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Can World Real Interest Rates Explain Business Cycles In A Small Open Economy
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Book Synopsis Can World Real Interest Rates Explain Business Cycles in a Small Open Economy? by : William F. Blankenau
Download or read book Can World Real Interest Rates Explain Business Cycles in a Small Open Economy? written by William F. Blankenau and published by . This book was released on 2006 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: While the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies, much of the recent quantitative research that studies this mechanism concludes that it has little effect on output, investment, and net exports. We reexamine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology. We begin with a small open economy business cycle model. But, rather than specifying the stochastic processes for the shocks, and then solving and simulating the model to evaluate how well these shocks explain business cycles, we use the model to back out the shocks that are consistent with the model's observable endogenous variables. Then we use variance decompositions to examine the importance of each shock. We apply this methodology to Canada and find that world real interest rate shocks can play an important role in explaining the cyclical variation in a small open economy. In particular, they can explain up to one-third of the fluctuations in output and more than half of the fluctuations in net exports and net foreign assets.
Book Synopsis Can World Real Interest Rates Explain Business Cycles in a Small Open Economy? by : William Blankenau
Download or read book Can World Real Interest Rates Explain Business Cycles in a Small Open Economy? written by William Blankenau and published by . This book was released on 1999 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hysteresis and Business Cycles by : Ms.Valerie Cerra
Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
Book Synopsis Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies by : Mr.Marco Airaudo
Download or read book Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2012-05-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
Book Synopsis Explaining Business Cycles in Small Open Economies by : M. Ayhan Kose
Download or read book Explaining Business Cycles in Small Open Economies written by M. Ayhan Kose and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the role of world price shocks, namely fluctuations in the prices of capital, intermediate and primary goods, and the world real interest rate, in the generation and propagation of business cycles in developing countries, using a stochastic dynamic multi-sector model of a small open economy. The model reflects the structural characteristics of developing economies and successfully replicates the main features of business cycle dynamics. We utilize variance decomposition methods on the solution of the model to quantitatively evaluate the impact of world price disturbances on domestic business cycles fluctuations. The results of this analysis indicate that world price shocks account for a significant fraction of business cycle variability. In particular, shocks to the prices of capital goods and intermediate inputs relative to the prices of primary commodities explain more than 75 percent of output volatility. In contrast, world interest rate shocks seem to have little effect on cyclical variation. Further, we find that the propagation of business cycles generated by the world price fluctuations to be substantially different than that caused by domestic productivity shocks.
Book Synopsis Business Cycles in Emerging Economies by : Pablo A. Neumeyer
Download or read book Business Cycles in Emerging Economies written by Pablo A. Neumeyer and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles. The dataset used in the study includes quarterly data for Argentina during 1983-2000 and for Brazil, Mexico, Korea, and Philippines, during 1994-2000. In this sample, interest rates are very volatile, strongly countercyclical, and strongly positively correlated with net exports. Output is very volatile and consumption is more volatile than output. These regularities are common to all emerging economies in the sample, but are not observed in a developed economy such as Canada. The paper presents a dynamic general equilibrium model of a small open economy, in which (i) firms have to pay for a fraction of the input bill before production takes place, and in which (ii) the labor supply is independent of consumption. Using a version of the model calibrated to Argentina s economy, we find that interest rate shocks alone can explain 50% of output fluctuations and can generate business cycle patterns consistent with the regularities described above and with the major booms and recessions in Argentina in the last two decades. We conclude that interest rates are an important factor for explaining business cycles in emerging economies and further research should be devoted to fully understand their determination.
Book Synopsis Open Economy Macroeconomics by : Martín Uribe
Download or read book Open Economy Macroeconomics written by Martín Uribe and published by Princeton University Press. This book was released on 2017-04-04 with total page 646 pages. Available in PDF, EPUB and Kindle. Book excerpt: A cutting-edge graduate-level textbook on the macroeconomics of international trade Combining theoretical models and data in ways unimaginable just a few years ago, open economy macroeconomics has experienced enormous growth over the past several decades. This rigorous and self-contained textbook brings graduate students, scholars, and policymakers to the research frontier and provides the tools and context necessary for new research and policy proposals. Martín Uribe and Stephanie Schmitt-Grohé factor in the discipline's latest developments, including major theoretical advances in incorporating financial and nominal frictions into microfounded dynamic models of the open economy, the availability of macro- and microdata for emerging and developed countries, and a revolution in the tools available to simulate and estimate dynamic stochastic models. The authors begin with a canonical general equilibrium model of an open economy and then build levels of complexity through the coverage of important topics such as international business-cycle analysis, financial frictions as drivers and transmitters of business cycles and global crises, sovereign default, pecuniary externalities, involuntary unemployment, optimal macroprudential policy, and the role of nominal rigidities in shaping optimal exchange-rate policy. Based on courses taught at several universities, Open Economy Macroeconomics is an essential resource for students, researchers, and practitioners. Detailed exploration of international business-cycle analysis Coverage of financial frictions as drivers and transmitters of business cycles and global crises Extensive investigation of nominal rigidities and their role in shaping optimal exchange-rate policy Other topics include fixed exchange-rate regimes, involuntary unemployment, optimal macroprudential policy, and sovereign default and debt sustainability Chapters include exercises and replication codes
Book Synopsis The Effectiveness of Fiscal Policy in Stimulating Economic Activity by : Richard Hemming
Download or read book The Effectiveness of Fiscal Policy in Stimulating Economic Activity written by Richard Hemming and published by International Monetary Fund. This book was released on 2002-12 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
Book Synopsis The American Business Cycle by : Robert J. Gordon
Download or read book The American Business Cycle written by Robert J. Gordon and published by University of Chicago Press. This book was released on 2007-11-01 with total page 882 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent decades the American economy has experienced the worst peace-time inflation in its history and the highest unemployment rate since the Great Depression. These circumstances have prompted renewed interest in the concept of business cycles, which Joseph Schumpeter suggested are "like the beat of the heart, of the essence of the organism that displays them." In The American Business Cycle, some of the most prominent macroeconomics in the United States focuses on the questions, To what extent are business cycles propelled by external shocks? How have post-1946 cycles differed from earlier cycles? And, what are the major factors that contribute to business cycles? They extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations. Seven papers address specific aspects of economic activity: consumption, investment, inventory change, fiscal policy, monetary behavior, open economy, and the labor market. Five papers focus on aggregate economic activity. In a number of cases, the papers present findings that challenge widely accepted models and assumptions. In addition to its substantive findings, The American Business Cycle includes an appendix containing both the first published history of the NBER business-cycle dating chronology and many previously unpublished historical data series.
