majority voting and corporate control the rule of the dominant shareholder this paper incorporates a model of corporate control into a general equilibrium framework for production economies with incomplete markets the classical objective of value maximization is extended but is indeterminate instead firms are viewed as being subject to shareholder control via some decision mechanism as long as this decision mechanism is responsive to a unanimous preference by shareholders shareholder control is consistent with but stronger than value maximization next the particular institution of majority voting by shareholders is examined it is shown that for generic economies a majority rule equilibrium for a firm implies that production is optimal for the largest or dominant shareholder finally a more realistic control mechanism is considered in which majority voting by shareholders is constrained by a group of shareholders or board of directors who control the voting agenda the result is that shareholders not on the board have no influence on the equilibrium production choice of the firm

a method for solving general equilibrium models with incomplete markets and many financial assets abstract this paper presents a numerical method for solving stochastic general equilibrium models with dynamic portfolio choice the method can be applied to models with heterogeneous agents time varying investment opportunity sets and incomplete asset markets we illustrate the method using a two country model with production we check the accuracy of our method by comparing the numerical solution to a complete markets version of the model against its known analytic properties we then apply the method to an incomplete markets version where no analytic solution is available in all versions the standard accuracy tests confirm the effectiveness of our method

adjustment costs and indeterminacy in perfect foresight models abstract this paper suggests a method for resolving indeterminacy of equilibrium in perfect foresight models and applies it to several existing models quadratic adjustment costs are introduced into models with multiple equilibria and the limiting behavior of the resulting solutions is studied as the adjustment costs go to zero the method is shown to be useful in selecting among feasible equilibria in examples in which there is local indeterminacy

energy efficiency and productivity change of china s iron and steel industry accounting for undesirable outputs abstract this paper used data from 50 enterprises in china s iron and steel industry to evaluate their energy efficiency and productivity change the study first used a conventional data envelopment analysis model and the malmquist productivity index mpi to measure the energy efficiency and productivity change over the period 2001 2008 the results indicated inefficiency in many of the plants the average energy efficiency was only 61 1 the annual growth rate of productivity was 7 96 over this period and technical change was the main contributor to this growth the research then took undesirable outputs into consideration by using the malmquist luenberger productivity index mlpi to explore the productivity change from 2006 to 2008 omitting undesirable outputs would result in biased efficiency change and technical change this paper also claimed that environmental regulation has a potentially positive impact on technical change

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

can nontradables generate substantial home bias the past decade has witnessed an increase in the fraction of equity portfolios invested abroad as barriers to international asset trade have significantly declined what are the long run implications of this process in this paper we investigate to what extent nontradables consumption and leisure can affect the portfolio allocation decision in otherwise integrated capital markets we find that hedging against nontradables shocks can account for only a small portfolio bias toward domestic assets these results suggest that in the near future we can expect to observe sizable additional international diversification

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

an overview of energy efficiency standards in china s transport sector abstract china s transport sector is facing severe energy and environmental challenges establishing energy efficiency standards is an essential measure to cope with these challenges this paper comprehensively reviews the energy efficiency standards in china s road water aviation railway and pipeline transport sectors based on the review it is suggested that 1 the integrity of policy framework should be further improved energy efficiency standards based market access qualification mechanism is quite necessary for all transport sectors especially the aviation railway and pipeline transport sectors where such mechanism is absent 2 efforts for improving energy efficiency should be balanced among different transport sectors priority should be determined by considering each sector s energy consumption the cost and potential of energy efficiency improvement etc especially the major energy consuming sectors such as heavy duty vehicles should have similar priority to passenger vehicles in the overall energy efficiency improvement scheme 3 the scientific basis for the energy efficiency standards should be enhanced policies should be proposed with full considerations of china s context rather than borrowing the experiences of developed countries intelligence from the research community should be incorporated to ensure the rationality of the policies

