Pub Date : 2010-05-06DOI: 10.1504/IJBG.2010.032973
N. Karunaratne
The article models the policy challenges facing globalising developing countries. Models from the pure theory of international trade, the small open economy model, growth accounting, the Solow-Swan model, the gravity model, models of portfolio diversification and currency crises models are reviewed to distil policy guidelines to promote the globalisation of developing countries. The overriding objective of promoting the globalisation of developing countries is to reduce poverty and income inequality between and within countries. Pro- and anti-globalisers are currently locked in a heated controversy as to whether the latest wave of globalisation has bucked the past trend of increasing poverty and income inequality in developing countries. Anti-globalisers lament that protracted waves of globalisation have failed to extricate developing countries from the structural malaise that traps them in a vicious circle of poverty. They advocate the radical reshaping of the international financial architecture to make globalisation work for the developing countries by reducing their vulnerability to recurrent financial crises and crisis contagion. The article concludes by reviewing the geography and institution school research that offers new policy vistas for promoting globalisation in developing countries.
{"title":"Modelling the Policy Challenges Confronting Globalising Developing Countries","authors":"N. Karunaratne","doi":"10.1504/IJBG.2010.032973","DOIUrl":"https://doi.org/10.1504/IJBG.2010.032973","url":null,"abstract":"The article models the policy challenges facing globalising developing countries. Models from the pure theory of international trade, the small open economy model, growth accounting, the Solow-Swan model, the gravity model, models of portfolio diversification and currency crises models are reviewed to distil policy guidelines to promote the globalisation of developing countries. The overriding objective of promoting the globalisation of developing countries is to reduce poverty and income inequality between and within countries. Pro- and anti-globalisers are currently locked in a heated controversy as to whether the latest wave of globalisation has bucked the past trend of increasing poverty and income inequality in developing countries. Anti-globalisers lament that protracted waves of globalisation have failed to extricate developing countries from the structural malaise that traps them in a vicious circle of poverty. They advocate the radical reshaping of the international financial architecture to make globalisation work for the developing countries by reducing their vulnerability to recurrent financial crises and crisis contagion. The article concludes by reviewing the geography and institution school research that offers new policy vistas for promoting globalisation in developing countries.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83657731","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper looks at the development of macroeconometric models over the past sixty years. In particular those that have been used for analysing policy options. We argue that there have been four generations of these. Each generation has evolved new features that have been partly drawn from the developing academic literature and partly from the perceived weaknesses in the previous generation. Overall the evolution has been governed by a desire to answer a set of basic questions and sometimes by what can be achieved using new computational methods. Our account of each generation considers their design, the way in which parameters were quantified and how they were evaluated.
{"title":"Structural Macro-Econometric Modelling in a Policy Environment","authors":"A. Pagan, Martin Fukac̆","doi":"10.2139/ssrn.1553948","DOIUrl":"https://doi.org/10.2139/ssrn.1553948","url":null,"abstract":"The paper looks at the development of macroeconometric models over the past sixty years. In particular those that have been used for analysing policy options. We argue that there have been four generations of these. Each generation has evolved new features that have been partly drawn from the developing academic literature and partly from the perceived weaknesses in the previous generation. Overall the evolution has been governed by a desire to answer a set of basic questions and sometimes by what can be achieved using new computational methods. Our account of each generation considers their design, the way in which parameters were quantified and how they were evaluated.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"57 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79759129","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The substantial questions of macroeconomics itself are very old, going back to the origins of economics itself. But professional self-consciousness of the distinction between macroeconomics and microeconomics dates only to the 1930s. The distinction was drawn quite independently of Keynes, yet Keynes’s General Theory led to its widespread adoption. The question of the relationship of microeconomics to macroeconomics encapsulated in the question of whether macroeconomics requires microfoundations was not raised for the first time in the 1960s or ‘70s, as is sometimes thought, but goes back to the very foundations of macroeconomics. There are in fact at least three microfoundational programs: a Marshallian program with its roots directly in Keynes’s own theorizing in the General Theory; a fixed-price general-equilibrium theory, which includes some work of Patinkin, Clower, and Barro and Grossman; and the more recent representative-agent microfoundations, starting with Lucas and the new classicals in the early 1970s. This paper will document the development of each of these microfoundational programs and their interrelationship, especially in relationship to the programs of general-equilibrium theory and econometrics, whose modern incarnations both date from exactly the same period in the 1930s.
{"title":"Microfoundational Programs","authors":"K. Hoover","doi":"10.2139/ssrn.1562282","DOIUrl":"https://doi.org/10.2139/ssrn.1562282","url":null,"abstract":"The substantial questions of macroeconomics itself are very old, going back to the origins of economics itself. But professional self-consciousness of the distinction between macroeconomics and microeconomics dates only to the 1930s. The distinction was drawn quite independently of Keynes, yet Keynes’s General Theory led to its widespread adoption. The question of the relationship of microeconomics to macroeconomics encapsulated in the question of whether macroeconomics requires microfoundations was not raised for the first time in the 1960s or ‘70s, as is sometimes thought, but goes back to the very foundations of macroeconomics. There are in fact at least three microfoundational programs: a Marshallian program with its roots directly in Keynes’s own theorizing in the General Theory; a fixed-price general-equilibrium theory, which includes some work of Patinkin, Clower, and Barro and Grossman; and the more recent representative-agent microfoundations, starting with Lucas and the new classicals in the early 1970s. This paper will document the development of each of these microfoundational programs and their interrelationship, especially in relationship to the programs of general-equilibrium theory and econometrics, whose modern incarnations both date from exactly the same period in the 1930s.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"64 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83243759","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The impact of increasing leverage in the economy produces hyperreaction of market participants to variations of their revenues. If the income of banks decreases, they mass-reduce their lendings; if corporations sales drop, and due to existing debt they cannot adjust their liquidities by further borrowings, then they must immediately reduce their expenses, lay off staff, and cancel investments. This hyperreaction produces a bifurcation mechanism, and eventually a strong dynamical instability in capital markets, commonly called systemic risk. In this article, we show that this instability can be monitored by measuring the highest eigenvalue of a matrix of elasticities. These elasticities measure the reaction of each sector of the economy to a drop in its revenues from another sector. This highest eigenvalue - also called the spectral radius - of the elasticity matrix, can be used as an early indicator of market instability and potential crisis. Grandmont [85] and subsequent research showed the possibility that the "invisible hand" of markets become chaotic, opening the door to uncontrolled swings. Our contribution is to provide an actual way of measuring how close to chaos the market is. Estimating elasticities and actually generating the indicators of instability will be the topic of forthcoming research. Part of this paper has spun off with more mathematical details and can be found on SSRN under the title "Financial Crisis Dynamics: Attempt to Define a Market Instability Indicator".
{"title":"Chaos and Bifurcation in 2007-08 Financial Crisis","authors":"Youngna Choi, R. Douady","doi":"10.2139/ssrn.1522544","DOIUrl":"https://doi.org/10.2139/ssrn.1522544","url":null,"abstract":"The impact of increasing leverage in the economy produces hyperreaction of market participants to variations of their revenues. If the income of banks decreases, they mass-reduce their lendings; if corporations sales drop, and due to existing debt they cannot adjust their liquidities by further borrowings, then they must immediately reduce their expenses, lay off staff, and cancel investments. This hyperreaction produces a bifurcation mechanism, and eventually a strong dynamical instability in capital markets, commonly called systemic risk. In this article, we show that this instability can be monitored by measuring the highest eigenvalue of a matrix of elasticities. These elasticities measure the reaction of each sector of the economy to a drop in its revenues from another sector. This highest eigenvalue - also called the spectral radius - of the elasticity matrix, can be used as an early indicator of market instability and potential crisis. Grandmont [85] and subsequent research showed the possibility that the \"invisible hand\" of markets become chaotic, opening the door to uncontrolled swings. Our contribution is to provide an actual way of measuring how close to chaos the market is. Estimating elasticities and actually generating the indicators of instability will be the topic of forthcoming research. Part of this paper has spun off with more mathematical details and can be found on SSRN under the title \"Financial Crisis Dynamics: Attempt to Define a Market Instability Indicator\".","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80891121","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Human hunter-gatherers evolved a life strategy that involved extensive sharing of food and support within and across generations, social behaviors that coevolved with the cognitive and emotional mental apparatus needed to sustain such sophisticated sociality. Adults at all ages produced surplus food which was transferred downwards to children, to support their prolonged period of nutritional dependency, until around age 20. Over a long period of economic development, and a shorter period of demographic transition, generational relations interacted with the changing environment, including changing population age distributions, life cycle behavior, technologies, and institutional arrangements. Similar patterns may have held during land abundant subsistence agriculture, but in intensive agriculture, perhaps due to their property rights in land, the elderly became net consumers in a stage of partial retirement, when they were sustained in part by food transfers from their adult children. At the same time, assets in general became more important – land, buildings, property of all sorts. These assets provided an alternative means for the elderly to support themselves in retirement. These trends continued as agriculture gave way to industry, with retirement earlier and more complete. The growth of a public sector reinforced the pattern of downward transfers with public education and health care for children. However, as states industrialized and the welfare state grew, transfers to the elderly for pensions and health care became increasingly important, with a fiscal effect exacerbated by population aging. At the same time, the growth of capital and financial institutions provided new forms of asset accumulation along with private pensions. These two trends reduced the role of the family in providing for the elderly. Our evolved sociality and ethic of sharing and fairness is now expressed through welfare state redistributive programs, and continuing and intensifying public and private investment in children. But now population aging, interacting with the public programs for the elderly, has led to a reversal in the direction of resource flows across age, from downward (old to young) to upward (young to old). We are currently able both to invest in the young and care for the newly dependent elderly. However, the old age dependency ratio is projected to double or triple in coming decades in the rich industrial countries. The public costs of the elderly may increasingly compete with investments in children through the public sector budget constraint. It remains to be seen whether the elderly, in the context of new public policies, will opt to work until substantially older ages, and whether the rapid growth of health care expenditures will be restrained.
{"title":"Generational Economics in a Changing World","authors":"Ronald D. Lee, A. Mason","doi":"10.2139/ssrn.1506132","DOIUrl":"https://doi.org/10.2139/ssrn.1506132","url":null,"abstract":"Human hunter-gatherers evolved a life strategy that involved extensive sharing of food and support within and across generations, social behaviors that coevolved with the cognitive and emotional mental apparatus needed to sustain such sophisticated sociality. Adults at all ages produced surplus food which was transferred downwards to children, to support their prolonged period of nutritional dependency, until around age 20. Over a long period of economic development, and a shorter period of demographic transition, generational relations interacted with the changing environment, including changing population age distributions, life cycle behavior, technologies, and institutional arrangements. Similar patterns may have held during land abundant subsistence agriculture, but in intensive agriculture, perhaps due to their property rights in land, the elderly became net consumers in a stage of partial retirement, when they were sustained in part by food transfers from their adult children. At the same time, assets in general became more important – land, buildings, property of all sorts. These assets provided an alternative means for the elderly to support themselves in retirement. These trends continued as agriculture gave way to industry, with retirement earlier and more complete. The growth of a public sector reinforced the pattern of downward transfers with public education and health care for children. However, as states industrialized and the welfare state grew, transfers to the elderly for pensions and health care became increasingly important, with a fiscal effect exacerbated by population aging. At the same time, the growth of capital and financial institutions provided new forms of asset accumulation along with private pensions. These two trends reduced the role of the family in providing for the elderly. Our evolved sociality and ethic of sharing and fairness is now expressed through welfare state redistributive programs, and continuing and intensifying public and private investment in children. But now population aging, interacting with the public programs for the elderly, has led to a reversal in the direction of resource flows across age, from downward (old to young) to upward (young to old). We are currently able both to invest in the young and care for the newly dependent elderly. However, the old age dependency ratio is projected to double or triple in coming decades in the rich industrial countries. The public costs of the elderly may increasingly compete with investments in children through the public sector budget constraint. It remains to be seen whether the elderly, in the context of new public policies, will opt to work until substantially older ages, and whether the rapid growth of health care expenditures will be restrained.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"50 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-12-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84866181","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There have been a number of recent papers arguing that there has been considerable convergence in macro research and to the good. This paper considers the question whether what has been converged to is good. Has progress been made in understanding how the macro economy works?
{"title":"Has Macro Progressed?","authors":"R. Fair","doi":"10.2139/ssrn.1480231","DOIUrl":"https://doi.org/10.2139/ssrn.1480231","url":null,"abstract":"There have been a number of recent papers arguing that there has been considerable convergence in macro research and to the good. This paper considers the question whether what has been converged to is good. Has progress been made in understanding how the macro economy works?","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"33 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79000611","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A logical reflection is given on the storage of economic thought of the market economy. Three systems of economics since Adam Smith are identified on the basis of their assumptions of value. The classical system is separated from the others for its production idea of value in contrast to the market idea of value, which is further discriminated between the scarcity notion and the subjective notion of utility value. As such, there are the Walrasian system of economics and the Marshallian system of economics. For many, the current crisis is not only the catastrophe of the vested interests of the world, but also the failure of the ideology of the market economy. This paper demonstrates it is not exactly the case.
{"title":"Where it has Gone Wrong with Economists?","authors":"Jialiu Lu","doi":"10.2139/ssrn.1325903","DOIUrl":"https://doi.org/10.2139/ssrn.1325903","url":null,"abstract":"A logical reflection is given on the storage of economic thought of the market economy. Three systems of economics since Adam Smith are identified on the basis of their assumptions of value. The classical system is separated from the others for its production idea of value in contrast to the market idea of value, which is further discriminated between the scarcity notion and the subjective notion of utility value. As such, there are the Walrasian system of economics and the Marshallian system of economics. For many, the current crisis is not only the catastrophe of the vested interests of the world, but also the failure of the ideology of the market economy. This paper demonstrates it is not exactly the case.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"2 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2009-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90604057","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-11-01DOI: 10.1111/j.1467-999X.2008.00319.x
Harald Badinger, I. Kubin
We analyse the adjustment dynamics from a short-term to a medium-term equilibrium in a standard AS-AD model a la Blanchard (2006, Macroeconomics, 4th edn, Prentice-Hall, Upper Saddle River, NJ) for an open economy with fixed and flexible exchange rates. An explicit analysis suggests the local stability of the medium-term equilibrium. However, an overshooting adjustment dynamics is possible for the exchange rate, a result that directly relates to the famous Dornbusch (1976, Journal of Political Economy, 84, pp. 1161–1176) analysis. In contrast to the latter, in the Blanchard framework it is obtained without assuming rational expectations and without relying upon saddle-path stability.
