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on Open MacroEconomics |
| By: | Saroj Bhattarai (Pennsylvania State University); Raphael Schoenle (Department of Economics, Brandeis University) |
| Abstract: | In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain 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 synchronization 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 inflation, the model matches the empirical findings. |
| Keywords: | Multi-Product Firms, Number of Goods, State-Dependent Pricing, U.S. Producer Prices |
| JEL: | E30 E31 L11 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:15&r=opm |
| By: | Bacchetta Philippe; Benhima Kenza |
| Abstract: | In the recent decade, capital outflows from emerging economies, in the form of a demand for liquid assets, have played a key role in the context of global imbalances. In this paper, we model the demand for liquid assets by firms in a dynamic open-economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with global imbalances and with a number of stylized facts such as high corporate saving rates in high-growth, high-investment, emerging countries. |
| Keywords: | capital flows; global imbalances; working capital; credit constraints |
| JEL: | E22 F21 F41 F43 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:10.12&r=opm |
| By: | Jonathan Eaton; Samuel Kortum; Brent Neiman; John Romalis |
| Abstract: | Global trade fell 30 percent relative to GDP during the Great Recession of 2008-2009. Did this collapse result from factors impeding international transactions or did it simply reflect the greater severity of the recession in highly traded sectors? We answer this question with detailed international data, interpreted within a general-equilibrium trade model. Counterfactual simulations of the model show that a shift in spending away from manufactures, particularly durables, accounts for more than 80 percent of the drop in trade/GDP. Increased trade impediments reduced trade in some countries, but globally the impact of these changes largely cancels out. |
| JEL: | E3 F1 F4 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16666&r=opm |
| By: | Yulei Luo; Jun Nie; Eric R. Young |
| Abstract: | We examine the effects of two types of informational frictions, robustness (RB) and nite information-processing capacity (called rational inattention or RI) on the current account, in an otherwise standard intertemporal current account (ICA) model. We show that the interaction of RB and RI has the potential to improve the model’s predictions on the joint dynamics of the current account and income: (i) the contemporaneous correlation between the current account and income, (ii) the volatility and persistence of the current account in small open emerging and developed economies. In addition, we show that the two informational frictions could also better explain consumption dynamics in small open economies: the impulse responses of consumption to income shocks and the relative volatility of consumption growth to income growth. Calibrated versions using detection probabilities t the data better along these dimensions than the standard model does. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-17&r=opm |
| By: | Martin S. Feldstein |
| Abstract: | The high level of current account imbalances continues to be a major focus of international concern. In this paper I suggest why public and private actions in the United States and China are now likely to cause the current account imbalances in those countries to shrink and perhaps even to disappear in the next few years. If that happens, it will eliminate the largest current account imbalances in the global economy. The United States now has a current account deficit of about $500 billion or 3.5 percent of US GDP. China has a current account surplus of about $300 billion or 6 percent of its GDP. Although natural market forces should resolve such imbalances without the need for specific government policies, the government actions in both countries have actually contributed to their persistence and prevented market forces from correcting the problem. That may be about to change. |
| JEL: | F3 F32 F4 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16674&r=opm |
| By: | Dierk Herzer (Bergische Universität Wuppertal / Germany) |
| Abstract: | This paper makes the following contributions to the literature on the impact of trade on income. First, we use heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors to estimate the effect of trade on income for 75 developed and developing countries, both for the sample, as a whole, and for each individual country. Second, we use a general-to-specific variable-selection approach to identify important determinants of the effect of trade on income. Our main findings are: (i) A one-percent increase in the trade share of GDP results, on average, in a statistically significant increase in income per worker of about 0.18 percent. This result is in contrast to previous studies, which tend to produce either unreasonably large or statistically insignificant estimates of the impact of trade on income. (ii) There are large cross-country differences in the income effect of trade, in particular, between developed and developing countries. For developed countries the income effect of trade is positive, whereas trade has, on average, a negative impact on income in developing countries. (iii) The cross-country heterogeneity in the impact of trade on income can be explained mainly by cross-country differences in primary export dependence, labor market regulation, and property rights protection. The level of property rights protection is positively related, while the levels of primary export dependence and labor market regulation are negatively related to the income effect of trade. |
| Keywords: | Trade; Income; Cross-country heterogeneity; Panel cointegration; General-to-specific approach |
| JEL: | F43 F14 C23 C52 |
| Date: | 2011–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:209&r=opm |