed the FGLG as the precise robust estimator following a large time (23) dimension and small cross sectional (3) units. The least square dummy variable was also used for sectoral analysis. The empirical findings of this paper demonstrates that the oil prices impact significantly on the South African economic sector output. More so, the results of the study illustrate that the impact of oil prices vary across economic sector outputs in South Africa. Thus, out of three selected economic sectors, only two sectors (the primary and tertiary) output respond negatively to oil prices. However, the paper postulates that the oil price is not a major obstruction of output growth in the secondary sector in South Africa. Download full text:Check if you have access through your login credentials or your institution Username Password

Multinational M&A in Upstream Industry and Organizational Change

This study explores the boundary response of domestic firms faced with increased openness to new foreign multinational M&A in an intermediate-input market in a host country. We develop a theoretical framework to study the impact of new foreign multinational M&A on the wholesale price of intermediate inputs as a key market condition in the host country and explore how the intermediate-input prices affect the organizational choice of domestic firms between domestic vertical integration and outsourcing. We find that new foreign multinational M&A raises the intermediate-input prices and facilitates the firms' choice of domestic vertical integration.

Service Regulations, Input Prices and Export Volumes: Evidence from a Panel of Manufacturing Firms

Using a panel of firm‐level data from Spanish manufacturers, this study shows that better service regulation reduces the price of intermediate inputs paid by downstream firms. The beneficial cost effects of services reforms extend to both large and small‐to‐medium sized corporations (SME’s), but the former tend to enjoy greater gains. This feature also manifests itself in international markets. We find evidence of an input cost channel through which service regulations affect the volume of exports of large manufacturers, while the evidence of such a channel is weaker for SME’s. Our estimates indicate that, from 1991 to 2007, large firms increased their volume of exports by an average of 20 per cent as a result of the direct input cost effect of services reforms, such that the firms that benefited the most typically belonged to industries more dependent on service inputs. Furthermore, convergence to the ‘best practice’ regulatory framework in services would have raised exports at least by an additional nine per cent. We conclude that firm size is relevant for the connection between services reforms, intermediate input prices and export volumes.

Evaluating the Impacts of Traditional Biomass Energy Use on Agricultural Production in Sichuan, China

As crop straw and firewood are generated as by-products of food production systems, they are perceived to be sustainable energy sources that do not threaten food security by Chinese government for a long time. However, the time spent on collecting straw and firewood may create a burden on rural household, as it could reduce the available labor inputs for agricultural production, which in turn, possibly brings negative impact on food security. Building on an integrated agriculture-energy production system, a Symmetric Normalized Quadratic (SNQ) multi-output profit function (which includes labor allocations as quasi-fixed factors) is estimated to investigate the impacts of traditional biomass energy use on agricultural production in this paper. The negative signs of the calculated cross-price elasticities of supply (agricultural products and biomass energy) confirm that the relationship between biomass collection and agricultural production is competition. Moreover, the cross-price elasticities of biomass collection with respect to inputs are positive, implying that indirect link between biomass collection and agricultural production perhaps lies in household consumption decisions. The important implication of this study is that potential policy interventions for developing biomass energy in rural China could aim at enhancing food security by improving household motivation of engaging in agricultural production and slowing down the competition between biomass collection and agricultural production. It is suggested that government should attach more importance to simultaneously promote the prices of agricultural products and control the prices of intermediate inputs.

The impacts of petroleum price fluctuations on income distribution across ethnic groups in Malaysia

Crude oil price hikes have compelled governments of developing countries to let domestic prices of energy increase. Fiscal priorities made it impossible to fully compensate the hikes by raising energy subsidies. This paper examines the potential impacts of a limited deregulation of the petroleum price on the income distribution in Malaysia, paying specific attention to differences in impacts on major ethnic groups. We introduce an extended social accounting matrix (SAM) model, which not only incorporates substitution possibilities among production inputs and consumption goods, but also allows for the exogenous determination of the price of intermediate inputs. The results of simulations indicate that distributional impacts of rising petroleum prices tend to be regressive, affecting poor people more severely than richer people. All ethnic groups experience income loss with the real incomes of Malay households (which are relatively poor, on average) more than the Chinese and Indian households (which are the generally richer).

Risk, Intermediate Input Prices and Missing Deflation During the Great Recession

During the Great Recession, despite the large fall in output, inflation did not fall much. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian Dynamic Stochastic General Equilibrium model to provide an explanation for the puzzle. The new model allows for time-varying volatility in cross-sectional idiosyncratic uncertainty and ac-counts for the changes in intermediate goods prices. Our model can forecast the large fall in output and stable inflation during the Great Recession. We show that inflation did not fall much because intermediate goods prices were increasing during the Great Recession.

