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on Open MacroEconomics |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric R. Young |
| Abstract: | Stochastic general equilibrium models of small open economies with occasionally binding financial frictions are capable of mimicking both the business cycles and the crisis events associated with the sudden stop in access to credit markets (Mendoza, 2010). In this paper we study the inefficiencies associated with borrowing decisions in a two-sector small open production economy. We find that this economy is much more likely to display "under-borrowing" rather than "over-borrowing" in normal times. As a result, macro-prudential policies (i.e. Tobin taxes or economy-wide controls on capital inflows) are costly in welfare terms in our economy. Moreover, we show that macro-prudential policies aimed at minimizing the probability of the crisis event might be welfare-reducing in production economies. Our analysis shows that there is a much larger scope for welfare gains from policy interventions during financial crises. That is to say that, within our modeling approach, ex post or crisis-management policies dominate ex ante or macro-prudential ones. |
| Keywords: | Capital controls, crises, financial frictions, macro prudential policies, bailouts,overborrowing |
| JEL: | E52 F37 F41 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1032&r=opm |
| By: | Egger, Peter; Nigai, Sergey |
| Abstract: | This paper sheds light on the role of the impact of taxes on energy production versus tariffs on imported goods for trade, energy demand, and welfare. For this, we develop a structural Eaton-Kortum type general equilibrium model of international trade which includes an energy sector. We estimate the key parameters of that model and calibrate it to domestic prices and production using data for 34 OECD countries and the rest of the world in the average year between 2000 and 2005. The model helps understanding the interplay between country-specific energy productivity, energy demand, and trade. The energy sector turns out to be an important determinant of the size of welfare gains from trade liberalization. We find that general import tariffs can be an effective instrument to reduce energy demand. For small open economies, taxing imports as an indirect instrument may be even preferable to taxing energy as a direct instrument from a welfare perspective, if countries pursue the goal of reducing energy demand to a specific extent. This is not the case for large countries such as the United States. |
| Keywords: | Calibrated general equilibrium analysis; Energy demand; International trade; Structural model estimation |
| JEL: | F11 F14 Q43 Q48 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8420&r=opm |
| By: | John Earl Floyd |
| Abstract: | This paper analyzes the relationship between Canadian Monetary Policy and the movements of Canada\'s real and nominal exchange rates with respect to the U.S. A broad-based theory is developed to form the basis for subsequent empirical analysis. The main empirical result is that the Canadian real exchange rate has been determined in large part by capital movements into and out of Canada as compared to the U.S. and world energy prices. Additional important determinants were world commodity prices and Canadian and U.S. real GDPs and employment rates. No evidence of effects of unanticipated money supply shocks on the nominal and real exchange rates is found. Under conditions where exchange rate overshooting is likely to occur in response to monetary demand or supply shocks, this suggests that the Bank of Canada follows an orderly-markets style of monetary policy and the conclusion is that this is the best approach under normal conditions. Finally, it is shown that in response to a domestic inflation rate that has become permanently too high or a catastrophic situation in the U.S., the Bank of Canada can induce a one-percent short-run change in the unemployment rate by pushing the nominal and real exchange rates in the appropriate direction by between five and six percent. |
| Keywords: | Real Exchange Rate Canadian Monetary Policy |
| JEL: | A E F G |
| Date: | 2011–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-430&r=opm |
| By: | Matthias Kehrig |
| Abstract: | Using plant-level data, I show that the dispersion of total factor productivity in U.S. durable manufacturing is greater in recessions than in booms. This cyclical property of productivity dispersion is much less pronounced in non-durable manufacturing. In durables, this phenomenon primarily reflects a relatively higher share of unproductive firms in a recession. In order to interpret these findings, I construct a business cycle model where production in durables requires a fixed input. In a boom, when the market price of this fixed input is high, only more productive firms enter and only more productive incumbents survive, which results in a more compressed productivity distribution. The resulting higher average productivity in durables endogenously translates into a lower average relative price of durables. Additionally, my model is consistent with the following business cycle facts: procyclical entry, procyclical aggregate total factor productivity, more procyclicality in durable than non-durable output, procyclical employment and countercyclicality in the relative price of durables and the cross section of stock returns. |
| Keywords: | Productivity, Plant-level Risk, Entry and Exit, Business Cycles, Manufacturing, Plant-Level Data |
| JEL: | D24 E32 L11 L25 L60 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-15&r=opm |
| By: | Alberto Martin (CREI and Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005-Barcelona, Spain.); Jaume Ventura (CREI and Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005-Barcelona, Spain.) |
| Abstract: | We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp recession; (ii) the connection (or lack of connection!) between financial and real economic activity and; (iii) a fast and strong transmission of shocks across countries. We also use the model to explore the role of fiscal policy. JEL Classification: E32, E44, G01, O40. |
| Keywords: | bubbles, financial accelerator, credit constraints, financial crisis, pyramid schemes. |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111348&r=opm |