productivity growth technical progress and efficiency in their comment subhash c ray and evangelia desli 1997 hereafter rd point out that the specification of the decomposition of the malmquist productivity index used by fare et al 1994 hereafter fgnz is not unique and propose and compute an alternative specification of that decomposition we will discuss additional decompositions at the end of this note but proceed here by comparing the rd decomposition with fgnz based on both conceptual and computational grounds rd provide a discussion of the overall malmquist productivity index including the important issue of when this index is equivalent to the traditional notion of total factor productivity tfp namely under the condition that the reference technology be consistent with constant returns to scale crs as they point out this will yield a measure of tfp even if the true underlying technology is not crs for example both rd and fgnz use the crs reference technology to compute overall malmquist productivity one of the key issues raised is the role of the underlying scale properties of the benchmark technologies used to define and compute both productivity and its components in particular two reference technologies are employed in both rd and fgnz what we refer to as crs and variable returns to scale vrs technologies by construction these technologies are nested the crs technology contains the vrs technology as in figure 1 in rd this nestedness provides the logical basis for our decomposition at a very intuitive level we would argue that these two benchmarks can be used to provide bounds on the underlying true but unknown technology 2 intuitively we see the vrs technology providing a type of convex inner approximation whereas the crs technology provides a type of convex outer approximation thus these two technologies provide alternative benchmarks they do not require that the data satisfy either crs or vrs another possible intuitive interpretation is that the crs captures a perhaps hypothetical long run and the vrs approximates the short run as a reference technology the crs technology has some very useful features for example it captures the notion of maximal

exchange rate variability and asset trade in popular discussion about the merits of different international monetary arrangements it is often maintained that increased exchange rate variability has a negative influence on international tra

the definition of stability in models with perfect foresight abstract frequently the stationary states of decentralized models with perfect foresight and more than one asset are saddlepoints in this note we develop a distinction between historical and nonhistorical variables then we use the distinction to define economic concepts of weak and strong local asymptotic stability which apply even for some saddlepoints we conclude with three examples

international portfolio nondiversification and exchange rate variability abstract incomplete international portfolio diversification is implied by an equilibrium models of exchange rates with nontraded goods the model can also explain the greater correlation between consumption and income within a country than between consumption across countries nontraded goods make more stringent the elasticity conditions required to explain exchange rate variability resulting from current productivity disturbances though not from disturbances to fiscal policies or the prospective return to investment the model is also consistent with international real interest rate differentials changes over time in the current account and relative wealth across nations and observed time series properties of exchange rates

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

macroeconomic interdependence under incomplete markets this paper uses a two country flexible price model with overlapping generations of infinitely lived households to study the role of net foreign asset dynamics in the propagation of productivity shocks absence of ricardian equivalence ensures existence of a unique steady state level of net foreign assets to which the economy returns following temporary shocks model dynamics are significantly different from those of a setup in which terms of trade movements perform all the international adjustment and net foreign assets do not move the difference relative to a complete markets economy in which net foreign asset movements play no role in shock transmission is smaller it is amplified if the substitutability across goods rises and if shocks are permanent

migration unemployment and discrimination abstract this paper uses a dynamic efficiency wage model to analyze the consequences of immigration for a small country when there is discrimination against immigrants in a dual labor market with unemployment discrimination is of the type equal pay for equal work but unequal work which is characteristic of economies with guest worker systems the model exhibits three regimes for rising immigration levels immigration is most beneficial for natives in the intermediate regime an analysis of regime switches shows that changes attributable to globalization and technical progress are consistent with growing opposition to immigration

country portfolio dynamics this paper presents a general approximation method for characterizing timevarying equilibrium portfolios in a two country dynamic general equilibrium model the method can be easily adapted to most dynamic general equilibrium models it applies to environments in which markets are complete or incomplete and it can be used for models of any dimension moreover the approximation provides simple easily interpretable closed form solutions for the dynamics of equilibrium portfolios

fickle capital flows and retrenchment evidence from bilateral banking data abstract we empirically examine the response of cross border capital flows to economic uncertainty using bilateral banking flow data we show that while banks reduce their exposure to a foreign country when it becomes more risky they tend to increase their exposure to their home country in bad times a retrenchment to further understand this puzzle we examine how the differential response to foreign and domestic uncertainty is affected by country specific characteristics bilateral characteristics and crises our analysis suggests that most of the current theories based on either information asymmetries between foreign and domestic investors or institutional risk cannot explain bilateral data well on the other hand our results show that global crises have an asymmetric impact on the risk attitudes of banking institutions towards country specific uncertainty global crises make investors more risk averse towards foreign uncertainty but have no effect on the responsiveness to domestic uncertainty

do trade costs in goods market lead to home bias in equities abstract two of the main puzzles in international economics are the consumption and the portfolio home biases we solve for international equity portfolios in a two country two good stochastic equilibrium model with trade costs in goods markets we show that introducing trade costs as suggested by obstfeld and rogoff obstfeld m rogoff k 2000a the six major puzzles in international macroeconomics is there a common cause nber macroeconomics annual 15 is not sufficient to explain these two puzzles simultaneously on the contrary we find that trade costs create a foreign bias in portfolios for reasonable parameter values this result is robust to the addition of non tradable goods for standard calibrations of the preferences

home bias and high turnover dynamic portfolio choice with incomplete markets why do investors trade a lot in foreign assets and hold so little of them in their portfolios this paper shows that both observations can arise naturally in the presence of nondiversifiable nontraded consumption risk when each country specializes in production preferences exhibit consumption home bias and asset markets are incomplete using a general equilibrium two country two sector tradable and nontradable model of the world economy with production i show that low diversification occurs because variations in relative prices i increase the riskiness of foreign assets and ii facilitate risk sharing across countries large and volatile capital flows are necessary to take advantage of international risk premia differentials that occur in response to productivity changes in the nontradable sector i characterize the optimal portfolio holdings the evolution of the investment opportunity set the risk premium and the dynamics of capital flows using a new methodology for solving dynamic general equilibrium models with incomplete markets and portfolio choice

risk external adjustment and capital flows abstract this paper studies the process of external adjustment i develop an open economy model with endowment and preference shocks that can account for the empirical behavior of real exchange rates interest rates and consumption in the u s and europe the model includes cross border holdings of bonds and equity and financial frictions that impede international risk sharing i find that external adjustment following endowment shocks predominantly takes place via trade flows consistent with the intertemporal approach to the current account in contrast preference shocks that change investors risk aversion induce adjustment via the trade and valuation channels where the latter includes the effects of unexpected capital gains and loss on existing cross border holdings and changes in the expected future return differentials between foreign assets and liabilities the model estimates imply that the valuation channel of external adjustment is more important for the u s than the trade channel consistent with this implication i show that forecasts of future return differentials contributed most to the volatility of the u s net foreign asset position in the post bretton woods era

international portfolios capital accumulation and foreign assets dynamics despite the liberalization of capital ows among oecd countries equity home bias remains sizable we depart from the two familiar explanations of equity home bias transaction costs that impede international diversi cation and terms of trade responses to supply shocks that provide risk sharing so that there is little incentive to hold diversi ed portfolios we show that the interaction of the following ingredients generates a realistic equity home bias capital accumulation shocks to the e ciency of physical investment as well as international trade in stocks and bonds in our model domestic stocks are used to hedge uctuations in local wage income terms of trade risk is hedged using bonds denominated in local goods and in foreign goods in contrast to related models the low level of international diversi cation does not depend on strongly countercyclical terms of trade the model also reproduces the cyclical dynamics of foreign asset positions and of international capital ows

environmentally sensitive productivity growth a global analysis using malmquist luenberger index abstract we examine conventional and environmentally sensitive total factor productivity tfp in 41 developed and developing countries over the period of 1971 to 1992 due to the non availability of reliable input and co 2 emissions price data the study uses directional distance function to derive malmquist luenberger ml productivity index the index allows us to decompose the tfp into measures of technical and efficiency changes dea is used to compute the directional distance functions we find that tfp index value is not different when we account for the co 2 emissions relative to the situation when they are freely disposable but for the components of tfp change technical and efficiency changes the null hypothesis of whether the indexes are the same under two different scenarios cannot be accepted issues of catch up and convergence or in some cases possible divergence in productivity are examined within a global framework the paper also studies the impact of openness on conventional and environmentally sensitive measures of productivity

dynamic determinacy and the existence of sunspot equilibria this paper relates the existence of stationary sunspot equilibria in the vicinity of a conventional stationary state to the phase diagram surrounding the latter we find that the local condition required for a unique equilibrium path returning to the stationary state following any slight disturbance of initial conditions is also sufficient to exclude stationary sunspot equilibria in the stationary state s immediate vicinity in that sense an eigenvalue condition familiar from dynamic analysis can tell us something about the possibilities of local sunspot activity as well journal of

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

international capital flows portfolio composition and the stability of external imbalances abstract this paper develops a simple and tractable model of net capital flows in which time varying gross country portfolios are an essential element in current account imbalances the main constituents of country portfolios in the model are general derivatives which could be interpreted as nominal bond assets and liabilities in particular under very weak conditions the world wealth distribution is stationary stationarity is generated by movements in derivative i e bond risk premia such that the return on a debtor country s gross liabilities is less than the return on its gross assets this is well known feature of the us international investment position we also provide suggestive evidence that a similar property holds more widely for a sample of advanced and emerging market countries

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

trade in nominal assets and net international capital flows abstract nominal assets play a major role in international financial markets while trade in indexed bonds is limited as a result agents are exposed to both price and exchange rate uncertainty nonetheless previous research on net capital flows has assumed the presence of a risk free vehicle to intertemporal asset trade in this paper we develop a general equilibrium intertemporal model with trade limited to nominal bonds and equity we find that exposure to nominal risk dampens net capital flows thus making economies effectively more closed

did china s regional transport industry enjoy better carbon productivity under regulations despite rapid economic development the transport industry has been claimed to account for a major part of climate change this paper investigates total factor carbon sensitive productivity growth in the regional transport sector in china and decomposes its dynamic changes over time taking account of the regional heterogeneity of different provinces thus the contemporaneous metafrontier malmquist luenberger approach that combined with non radial directional distance functions is proposed and define a new indicator called the contemporaneous metafrontier malmquist luenberger carbon emission performance index cmml this total factor indicator includes the metafrontier efficiency change index mec the metafrontier technology change index mtc and the metafrontier technology gap change index tgc results show an about 4 increase in overall total factor carbon emission productivity during the period of 2000 2012 different growth patterns are also observed in the transport sector across different area of china in the eastern region the growth of carbon productivity is driven mainly by pure efficiency changes whereas the central region is driven mainly by innovations in the low carbon transport technology

nontraded goods nontraded factors and international non diversification abstract can the presence of nontraded consumption goods or nontraded factors of production explain the high degree of home bias displayed by investor portfolios we find that the answer is no so long as individuals have access to free international trade in financial assets in particular it is never optimal to exhibit home bias with respect to domestic traded good equities by contrast holdings of nontraded good equities in an optimal portfolio will depend sensitively on the elasticity of substitution between traded and nontraded goods

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

home bias in open economy financial macroeconomics standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of financial globalization investors still hold a disproportionate share of local equities in their portfolio the equity home bias french and poterba 1991 we review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two country general equilibrium models we refer to this literature as open economy financial macroeconomics we focus on three broad classes of explanations i hedging motives in frictionless financial markets real exchange rate and non tradable income risk ii asset trade costs in international financial markets such as transaction costs differences in tax treatments between national and foreign assets iii informational frictions and behavioural biases these recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross border asset holdings across different types of assets equities bonds and bank lending we also present some new micro data on institutional holdings of equity at the fund level these data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment

the decomposition of total factor co2 emission efficiency of 97 contracting countries in paris agreement abstract greenhouse gas reduction requires joint efforts from the global society while improving co2 emission efficiency is a centrally important means to realize emission reduction targets therefore it is of strategic importance to identify main influential factors to co2 emission efficiency of different countries by considering the technology heterogeneity the originality herein lies in that applying the modified decomposition method of metafrontier malmquist luenberger index mml to define the priority of contracting countries in paris agreement to improve emission efficiency in this study 97 contracting countries of paris agreement are divided into 4 groups according to levels of income low income countries lower middle income countries upper middle income countries and high income countries and studied with their input and output data during 1990 2014 as samples the empirical results reveal that the paths for the contracting countries of paris agreement to improve the efficiency are different first lower middle income group can be facilitated through increasing factor input to increase the mml index considering the highest increase in scale efficiency 2 78 second low income group should eliminate the excessive concentration of inputs by enhancing the energy management efficiency third in terms of the significant advancement of high income group s mml index brought by technology advancement and the abnormal drop of brunei darussalam s mml related to technology decay this analysis emphasized that the advancement and innovation of energy technology are the main force for total factor co2 emission efficiency improvement

equity home bias incomplete financial markets and nominal rigidities this paper analyzes optimal portfolio decisions in a monetary open economy framework it is found that market completeness and the specific form of nominal rigidities namely nominal price vs nominal wage rigidities matter for justifying the observed structure of equity holdings when markets are complete sticky prices generate a negative correlation between the non diversifiable labour income and the profit of domestic firms with respect to the productivity shocks which explains why households invest little abroad in contrast when markets are incomplete rigidities in goods prices result in a counterfactual super home bias because domestic equities provide a good hedge against not only the labour income risk but also the relative price risk wage rigidities however have the opposite effect therefore nominal rigidities in both goods prices and wage rates are needed to address the empirical composition of gross equity positions under incomplete markets ce memoire analyse les decisions optimales de portefeuilles dans le cadre d une economie monetaire ouverte on decouvre que la completude des marches et la forme specifique des rigidites nominales rigidite des prix nominaux ou du salaire nominal portent a consequence quand on veut expliquer la structure observee des titres detenus quand les marches sont complets des prix visqueux engendrent une correlation negative entre les revenus du travail non diversifiables et le profit des firmes domestiques face a des chocs de productivite voila qui explique pourquoi les menages investissent peu a l etranger a contrario quand les marches sont incomplets des rigidites dans le prix des biens resultent en un super biais vers les titres domestiques parce que les titres domestiques fournissent une bonne protection non seulement contre le risque dans le revenu du travail mais aussi dans les prix relatifs les rigidites de salaires ont l effet oppose en consequence on doit prendre en compte les rigidites nominales a la fois dans les prix des biens et dans les taux de salaires pour comprendre la composition empirique des portefeuilles quand les marches sont incomplets

equity home bias and corporate disclosure abstract i show that more comprehensive corporate disclosure reduces investors uncertainty about domestic companies payoffs at no cost thereby decreasing investors equity home bias toward a country since investors should base their investment decisions on valid and easily interpretable company information only more comprehensive disclosure will reduce the home bias only if domestic securities law is sufficiently stratified and domestic companies use international accounting standards using panel data for 38 countries from 2003 to 2008 i find that more comprehensive disclosure reduces investors home bias though significantly only for countries that sufficiently enforce their securities law and implement international accounting standards

the economics of indeterminacy in overlapping generations models abstract recent research indicates that there are robust examples of overlapping generations economies in which there are indeterminate equilibria without fiat money and equilibria with more than one dimension of indeterminacy this paper presents simple examples of a stationary pure exchange overlapping generations economy with one good in each period and a representative consumer who lives for three periods in each generation these examples exhibit every possible form of indeterminacy and instability furthermore the parameters of the principal example agree with empirical evidence we use our examples as case studies for analyzing the problems involved in computing the equilibria of such economies

capital inflow surges in emerging economies how worried should latin america and the caribbean be in the years leading up to the global economic crisis latin america and the caribbean received large capital inflows nonetheless the region survived the albeit short lived dramatic events of 2007 09 reasonably well with no financial crisis in any of the larger economies after the crisis capital inflows rose again in 2010 gross inflows to seven latin american countries argentina brazil chile colombia mexico peru and venezuela amounted to more than 6 percent of gross domestic product gdp and net inflows exceeded 3 percent of gdp more recently following the may 2013 speech of then chairman of the u s federal reserve ben bernanke there has been concern regarding the potential effects of tapering asset purchases by the u s federal reserve system and rising interest rates possibly spelling the end of large capital inflows to the latin american and caribbean region the literature on capital inflows suggests that while these flows represent an opportunity to spur investment and growth they may also increase vulnerability to financial crises macroeconomic instability and ultimately recession a relevant question then is whether the region can declare victory in being able to manage large capital inflows successfully or whether risks remain that justify strong measures our starting point is that the region has enjoyed strong surges in capital inflows we therefore decided to condition the analysis on surges occurring we do not seek to explain the reasons for such a surge one justification for this decision is that capital flows appear to be driven as much if not more by push rather than pull factors more specifically we seek to understand what determines whether such surges end in either a banking crisis or a recession while there is a substantial literature on the determinants of capital inflows their potential impacts have received much less attention the contribution of this paper is to analyze when inflow surges may end in severe economic problems including financial or macroeconomic instability rather than to identify the determinants of those surges we must first tackle the question of how to define a capital inflow surge we are helped in this regard by a small but growing literature however the current definitions of inflow surges in the literature may be injudicious we propose a new definition which considers the total size of the inflow episode across countries we also employ a more traditional definition based on yearby year inflows relative to a country specific threshold we contrast relevant statistics on the identified episodes using these two definitions and compare our episodes with others found in the literature we also consider whether the analysis should be conducted using gross or net inflows we take the view that employing net flows may discard useful information and that gross flows are relevant where financial instability is a potential concern even if net flows are zero a domestic financial system may intermediate large gross inflows when domestic residents purchase assets abroad we choose to focus on gross inflows but we include gross outflows as a potential explanatory variable so as not to lose information 1the empirical analysis in this paper develops a set of parsimonious models that discriminate reasonably well between the different economic outcomes we then analyze the case of a typical country from the region with a recent capital inflow surge providing a set of simulations to illustrate the economic magnitude of our results we simulate the changes in the estimated probabilities of negative outcomes given changes in certain critical variables we suggest that depending on the country inflow characteristics different policy measures may then be justified however a caveat is that emerging economies in general and latin america and the caribbean in particular have been experimenting with new policy measures and we are not able to evaluate their potential effectiveness in this paper

a sequential malmquist luenberger productivity index environmentally sensitive productivity growth considering the progressive nature of technology this study proposes an index for measuring environmentally sensitive productivity growth which appropriately considers the nature of technical change the rationale of this methodology is to exclud

international capital flows abstract the surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice we develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two country dynamic stochastic general equilibrium dsge model we focus on the time variation in portfolio allocation following shocks and resulting capital flows endogenous time variation in expected returns and risk which are the key determinants of portfolio choice affect capital flows in often subtle ways the model is consistent with a broad range of empirical evidence an additional contribution of the paper is to overcome the technical difficulty of solving dsge models with portfolio choice by developing a broadly applicable solution method

the risk premium and long run global imbalances this study proposes that heterogeneous household portfolio choices within a country and across countries offer an explanation for global imbalances we construct a stochastic growth multi country model in which heterogeneous agents face the following restrictions on asset trade first the degree of us equity market participation is higher than that of the rest of the world second a fraction of households in each country maintains a fixed share of equity in its portfolios in our calibrated model which matches the us net foreign asset position and the equity premium the average us household loads up more aggregate risk than the average foreign household by investing in risky assets abroad and issuing risk free assets as a result the us is compensated by a high risk premium and runs trade deficits even as a debtor country the long run average trade deficit in our model accounts for 50 of the observed us trade deficit

monetary policy and stock prices in an open economy this paper studies monetary policy in a two country perpetual youth model where agents can invest their wealth in both stock and bond markets in our economy the foreign country is financially dominant in the sense that it hosts the only active equity market where all agents also residents of the home country can trade stocks of listed foreign firms we show that contrary to what happens in a closed economy the central bank in the economy endowed with an active stock market should grant a dedicated response to movements in stock prices driven only by local productivity shocks moreover we show that the other central bank should also optimally respond to stock price movements in the other economy as they affect the budget constraint of domestic residents optimal monetary policy pursuing price stability requires dedicated response to stock price dynamics driven by productivity shocks in addition to what implied by the simple existence of the terms of trade channel of policy transmission determinacy of rational expectations equilibria and approximation of the optimal policy by simple monetary rules are also investigated

discussion on gross capital flows dynamics and crises by broner didier erce and schmukler international capital flows have always been an important topic in international economics capital flows help a country exploit better investment opportunity and smooth consumption over the past few years global current account imbalances have been at the forefront of policy debates large amount of research devotes to the study of net capital flows while fewer works put their focus on gross capital flows this paper fills the gap this paper provides a systematic analysis over business cycle behavior of gross capital flows it looks at 103 countries between 1970 and 2009 the countries are divided into three groups lower middler income upper middler income and high income countries three forms of capital flows are examined direct investment portfolio and other investments to study impact of crisis over gross capital flows it also classifies financial crisis into different types banking crisis currency crisis and domestic debt and external debt crisis the paper has the following key findings first both gross capital inflows and outflows increase relative to gdp trend over period of time second gross flows are larger and more volatile than net flows third gross inflows and outflows are positively correlated especially for high income countries lastly both inflows and outflows are procyclical and shrink during crises decline of capital flows during crises is observed in all forms direct investment portfolio and other investments broner et al raise a new challenge for the international literature standard international real business cycle model as in backus et al 1992 mostly has one asset and cannot address issues related to global capital flows this paper calls for a unified theory to model gross capital flows and to account for the key findings in this paper one candidate is the literature on portfolio choices this literature mainly focuses on long run composition of portfolios the so called home bias puzzle in asset french and poterba 1991 first pointed out american held roughly 94 of their equity wealth in the us stock market heathcote and fabrizio 2007 give a review over the findings in this literature two exceptions hnatkovska 2010 and tille and wincoop 2010 study cyclicality of gross capital flows their models however generate counterfactual capital flows as pointed out by broner et al in this discussion i focus on new theories that have the potential to explain co movement of capital inflows and outflows

