Today at the OxCARRE Seminar: Rabah Arezki on News Shocks in open economies

Today presented at OxCARRE by Rabah Arezki [img.org]

News Shocks in Open Economies: Evidence from Giant Oil Discoveries
co-authored with Valerie A. Ramey and Liugang Sheng

Abstract:

This paper explores the effect of news shocks on the current account and other macro variables using plausibly exogenous variation in the timing of worldwide giant oil discoveries as a directly observable measure of news shocks about future output ̶ the delay between a discovery and production is on average 4-6 years. We first present a model predicting differential effects for news and materialized shocks on the current account and other macroeconomic variables. Our empirical estimates are qualitatively in line with the predictions of the model. After an oil discovery, the current account and saving rate become negative for about 5 years and then turn positive. Investment rises robustly in the short-run, while GDP does not rise until after 5 years. In contrast to some findings from the news literature, we find that employment falls in response to news.

Available here [rice.edu] 

New OxCARRRE Research: Emergence of Sovereign Wealth Funds

Newly posted at the OxCARRE Research papers, from Jean-François Carpantier (University of Luxembourg) and Wessel Vermeulen (OxCARRE)

Emergence of Sovereign Wealth Funds

Abstract:

This paper tests the theoretically founded hypothesis that the surge of SWF establishments is determined by three main factors: 1) the existence of natural resources profits, 2) the government structure and 3) the ability to invest usefully in the domestic economy. We test this hypothesis on a sample of 20 countries that established an SWF in the period 1998-2008 by comparing them to the roughly 100 countries that did not set up a fund in the same period. We find evidence for all three factors. The results suggest that SWFs tend to be established in countries that run an autocratic regime and have difficulties finding suitable opportunities for domestic investments. We do not find the net foreign asset position of a country to be similarly related to the explanatory variables, indicating that the establishment of an SWF is distinct from a national accounting result. We argue that our results indicate that it is relevant to study how an SWF interacts with the domestic economy and government policy.