Bank Of Greece Sa · ATHEX:TELL

Bank Of Greece Sa — Technical Presentation (September 2022)

27 slides from Bank Of Greece Sa's technical presentation, Sep 30, 2022

  1. Slide 1: Trade, Misallocation, and Capital Market Integration

    Introduction Model Quantitative analysis Conclusion Trade, Misallocation, and Capital Market Integration Laszlo Tetenyi September 30, 2022 Bank of Portugal & Catˊolica Lisbon School of Business and Economics 1 / 22

  2. Slide 2: How do capital and goods market integration interact?

    Introduction Model Quantitative analysis Conclusion How do capital and goods market integration interact? • Emerging economies that opened up to trade since 1970s followed two paths: • Opened up to indirect capital inflows — in the 1990s • Kept capital markets closed — recent times • Integrating capi

  3. Slide 3: This paper

    Introduction Model Quantitative analysis Conclusion This paper • Focusing on the integration of Eastern Europe (Hungary) to the EU • I build a general equilibrium trade model of firm dynamics and financial frictions • Main quantitative exercise: • Open up to trade from 1990s level of trade • At the sa

  4. Slide 4: Key findings

    Introduction Model Quantitative analysis Conclusion Key findings Literature • Calibrate to Eastern Europe opening up to trade — 20% import share change • Capital market integration magnifies both the gains and losses from trade: • Higher output (up 27% from 16%) and consumption (up 5.4% from 4.9%) • M

  5. Slide 5: Trade liberalization in Europe

    Introduction Model Quantitative analysis Conclusion Trade liberalization in Europe 1. Large increase in intra-European trade after 1992 until 2008 2. EU countries experienced a rise in misallocation measures of capital, but not in labor 3. Eastern European countries had the choice to integrate capit

  6. Slide 6: Outline

    Introduction Model Quantitative analysis Conclusion Outline • Introduction • Model • Quantitative analysis 6 / 22

  7. Slide 7: Model overview

    Introduction Model Quantitative analysis Conclusion Model overview • Two countries, Home & Foreign, discrete time incomplete markets economy • Heterogeneous households: wealth, productivity, occupation • Dynamic occupation choice: worker, domestic producer & exporter • Idiosyncratic, autoregressive

  8. Slide 8: Outline

    Introduction Model Quantitative analysis Conclusion Outline • Introduction • Model • Quantitative analysis • Calibration & Steady state • Welfare & Transition dynamics • Additional results 8 / 22

  9. Slide 9: Calibration

    Introduction Model Quantitative analysis Conclusion Calibration • Eastern Europe as Home, Western Europe as Foreign, population 1:4 • Take one country as a representative from each group: Hungary and Germany • Financial flows, direction and magnitude: discount factors & collateral constraint • Trade

  10. Slide 10: Trade liberalization under closed and integrated capital markets

    Introduction Model Quantitative analysis Conclusion Trade liberalization under closed and integrated capital markets Integration None Trade Trade and capital Productivity TFP 100 109 104 s.d. arpk 0.33 0.34 0.5 Aggregates Output 100 116 127 Income 100 110 110 Consumption 100 104.9 105.4 Capital 100

  11. Slide 11: Trade liberalization under closed and integrated capital markets

    Introduction Model Quantitative analysis Conclusion Trade liberalization under closed and integrated capital markets Integration None Trade Trade and capital Productivity TFP 100 109 104 s.d. arpk 0.33 0.34 0.5 Aggregates Output 100 116 127 Income 100 110 110 Consumption 100 104.9 105.4 Capital 100

  12. Slide 12: Trade liberalization under closed and integrated capital markets

    Introduction Model Quantitative analysis Conclusion Trade liberalization under closed and integrated capital markets Integration None Trade Trade and capital Welfare and Inequality Welfare: steady state only 0 8 13 Welfare: transition dynamics 0 5 13* Top 10% wealth share 46 44 57 Factor prices Real

  13. Slide 13: Trade liberalization under closed and integrated capital markets

    Introduction Model Quantitative analysis Conclusion Trade liberalization under closed and integrated capital markets Integration None Trade Trade and capital Trade Import GDP 21 42 42 Export GDP∗ 2 4 4 Entrepreneurship rate 21 20 22 Share of exporters 32 46 40 CPI 140 133 137 Credit GDP 57 50 62 For

  14. Slide 14: Distribution of exporters

    Introduction Model Quantitative analysis Conclusion Distribution of exporters • High wealth: a > 2× national avg. • High productivity: z > national avg. Integration None Trade Trade and capital Low wealth and low productivity 4 8 7 Low wealth and high productivity 25 36 13 High wealth and low produc