posterior predictive and utility based approaches to testing the arbitrage pricing theory abstract to provide a framework for judging the economic significance of departures from the arbitrage pricing theory we adopt a utility based metric based on optimal portfolio choices this measure is examined using both predictive and posterior analysis our predictive analysis shows very large and economically significant departures from the model restrictions however the high level of parameter uncertainty suggests that we cannot conclusively either affirm or reject the apt our conclusions differ markedly from other studies which employ traditional significance testing procedures and in many instances fail to reject the apt restrictions

portfolio allocation and international risk sharing we show that recent explanations of the consumption real exchange rate anomaly that rely on goods and financial market frictions are not robust to introducing just one additional international asset when portfolios are selected optimally international trade in two nominal bonds implies a consumption real exchange rate correlation that is too high compared with the data even when there are many shocks monetary policy specification plays a potentially important role for the degree of risk sharing provided by nominal bonds both in the benchmark model with only tradable and non tradable sector supply shocks and also in the model that allows for news

imperfect competition and indeterminacy of aggregate output abstract this paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard dsge model with imperfect competition indeterminacy arises in the model from the composition of aggregate output in sharp contrast to the indeterminacy literature pioneered by benhabib and farmer j benhabib r farmer indeterminacy and increasing returns j econ theory 63 1 1994 19 41 and gali j gali monopolistic competition business cycles and the composition of aggregate demand j econ theory 63 1 1994 73 96 indeterminacy in our model is global hence it is more robust to structural parameters in addition sunspots in our model can be autocorrelated the paper provides a justification for exogenous variations in desired markups which play an important role as a source of cost push shocks in the monetary policy literature our model outperforms a standard rbc model driven by technology shocks in several dimensions including the volatility of labor market and the hump shaped output dynamics

a framework for analyzing the political support for active labor market policy abstract we develop a general equilibrium analysis of the impact of active labor market policy on unemployment wages and the welfare of the employed this framework is used to assess the political support in favour of such policies and to relate it to the working of such policies and other parameters characterizing the economic environment the main finding is that if the employed have little exposure to unemployment and if the demand for unskilled labour is inelastic then there may be political support for policies which actually raise the equilibrium level of total unemployment

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

total factor carbon emission performance of fossil fuel power plants in china a metafrontier non radial malmquist index analysis article i nfo this paper proposes the metafrontier non radial malmquist co2 emission performance index mnmcpi for measuring dynamic changes in total factor co2 emission performance over time the mnmcpi method allows for the incorporation of group heterogeneity and non radial slack into the previously introduced malmquist co2 emission performance index mcpi we derive the mnmcpi by solving several non radial data envelop ment analysis dea models we decompose the mnmcpi into an efficiency change ec index a best practice gap change bpc index and a technology gap change tgc index and based on the proposed indices we examine the dynamic changes in co2 emission performance and its decomposition of fossil fuel power plants in china for the 2005 2010 period the empirical results show a 0 38 increase in total factor co2 emission performance as a whole and a u shaped mnmcpi curve for the sample period because companies owned by the central government lack innovation and technological leadership the results suggest a missing link in the role of the central government in promoting co2 emission performance

sustainability performance for china s transportation industry under the environmental regulation abstract traffic and transportation industry is a carbon intensive industry in china the implementation of environmental regulation is of important practical significance nowadays literatures lack of quantitative analysis on transport industry s sustainability performance under the environmental regulation by using a directional distance function this paper aims to investigate the effect of environmental regulation on this industry furthermore this paper measures its green total factor productivity under the general intensity of regulation and strict regulation from 2000 to 2010 results show that the economic growth mode in transportation industry is still the extensive mode while there is great potential for the improvement of energy saving and production

capital flows investment and exchange rates abstract this paper incorporates international capital flows into a two country monetary general equilibrium model of asset prices with investment and production we calculate theoretical covariances between investment the current account the exchange rate and the terms of trade these covariances depend upon the coefficient of relative risk aversion the magnitude and sign of a country s net international indebtedness other properties of tastes and technologies and the stochastic processes on disturbances to productivity and monetary growth rates international capital flows arise from changes in world wealth and its relative composition in foreign and domestic assets