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on Open MacroEconomics |
| By: | Perri, Fabrizio; Quadrini, Vincenzo |
| Abstract: | The 2008-2009 crisis was characterized by an unprecedented degree of international synchronization as all major industrialized countries experienced large macroeconomic contractions around the date of Lehman bankruptcy. At the same time countries also experienced large and synchronized tightening of credit conditions. We present a two-country model with financial market frictions where a credit tightening can emerge as a self-fulfilling equilibrium caused by pessimistic but fully rational expectations. As a result of the credit tightening, countries experience large and endogenously synchronized declines in asset prices and economic activity (international recessions). The model suggests that these recessions are more severe if they happen after a prolonged period of credit expansion. |
| Keywords: | credit tightness; international crisis |
| JEL: | E32 F3 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8483&r=opm |
| By: | Klaus Adam; Pei Kuang; Albert Marcet |
| Abstract: | A simple open economy asset pricing model can account for the house price and current account dynamics in the G7 over the years 2001-2008. The model features rational households, but assumes that households entertain subjective beliefs about price behavior and update these using Bayes' rule. The resulting beliefs dynamics considerably propagate economic shocks and crucially contribute to replicating the empirical evidence. Belief dynamics can temporarily delink house prices from fundamentals, so that low interest rates can fuel a house price boom. House price booms, however, are not necessarily synchronized across countries and the model is consistent with the heterogeneous response of house prices across the G7 following the reduction in real interest rates at the beginning of the millennium. The response to interest rates depends sensitively on agents' beliefs at the time of the interest rate reduction, which in turn are a function of the country specific history prior to the year 2000. According to the model, the US house price boom could have been largely avoided, if real interest rates had decreased by less after the year 2000. |
| JEL: | E44 F32 F41 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17224&r=opm |
| By: | John Cotter (University College Dublin); Don Bredin (University College Dublin) |
| Abstract: | This paper compares real and nominal foreign exchange volatility effects on exports. Using a flexible lag version of the Goldstein-Khan two-country imperfect substitutes model for bilateral trade, we identify the overall effect into both a timing as well as a size impact. We find that the size impact of forecasted foreign exchange volatility does not vary according to the measure used in terms of magnitude and direction. However, there are very different timing effects, when we compare real and nominal foreign exchange rate volatility. |
| Keywords: | Exports, Volatility, Real & Nominal effects |
| JEL: | C32 F31 |
| Date: | 2011–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200619&r=opm |
| By: | Herzer, Dierk |
| Abstract: | This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing countries, (ii) increased factor productivity is both consequence and a cause of increased outward FDI, and (iii) there are large differences in the long-run effects of outward FDI on total factor productivity across countries. Cross-sectional regressions indicate that these cross-country differences in the productivity effects of outward FDI are significantly negatively related to cross-country differences in labor market regulation, whereas there is no statistically significant association between the productivity effects of outward FDI and the level of human capital, the level of financial development, or the degree of trade openness in the home country. -- |
| Keywords: | outward FDI,total factor productivity,developing countries,panel cointegration |
| JEL: | F21 O11 F23 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec11:41&r=opm |
| By: | Thomas I. Palley |
| Abstract: | This paper traces the rise of export-led growth as a development paradigm and argues that it is exhausted owing to changed conditions in emerging market (EM) and developed economies. The global economy needs a recalibration that facilitates a new paradigm of domestic demand-led growth. Globalization has so diversified global economic activity that no country or region can act as the lone locomotive of global growth. Political reasoning suggests that EM countries are not likely to abandon export-led growth, nor will the international community implement the international arrangements needed for successful domestic demand-led growth. Consequently, the global economy likely faces asymmetric stagnation. |
| Keywords: | Export-led Growth; Domestic Demand-led Growth; Economic Development; Stagnation |
| JEL: | F00 F01 F02 F10 F20 F50 O11 O19 O24 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_675&r=opm |
| By: | Benjamin Born; Alexandra Peter; Johannes Pfeifer |
| Abstract: | This paper analyzes the contribution of anticipated capital and labor tax shocks to business cycle volatility in an estimated New Keynesian DSGE model. While fiscal policy accounts for 12 to 20 percent of output variance at business cycle frequencies, the anticipated component hardly matters for explaining fluctuations of real variables. Anticipated capital tax shocks do explain a sizable part of inflation and interest rate fluctuations, accounting for between 5 and 15 percent of total variance. In line with earlier studies, news shocks in total account for 20 percent of output variance. Further decomposing this news effect, we find that it is mostly driven by stationary TFP and non-stationary investment-specific technology. |
| Keywords: | Anticipated Tax Shocks; Sources of Aggregate Fluctuations; Bayesian Estimation |
| JEL: | E32 E62 C11 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse08_2011&r=opm |
| By: | Filipe Silva (Faculdade de Economia, Universidade de Coimbra GEMF–Grupo de Estudos Monetários e Financeiros); Carlos Carreira (Faculdade de Economia, Universidade de Coimbra GEMF–Grupo de Estudos Monetários e Financeiros) |
| Abstract: | Financial constraints are a key determinant that hinders firms' ability to export. This paper analyses the nexus between these constraints and firms' engagement in international trade, as well as it explores the impact of the European monetary integration process upon firms' financial constraints. Therefore, we estimate cash to cash-flow sensitivities for different periods (1996-2000 and 2001-2004) and different groups of firms, according to their exporting and importing activity. Our results indicate that, depending on their international openness, the European monetary integration seems to have generally helped reducing the degree of financial constraints faced by Portuguese firms. Additionally, our findings suggest that, rather than unconstrained firms self-selecting into exporting, firms' constraints were reduced after they started exporting. |
| Keywords: | Financial constraints; Exports; European financial integration; Firm-level studies; Portugal |
| JEL: | D92 F14 F36 G32 L00 L2 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0039&r=opm |