  15. Slide 15: Supporting empirical evidence

    Introduction Model Quantitative analysis Conclusion Supporting empirical evidence • Country panel data to confirm the productivity loss with capital market integration: log( Import GDP ) log( Credit GDP ) log( Import Credit GDP ) × log( GDP ) CM I log( Import GDP ) × CM I Log(TFP) 0.184∗∗∗ 0.185∗∗∗ 0

  16. Slide 16: Outline

    Introduction Model Quantitative analysis Conclusion Outline • Introduction • Model • Quantitative analysis • Calibration & Steady state • Welfare & Transition dynamics • Additional results 13 / 22

  17. Slide 17: Welfare

    Introduction Model Quantitative analysis Conclusion Welfare • Everyone prefers liberalized trade with closed capital markets • Inequality still increases • Debtors - most productive, low net worth agents prefer open CM • Domestic creditors prefer closed CM, more than debtors prefer open CM • Workers

  18. Slide 18: Transition dynamics after a trade shock

    Introduction Model Quantitative analysis Conclusion Transition dynamics after a trade shock • Compare three transition paths: • Path 1: Only open up to trade in 4 years and keep capital markets closed • Historical: Open up to trade in 4 years and open capital markets after 10 years • Path 2: Open up

  19. Slide 19: Path 1 vs 2 vs historical

    Introduction Model Quantitative analysis Conclusion Path 1 (red dashed) vs 2 (blue) vs historical (green dotted) 35 0.55 10.0 30 0.50 7.5 25 0.45 20 0.40 5.0 15 0.35 2.5 10 0.30 5 0.25 0.0 5 10 15 20 25 30 5 10 15 20 25 30 5 10 15 20 25 30 (a) Productivity (b) Exporter s.d. arpk (c) Total consumptio

  20. Slide 20: Conclusion

    Introduction Model Quantitative analysis Conclusion Conclusion • Quantifying the costs of maintaining closed capital markets after opening up to trade • Sequencing of reforms — waiting after trade liberalization has a welfare cost • Misallocation from capital market integration: • Affects the economy

  21. Slide 21: Outline

    Introduction Model Quantitative analysis Conclusion Outline • Introduction • Model • Quantitative analysis • Calibration & Steady state • Welfare & Transition dynamics • Additional results 18 / 22

  22. Slide 22: Capital market integration alone has limited effect on the economy

    Introduction Model Quantitative analysis Conclusion Capital market integration alone has limited effect on the economy Integration None Capital Trade and capital Productivity TFP 100 101 104 s.d. arpk 0.33 0.5 0.5 Aggregates Output 100 114 127 Income 100 104 110 Consumption 100 100 105.4 Capital 100

  23. Slide 23: Capital market integration alone has limited effect on the economy

    Introduction Model Quantitative analysis Conclusion Capital market integration alone has limited effect on the economy Integration None Capital Trade and capital Factor prices Real wage 100 100 106 Interest rate premium r − r∗ 9 0 0 Trade Import GDP 21 23 42 Export GDP∗ 2 2 4 Entrepreneurship rate 21

  24. Slide 24: Development as in Foreign: reforms affect welfare less

    Introduction Model Quantitative analysis Conclusion Development as in Foreign: reforms affect welfare less Integration Initial Trade Trade and capital Productivity TFP 100 115 123 s.d. arpk 0.14 0.15 0.22 Aggregates Output 100 124 135 Income 100 103 100 Consumption 100 103 98 Capital 100 98 93 Welfar

  25. Slide 25: Development as in Foreign: reforms affect welfare less

    Introduction Model Quantitative analysis Conclusion Development as in Foreign: reforms affect welfare less Integration Initial Trade Trade and capital Factor prices Real wage 100 105 106 Interest rate premium r − r∗ 1 1 0 Trade Import GDP 22 44 41 Export GDP∗ 4 6 5 Entrepreneurship rate 17 16 19 Shar

  26. Slide 26: Role of Foreign economy

    Introduction Model Quantitative analysis Conclusion Role of Foreign economy • The economy of Eastern Europe is smaller, but not insignificant to Western EU • Policy choice could be driven by the interest of Western Europe • Trade integration only results in small welfare losses for Foreign • Foreign

  27. Slide 27: Contribution to the Literature

    Introduction Model Quantitative analysis Conclusion Contribution to the Literature Back to Introduction • Misallocation and Trade: • Bai et al. (2019), Berthou et al.(2018), Edmond et al.(2015) • Source of misallocation and firm dynamics matter for trade liberalization • Trade liberalization and finan

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