Default risk in agricultural lending, the effects of commodity price volatility and climate

Purpose – Commodity price volatility and small variations in climate conditions may have an important impact on the creditworthiness of any agricultural project. The evolution of such risk factors is vital for the credit risk analysis of a rural bank. The purpose of this paper is to determine the importance of price volatility and climate factors within a default risk model. Design/methodology/approach – The authors estimate a generalized linear model (GLM) based on a structural default risk model. With the estimated factor loadings, the authors simulate the loss distribution of the portfolio and perform stress test to determine the impact of the relevant risk factors on economic capital. Findings – The results indicate that both the price volatility and climate factors are statistically significant; however, their economic significance is smaller compare to other factors that the authors control for: macroeconomic conditions for the agricultural sector and intermediate input prices. Research limitations/implications – The analysis of non-systemic risk factors such as price volatility and climate conditions requires statistical methods focussed on measuring causal effects at higher quantiles, not just at the conditional mean, this is, however, a current limitation of GLMs. Practical implications – The authors provide a design of a portfolio credit risk model, that is more suited to the special characteristics of a rural bank, than commercial credit risk models. Originality/value – The paper incorporates agricultural-specific risk factors in a default risk model and a portfolio credit risk model.

Singular Focus or Multiple Objectives? What the Data Tell Us about Inflation Targeting in Latin America

(ProQuest: ... denotes formulae omitted.)IntroductionIn the last decade and a half several Latin American countries have adopted inflation targeting as their monetary framework, moving away from other intermediate targets, such as monetary aggregates, and allowing, at least on paper, more exchange rate flexibility. While the literature so far has not delivered a clear verdict on the impact of inflation targeting on macro- economic performance in general-particularly in comparison to other mon- etary frameworks that have faced the same global environment-it is evident that countries that have adopted inflation targeting have generally succeeded both in stabilizing inflation at relatively low rates and in anchoring the public's expectations at levels near the target.1One recurring question that arises regarding the use of inflation targeting concerns the flexibility that policymakers need to implement it. Namely, to what extent should exchange rate fluctuations or financial stability concerns also be incorporated into the policy of a central bank that aims at achiev- ing a preannounced target for inflation? This is particularly relevant given that such targeting relies critically on policy credibility and effective com- munication with the public, thus the perception that multiple-and possibly conflicting-objectives are being pursued might undermine such credibility, thereby endangering the integrity of the policy.Regarding the exchange rate, the question is whether inflation targeting can or should accommodate a certain degree of fear of floating (Calvo and Reinhart, 2002)-that is, a policy reaction directed at preventing or smooth- ing out exchange rate fluctuations. In the most narrow sense, it is clear that central banks using inflation targeting should respond to these movements when, via a pass-through, they are likely to be transmitted to inflation or inflationary expectations. However, beyond this pass-through effect, there is also a case for reacting to exchange rate movements, as these could gen- erate supply-side effects through their impact on the prices of intermediate inputs. They could also affect competitiveness and-particularly in highly dollarized economies-lead to balance-sheet effects that feed into financial instability.In fact, there is evidence that countries using inflation targeting do react to exchange rate movements. Estimating a monetary reaction function for a panel of advanced and emerging economies during 1996-2011, Munoz and Schmidt-Hebbel (2012) find that the short-term policy rate in countries both with and without inflation targeting (known as IT) reacts to changes in the nominal exchange rate. Using a similar approach, but focusing on emerging economies, Aizenman, Hutchinson, and Noy (2011) find that the policy rate reacts to changes in the real exchange rate, particularly in commodity export- ing countries. Note that it is not possible to determine from these studies whether there is a separate exchange rate objective at play, as opposed to the exchange rate being treated as one more signal regarding future inflation- ary pressures. From a different perspective, Berganza and Broto (2012) focus their attention directly on foreign exchange (forex) interventions by central banks. Consistent with the presumed greater exchange rate flexibility of IT, they find that exchange rates are indeed more volatile in inflation-targeting countries than in countries that do not target inflation. However, forex inter- vention is far from absent in the targeting countries, and it is found to be effective in reducing exchange rate volatility.On the second question, whether financial stability concerns should be incorporated into an inflation-targeting framework, there is also a case for expanding the set of instruments at the disposal of policymakers-making use of macroprudential tools such as dynamic provisioning, countercyclical capital requirements, and loan-to-value limits-and even complementing these instruments with an explicit reaction of the policy rate to an appropriate financial stability indicator. …

Impacts of energy subsidy reform on the Malaysian economy and transportation sector

Malaysia is paying a high level of subsidies on the consumption of energy (about 5% of its GDP). Therefore, reforming the energy subsidies, as planned by the government, will have a significant impact on household welfare and energy-intensive sectors, such as the transport sector. This study employs a computable general equilibrium (CGE) model to highlight the transmission channels through which the removal of energy subsidies affects the domestic economy. The findings show that the shock increases real GDP and real investment, while decreasing Malaysian total exports and imports. The removal of energy subsidies also decreases the aggregate energy demand, and, consequently, decreases the level of carbon emissions in the Malaysian economy. In addition, households experience significant falls in their consumption and welfare. The transport sector is significantly influenced through an increase in production costs due to an increase in the prices of intermediate inputs. The total output and total exports of the whole transport sector decrease while its imports increase. In addition, the use of all kinds of transport by households decreases significantly. The Malaysian energy subsidy reform, leads to an initial decrease in CO2 emissions and demand for electricity, gas, and petroleum products in the entire transport sector.

Costs, Demand, and Producer Price Changes

Using business survey data, we estimate an ordered probit model to explain the occurrence of producer price increases and decreases in the French manufacturing industry. Our results show that changes in intermediate input prices are the main driver of producer price changes. Changes in firms' labor costs, their production level, or the producer price index of their industry contribute less to the occurrence of price changes. Moreover, when they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward, especially when the shock is perceived as permanent.

Generation and Distribution of Productivity Gains in French Agriculture. Who are the Winners and the Losers over the Last Fifty Years

This paper offers an approach based on the economic theory of index numbers that revisitsthe classical surplus accounting technique. We measure the productivity gains and the combinedeffects of output and input price variation on French farmers’ income between 1959 and 2011, for thewhole agricultural sector. During this period, total factor productivity grows at an average annual rateof 1.4% mainly due to a decrease of input quantity over the last thirty years while output volume hasstagnated since the end of the nineties. Over the whole period, with a share of nearly 70% of the globalsurplus, the customers appear as the main beneficiaries of these productivity gains through a decreasein agricultural and food prices. Farmers only retained 23% of the surplus corresponding to a lowincrease in farm income. Finally, the suppliers and taxpayers are the losers in the surplus distributionvia respectively a significant decrease of relative intermediate input prices and a substantial growth ofpublic subsidies in favour of the agricultural sector.

New Estimates of the Equilibrium Exchange Rate: The Case for the Chinese Renminbi

AbstractWe estimate the nominal equilibrium exchange rate (EER) of the Chinese renminbi (RMB) vis‐à‐vis the US dollar from 1995 to 2009. While most of the recent empirical studies on the EER employ a cross‐country analysis, country‐specific factors, especially supply‐side real factors, are not fully taken into consideration in estimating the EER. To better reflect China’s processing exports in the context of growing intra‐regional trade in Asia, we incorporate in the empirical analysis the source‐country breakdown data on import prices and input coefficients of intermediate inputs by constructing an annual new International input–output (IIO) table for the period from 1995 to 2009. The results show that the nominal EER of the RMB appreciates sharply from 2006 to 2009, suggesting that the current RMB exchange rate has been substantially undervalued and should be revalued by 74 per cent as of 2008 compared to the year 2004 level. Such sharp appreciation of the nominal EER corresponds to the dramatic increase in China’s current account surplus from the mid‐2000s, especially against the United States, which is ascribed to the significant improvement of China’s intermediate input coefficients and, to a lesser extent, an increase in US import prices of intermediate inputs.

'Natural Hedging' of Exchange Rate Risk: The Role of Imported Input Prices

Using disaggregated quarterly trade data for Switzerland over 2004-2011, we study exchange rate pass through (ERPT) into imported intermediate input prices and its role in the price setting behavior of exporters. We explicitly include disaggregated proxies for imported input prices in our analyses to investigate whether Swiss exporters may have “naturally hedged” exchange rate risks by sourcing inputs from abroad, especially during periods of strong CHF appreciation. Our results indicate high ERPT into imported input prices in all sectors and strong sectoral ERPT heterogeneity on the export side in both the short and long-run. They also suggest the use of “natural hedging” as an effective strategy to reduce exchange rate risks. Significantly however, Swiss exporters may not have adjusted export pricing practice in response to a strong CHF in the wake of the Euro crisis, which questions central bank intervention during that period.

Real Unit Labor Costs Differentials in EMU: How Big, How Benign and How Reversible?

This paper investigates the factors underlying the dispersion in RULC growth rates across euro area countries. It addresses three main questions. First, how big are RULC growth differentials in EMU by historical perspective? Second, what are the reasons underlying such differentials and why does growth dispersion remain after the start of EMU? Third, how can policy narrow such differentials? The theoretical model takes as a starting point a monotonic relationship between RULC and the capital-output ratio under the assumptions of perfect competition and a CES technology. Factors displacing this schedule are subsequently introduced, including changes in the price of intermediate inputs, markups of prices over marginal costs, union bargaining power and labor adjustment costs. A log-linear version of the model is then estimated on a panel of 11 euro-area countries ranging from 1980 to 2008. According to our empirical findings, persistent RULC growth differentials can be attributed to divergent evolutions in capital-output ratios, nominal effective exchange rates and country-specific institutional features, coupled with an increased sensitivity of RULC to fundamentals following the shift in the monetary regime.

Costs, Demand, and Producer Price Changes

We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward.

Costs, Demand, and Producer Price Changes

We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward.