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Francesca Viani
- 19 December 2024
- OCCASIONAL PAPER SERIES - No. 365Details
- Abstract
- In light of recent global economic and geopolitical shocks threatening trade openness, this report aims to shed light on geoeconomic fragmentation and develops a rich set of new tools to assess its economic effects and implications for central banks. The report shows that, although global trade integration has largely withstood recent disruptions and the rise of inward-looking policies, selective decoupling between few trading partners (United States vis-à-vis China, western economies vis-à-vis Russia) and for specific products (such as advanced technologies) is occurring. Survey data show that, although European firms are reorganising supply chains critical foreign dependencies persist. A firm-level stress test reveals that sudden disruptions in the supply of critical inputs from high-risk countries would lead to significant, albeit very heterogeneous, economic losses across firms, regions and sectors. Addressing foreign dependencies with broad-based protectionism policies, however, is self-defeating. In an extreme counterfactual scenario involving prohibitive and across-the-board trade barriers between geopolitical blocs, global GDP could decline by up to 9% coupled with an increase in global inflation of 4 percentage points in the first year, with the impact persisting for at least five years. It is conceivable that trade fragmentation will unravel over the course of a number of years, with supply disruptions becoming more frequent and severe than in the past. If this process should ultimately lead to a less interconnected global economy, countries might suffer from increased volatility and price pressures, as shocks cannot be easily diversified away through trade. [...]
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
F51 : International Economics→International Relations, National Security, and International Political Economy→International Conflicts, Negotiations, Sanctions
F52 : International Economics→International Relations, National Security, and International Political Economy→National Security, Economic Nationalism
F61 : International Economics→Economic Impacts of Globalization→Microeconomic Impacts
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 27 March 2023
- OCCASIONAL PAPER SERIES - No. 311Details
- Abstract
- Over the past decade, geopolitical developments – and the policy responses to these by major economies around the world – have challenged economic openness and the process of globalisation, with implications for the economic environment in which central banks operate. The return of war to Europe and the energy shock triggered by the Russian invasion of Ukraine in 2022 are the latest in a series of episodes that have led the European Union (EU) to develop its Open Strategic Autonomy (OSA) agenda. This Report is a broad attempt to take stock of these developments from a central banking perspective. It analyses the EU’s economic interdependencies and their implications for trade and finance, with a focus on strategically important dimensions such as energy, critical raw materials, food, foreign direct investment and financial market infrastructures. Against this background, the Report discusses relevant aspects of the EU’s OSA policy agenda which extends to trade, industrial and state aid measures, as well as EU initiatives to strengthen and protect the internal market and further develop Economic and Monetary Union (EMU). The paper highlights some of the policy choices and trade-offs that emerge in this context and possible implications for the ECB’s monetary policy and other policies.
- JEL Code
- F0 : International Economics→General
F10 : International Economics→Trade→General
F30 : International Economics→International Finance→General
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
F5 : International Economics→International Relations, National Security, and International Political Economy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
L5 : Industrial Organization→Regulation and Industrial Policy
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
- 30 September 2016
- OCCASIONAL PAPER SERIES - No. 180Details
- Abstract
- The last decade has been characterised by the pronounced volatility of capital flows. While cross-border capital flows can have many benefits for both advanced and emerging market economies, they may also carry risks, which require appropriate policy responses. Disentangling the push from the pull factors driving capital flows is key to designing appropriate policies to deal with them. Strong institutions, sound fundamentals and a large domestic investor base tend to shield economies from adverse global conditions and attract less volatile types of capital. However, when the policy space for using traditional macroeconomic policies is limited, countries may also turn to macroprudential and capital flow management policies in a pragmatic manner. The IMF can play an important role in helping countries to deal with capital flows, through its surveillance and lending policy and through international cooperation.
- JEL Code
- F3 : International Economics→International Finance
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F38 : International Economics→International Finance→International Financial Policy: Financial Transactions Tax; Capital Controls
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
F65 : International Economics→Economic Impacts of Globalization→Finance
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation