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on Open MacroEconomics |
| By: | Serguei Maliar; Lilia Maliar; Kenneth L. Judd |
| Abstract: | We use the stochastic simulation algorithm, described in Judd, Maliar and Maliar (2009), and the cluster-grid algorithm, developed in Judd, Maliar and Maliar (2010a), to solve a collection of multi-country real business cycle models. The following ingredients help us reduce the cost in high-dimensional problems: an endogenous grid enclosing the ergodic set, linear approximation methods, fixed-point iteration and efficient integration methods, such as non-product monomial rules and Monte Carlo integration combined with regression. We show that high accuracy in intratemporal choice is crucial for the overall accuracy of solutions and offer two approaches, precomputation and iteration-on-allocation, that can solve for intratemporal choice both accurately and quickly. We also implement a hybrid solution algorithm that combines the perturbation and accurate intratemporal-choice methods. |
| JEL: | C63 C68 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16304&r=opm |
| By: | Martin Berka; Michael B. Devereux |
| Abstract: | We study a newly constructed panel data set of relative prices of a large number of consumer goods among 31 European countries. We ¯nd that there is a substantial and non-diminishing deviation from PPP at all levels of aggregation, even among eurozone members. However, real exchange rates are very closely tied to relative GDP per capita within Europe, both across countries and over time. This relationship is highly robust at all levels of aggregation. We construct a simple two-sector endowment economy model of real exchange rate determination. Simulating the model using the historical relative GDP per capita for each country, we ¯nd that for most (but not all) countries there is a very close fit between the actual and simulated real exchange rate. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2010-17&r=opm |
| By: | Jesús Crespo-Cuaresma; Octavio Fernández-Amador |
| Abstract: | We propose the analysis of the dynamics of the standard deviation of business cycles across euro area countries in order to evaluate the patterns of cyclical convergence in the European Monetary Union for the period 1960-2008. We identify significant business cycle divergence taking place in the mid-eighties, followed by a persistent convergence period spanning most of the nineties. This convergent episode finishes roughly with the birth of the European Monetary Union. A hypothetical euro area including all the new members of the recent enlargements does not imply a sizeable decrease in the optimality of the currency union. Finally, the European synchronization differential with respect to other developed economies seems to have been diluted within a global cycle since 2004. |
| Keywords: | Business cycles, business cycle convergence, European Monetary Union. |
| JEL: | E32 E63 F02 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2010-22&r=opm |
| By: | Francois Langot (GAINS-TEPP (Université du Maine)); Coralia Quintero-Rojas (Department of Economics and Finance, Universidad de Guanajuato) |
| Abstract: | In this paper, we show that fluctuations in distortive taxes can account for most puzzling features of the U.S. economy. Namely, the observed real wage rigidity, the international correlation of investment and labor inputs, and the so-called quantity puzzle (according to which cross-country correlation of outputs is higher than the one of consumptions). This is done in a two-country search and matching model with fairly standard separable preferences, extended to include a tax/benefit system. |
| Keywords: | Distortive taxes, real wage rigidity, international business cycles, search, matching |
| JEL: | E32 E62 H24 J41 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:gua:wpaper:ec201002&r=opm |
| By: | Saroj Bhattarai (Pennsylvania State University); Raphael Schoenle (Brandeis University) |
| Abstract: | In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can match our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchro- nization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend in ation, the model matches the empiricalfindings. |
| Keywords: | Multi-product firms; Number of Goods; State-dependent pricing; U.S. Producer prices |
| JEL: | E30 E31 L11 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1245&r=opm |
| By: | Douglas L. Campbell |
| Abstract: | What determines trade patterns? Habit persistence in consumer tastes and learning-by-doing in production imply that history and culture matter. Deriving a dynamic gravity equation from a simple model, it is shown that cultural similarity is a product of history, so that trade patterns are a function of bilateral GDP, current trade costs, and the past history of trade costs. Using a trade data set which spans from 1870 to 2000, I demonstrate that many gravity variables operate via lagged trade, that historical trade shocks matter, and that trade patterns are persistent, even across centuries. |
| Keywords: | Dynamic Gravity Equation, Endogenous Preferences, Habit Persistence, Learning By-Doing. |
| JEL: | F10 F12 F22 N70 |
| Date: | 2010–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2010_26&r=opm |
| By: | Leonidas Tsiaras (Department of Business Studies, ASB, Aarhus University and CREATES) |
| Abstract: | Models for the conditional joint distribution of the U.S. Dollar/Japanese Yen and Euro/Japanese Yen exchange rates, from November 2001 until June 2007, are evaluated and compared. The conditional dependency is allowed to vary across time, as a function of either historical returns or a combination of past return data and option-implied dependence estimates. Using prices of currency options that are available in the public domain, risk-neutral dependency expectations are extracted through a copula repre- sentation of the bivariate risk-neutral density. For this purpose, we employ either the one-parameter \Normal" or a two-parameter \Gumbel Mixture" specification. The latter provides forward-looking information regarding the overall degree of covariation, as well as, the level and direction of asymmetric dependence. Specifications that include option-based measures in their information set are found to outperform, in-sample and out-of-sample, models that rely solely on historical returns. |
| Keywords: | Exchange Rates, Implied Correlation, Copula, Forecasting, Options |
| JEL: | F31 F37 G14 G15 |
| Date: | 2010–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-35&r=opm |
| By: | Daisy McGregor (School of Economics, University of Adelaide) |
| Abstract: | This paper compares an Australia-New Zealand currency union to a purely fl oating exchange rate regime in the context of a structural, two-country open economy model. Micro-foundations support policy assessment by facilitating direct calculation of household welfare. Analysis focuses on changing business cycle volatilities; the role of risk is not considered. At benchmark calibration currency union is welfare reducing for both Australia and New Zealand. Sensitivity analyses reveal these results to be qualitatively robust over alternative degrees of shock correlation and shock transmission. |
| Keywords: | currency union, welfare analysis, exchange rate regime, Australia, New Zealand |
| JEL: | F22 F33 F41 F42 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2010-18&r=opm |
| By: | David Powell (RAND Corporation); Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany) |
| Abstract: | An emerging literature on international activities of heterogeneous firms documents that exporting firms are more productive than firms that only sell on the national market. This positive exporter productivity premium shows up in a large number of empirical studies after controlling for observed and unobserved firm characteristics in regression models including firm fixed effects. These studies test for a difference in productivity between exporters and non-exporters at the conditional mean of the productivity distribution. However, if firms are heterogeneous, it is possible that the size of the premium varies over the productivity distribution. In this paper we apply a newly developed estimator for fixed-effects quantile regression models to estimate the exporter productivity premium at quantiles of the productivity distribution for manufacturing enterprises in Germany, one of the leading actors in the world market for goods. We show that the premium decreases over the quantiles – a dimension of firm heterogeneity that cannot be detected through mean regression. |
| Keywords: | Exporter productivity premium, quantile regression, fixed effects |
| JEL: | F14 C21 C23 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:182&r=opm |