Book Synopsis Employment Protection and Business Cycles in Emerging Economies by : Mr.Ruy Lama
Download or read book Employment Protection and Business Cycles in Emerging Economies written by Mr.Ruy Lama and published by International Monetary Fund. This book was released on 2011-12-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We build a small open economy, real business cycle model with labor market frictions to evaluate the role of employment protection in shaping business cycles in emerging economies. The model features matching frictions and an endogenous selection effect by which inefficient jobs are destroyed in recessions. In a quantitative version of the model calibrated to the Mexican economy we find that reducing separation costs to a level consistent with developed economies would reduce output volatility by 15 percent. We also use the model to analyze the Mexican crisis episode of 2008 and conclude that an economy with lower separation costs would have experienced a smaller drop in output and in measured total factor productivity with no significant change in aggregate employment.
Book Synopsis What Happens During Recessions, Crunches and Busts? by : Mr.Ayhan Kose
Download or read book What Happens During Recessions, Crunches and Busts? written by Mr.Ayhan Kose and published by International Monetary Fund. This book was released on 2008-12-01 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42
Book Synopsis Preventing Currency Crises in Emerging Markets by : Sebastian Edwards
Download or read book Preventing Currency Crises in Emerging Markets written by Sebastian Edwards and published by University of Chicago Press. This book was released on 2002-11-15 with total page 782 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economists and policymakers are still trying to understand the lessons recent financial crises in Asia and other emerging market countries hold for the future of the global financial system. In this timely and important volume, distinguished academics, officials in multilateral organizations, and public and private sector economists explore the causes of and effective policy responses to international currency crises. Topics covered include exchange rate regimes, contagion (transmission of currency crises across countries), the current account of the balance of payments, the role of private sector investors and of speculators, the reaction of the official sector (including the multilaterals), capital controls, bank supervision and weaknesses, and the roles of cronyism, corruption, and large players (including hedge funds). Ably balancing detailed case studies, cross-country comparisons, and theoretical concerns, this book will make a major contribution to ongoing efforts to understand and prevent international currency crises.
Book Synopsis Are Business Cycles Different in Asia and Latin America? by : Alexander W. Hoffmaister
Download or read book Are Business Cycles Different in Asia and Latin America? written by Alexander W. Hoffmaister and published by International Monetary Fund. This book was released on 1997 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding business cycles is the first step in designing appropriate stabilization policies (Lucas, 1977). Although there is no a priori reason to think that business cycles are different in industrialized and developing countries, the faster growth and greater volatility in developing countries combined with the recent emphasis in the literature on the connection between trends and cycles, suggests that there could be some interesting differences. The objective of this paper is to compare the properties of the business cycles in Asia and in Latin America using a structural VAR approach that encompasses equilibrium and disequilibrium views of the business cycle. We also compare our results to the evidence for industrial countries.
Book Synopsis Technology Shocks and Aggregate Fluctuations by : Mr.Pau Rabanal
Download or read book Technology Shocks and Aggregate Fluctuations written by Mr.Pau Rabanal and published by International Monetary Fund. This book was released on 2004-12-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
Book Synopsis Frontiers of Business Cycle Research by : Thomas F. Cooley
Download or read book Frontiers of Business Cycle Research written by Thomas F. Cooley and published by Princeton University Press. This book was released on 1995-02-26 with total page 452 pages. Available in PDF, EPUB and Kindle. Book excerpt: This introduction to modern business cycle theory uses a neoclassical growth framework to study the economic fluctuations associated with the business cycle. Presenting advances in dynamic economic theory and computational methods, it applies concepts to t
Book Synopsis Business Cycles by : Victor Zarnowitz
Download or read book Business Cycles written by Victor Zarnowitz and published by University of Chicago Press. This book was released on 2007-11-01 with total page 613 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume presents the most complete collection available of the work of Victor Zarnowitz, a leader in the study of business cycles, growth, inflation, and forecasting.. With characteristic insight, Zarnowitz examines theories of the business cycle, including Keynesian and monetary theories and more recent rational expectation and real business cycle theories. He also measures trends and cycles in economic activity; evaluates the performance of leading indicators and their composite measures; surveys forecasting tools and performance of business and academic economists; discusses historical changes in the nature and sources of business cycles; and analyzes how successfully forecasting firms and economists predict such key economic variables as interest rates and inflation.
Book Synopsis The Chicago Plan Revisited by : Mr.Jaromir Benes
Download or read book The Chicago Plan Revisited written by Mr.Jaromir Benes and published by International Monetary Fund. This book was released on 2012-08-01 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