我们采用la Blanchard(2006，宏观经济学，第4版，Prentice-Hall, Upper Saddle River, NJ)的标准AS-AD模型，分析了具有固定和灵活汇率的开放经济从短期到中期均衡的调整动态。明确的分析表明，中期均衡具有局部稳定性。然而，汇率的超调动态是可能的，这一结果与著名的Dornbusch (1976, Journal of Political Economy, 84, pp. 1161-1176)的分析直接相关。与后者相反，在布兰查德框架中，它是在不假设理性预期和不依赖于鞍道稳定性的情况下获得的。
{"title":"AS-AD Revisited: Overshooting Adjustment Dynamics under Naive Expectations","authors":"Harald Badinger, I. Kubin","doi":"10.1111/j.1467-999X.2008.00319.x","DOIUrl":"https://doi.org/10.1111/j.1467-999X.2008.00319.x","url":null,"abstract":"We analyse the adjustment dynamics from a short-term to a medium-term equilibrium in a standard AS-AD model a la Blanchard (2006, Macroeconomics, 4th edn, Prentice-Hall, Upper Saddle River, NJ) for an open economy with fixed and flexible exchange rates. An explicit analysis suggests the local stability of the medium-term equilibrium. However, an overshooting adjustment dynamics is possible for the exchange rate, a result that directly relates to the famous Dornbusch (1976, Journal of Political Economy, 84, pp. 1161–1176) analysis. In contrast to the latter, in the Blanchard framework it is obtained without assuming rational expectations and without relying upon saddle-path stability.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2008-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74279459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop and estimate a dynamic stochastic general equilibrium model that features sticky prices, a variable elasticity of demand facing firms and firm-specific labor. While reconciling to a good extent the micro and macro evidence on the behavior of prices, the model offers an accurate account of the dramatic increase in macroeconomic stability from the Great Inflation (1948:1-1979:II) to the Great Moderation (1984:I-2006:II). Reminiscent of the evidence in Shapiro and Watson (1988), the paper shows that labor-supply shocks are the key source of the reduction in the volatility of output growth, followed by investment-specific shocks. However, changes in the behavior of the private sector, a less accommodative monetary policy and smaller shocks explain almost evenly the large decline of the variability in inflation.
{"title":"From the Great Inflation to the Great Moderation: Assessing the Roles of Firm-Specific Labor, Sticky Prices and Labor Supply Shocks","authors":"M. Khaznaji, L. Phaneuf","doi":"10.2139/ssrn.1162159","DOIUrl":"https://doi.org/10.2139/ssrn.1162159","url":null,"abstract":"We develop and estimate a dynamic stochastic general equilibrium model that features sticky prices, a variable elasticity of demand facing firms and firm-specific labor. While reconciling to a good extent the micro and macro evidence on the behavior of prices, the model offers an accurate account of the dramatic increase in macroeconomic stability from the Great Inflation (1948:1-1979:II) to the Great Moderation (1984:I-2006:II). Reminiscent of the evidence in Shapiro and Watson (1988), the paper shows that labor-supply shocks are the key source of the reduction in the volatility of output growth, followed by investment-specific shocks. However, changes in the behavior of the private sector, a less accommodative monetary policy and smaller shocks explain almost evenly the large decline of the variability in inflation.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"21 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2008-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76502290","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Riccardo Cristadoro, A. Gerali, S. Neri, M. Pisani
A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect;(c) distribution services intensive in local nontradeables are an important source of international price discrimination.
{"title":"Real Exchange Rate Volatility and Disconnect: An Empirical Investigation","authors":"Riccardo Cristadoro, A. Gerali, S. Neri, M. Pisani","doi":"10.2139/ssrn.1148688","DOIUrl":"https://doi.org/10.2139/ssrn.1148688","url":null,"abstract":"A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect;(c) distribution services intensive in local nontradeables are an important source of international price discrimination.","PeriodicalId":11754,"journal":{"name":"ERN: Other Macroeconomics: Aggregative Models (Topic)","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2008-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79363321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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