capital utilization and habit formation in a small open economy model this paper shows the effects of endogenous capital utilization and habit formation in consumption on the predictions of a small open economy model calibrated to canada capital utilization improves the fit of the model by increasing the volatility of output investment and hours worked while habit formation improves the fit of the model by improving the dynamic properties of consumption and the current account it is also shown that while shocks to the world interest rate sometimes improve the fit of the baseline model they do not improve the fit of the model with capital utilization and habit formation jel classification e32 f32 utilisation du capital et formation d habitudes dans un modele de petite economie ouverte ce memoire etudie les effets de l utilisation endogene du capital et de la formation d habitudes de consommation sur les previsions d un modele de petite economie ouverte calibre pour le canada l utilisation du capital ameliore l ajustement du modele en accroissant la volatilite de l output de l investissement et des heures travaillees alors que la formation d habitudes ameliore l ajustement du modele en ameliorant les proprietes dynamiques de la consommation et du compte courant on montre que si des chocs affectant les taux d interet au niveau mondial ameliorent parfois l ajustement du modele de base ils n ameliorent pas l ajustement du modele quand il y a utilisation de capital et formation d habitudes

endogenous discounting the world saving glut and the u s current account abstract we study the evolution of the u s current account in a two country dynamic stochastic endowment model in which a single non state contingent bond is the only internationally traded asset the paper focuses on the world saving glut as the primary cause of continual deterioration in the current account and departs from the standard framework by introducing a three parameter model of the subjective discount factor that depends on societal per capita variables that are external to household choices when agents in the model are presented with u s and rest of world endowment data as the realization of the exogenous state vector endogenously driven short run international differences in subjective discounting that display increasing relative u s impatience create saving and current account imbalances that matches patterns observed in the data

the international transmission of real business cycles the authors present a stochastic model of two barter economies with production linked by free trade in goods and securities which generates pareto efficient international transmissions of business cycle disturbances each country is inhabi ted by an infinitely lived representative firm and consumer worker and is subject to country specific production shocks the internation al capital market effects perfect pooling of country specific risk c onsumption and output volatility may be higher in trade than under au tarchy as agents can be induced to undertake additional risk in exchange for a higher expected utility copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

technological activity and survival of firms abstract the paper presents new evidence on the effect of technological activity on the post entry performance of firms by comparing firm survival across technical and non technical products and over stages of differing technological activity it attempts to resolve two seemingly contradictory hypotheses that uncertainty inherent in high technological activity reduces the probability of survival and that technological activity increases the probability of entrant survival the empirical results in the context of the product life cycle framework show that entering firms enjoy a higher probability of survival in stages of high technological activity and in products that are more technical in nature however the hazard function the probability of failure conditional on age is higher for technical products reflecting the adverse effects of technical uncertainty and obsolescence of incumbent knowledge

explaining business cycles in small open economies abstract this paper analyzes the role of world price shocks fluctuations in the prices of capital intermediate and primary goods and in the world real interest rate in the generation and propagation of business cycles in small open developing countries i construct a stochastic dynamic multi sector small open economy model the model is a variant of the specific factors model and reflects the major structural characteristics of developing economies i utilize variance decomposition methods to quantitatively evaluate the impact of world price shocks the results indicate that world price shocks account for a significant fraction of business cycle variability in developing countries

by force of demand explaining international comovements abstract this paper explores the possibility that economic fluctuations may be largely demand driven it is shown that the stylized open economy business cycle regularities documented by feldstein and horioka 1980 the economic journal 90 june 314 329 and backus et al 1992 journal of political economy 100 4 745 775 can be explained by demand shocks alone even in a standard general equilibrium model frictions such as market incompleteness increasing returns to scale and sticky prices do not appear to be the preconditions for resolving these long standing puzzles

transfers to sustain dynamic core theoretic cooperation in international stock pollutant control international environmental agreements aiming at correcting negative externalities generated by transboundary pollution are difficult to achieve for many reasons important obstacles arise from asymmetry in costs and benefits and instability may occur due to the fact that coalitions of countries may attempt to do better for themselves outside of any proposed agreement in a static context it has already been shown that it is possible to achieve stability in the sense of the core of a co operative game by means of appropriately defined transfers between the countries involved however the transboundary pollution problems that are most important are caused by accumulated pollutants so that a dynamic analysis is required this paper provides a transfer scheme that yields a core property in a dynamic context the possibility of computing such transfers numerically is discussed

the role of net foreign assets in a new keynesian small open economy model abstract this paper develops a small open economy sticky price model that determines a unique stable long run asset position for households as function of their incentive to anticipate or postpone consumption and labor effort across periods this is accomplished by adopting an overlapping generations structure in which new households with no assets enter the economy in each period the same characteristics of household behavior that determine long run assets are also important determinants of the model s responses to shocks stabilizing producer prices results in a milder recession following a drop in world demand than stabilizing consumer prices because it prevents the markup in the pricing of goods from increasing in addition given an initial foreign debt allowing consumer prices to rise causes a decrease in the ex post real interest rate on impact lowering the interest burden of the initial debt the differences across policy rules generated by the initial asset position are robust to changes in the latter as long as these are brought about by changes in parameter values that do not alter the fundamental characteristics of household and firm behavior that are also the key determinants of long run assets

the effect of crises on firm exit and the moderating effect of firm size abstract the liability of smallness assumption suggests that smaller firms face higher exit risks however does it apply during crises we show that during downturns size reduces firms exit risk by less the hazard rate increases more rapidly in size

sentiments and aggregate demand fluctuations we formalize the keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations when production decisions must be made under imperfect information about demand optimal decisions based on sentiments can generate stochastic self fulfilling rational expectations equilibria in standard economies without persistent informational frictions externalities nonconvexities or strategic complementarities in production the models we consider are deliberately simple but could serve as benchmarks for more complicated equilibrium models with additional features

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

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

does money matter in canada evidence from a vector error correction model this paper investigates the statistical properties of a set of canadian and u s economic time series and uses the data to address the question of the importance of monetary variables in canadian business cycle fluctuations the individual time series are found to contain unit roots but the data reveal the existence of several economically meaningful cointegrating vectors a multivariate vector error correction model is estimated and canadian velocity which appears as an error correction term is significant in the canadian output equation this supports the contention that monetary variables have predictive content for real output copyright 1989 by mit press

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

on savings and investment dynamics in a small open economy abstract this paper constructs a stochastic overlapping generations two country model of savings and investment under conditions of perfect international capital mobility the focus of the analysis is on the relationship between savings and investment dynamics in a small open economy in response to stochastic variations in domestic and or foreign production technologies the model is simulated under alternative specifications of the stochastic distribution governing both technologies this provides insight into the very complicated nature and rich diversity of possible relationships between savings and investment dynamics

do central banks respond to exchange rate movements a structural investigation abstract we estimate a small scale structural general equilibrium model of a small open economy using bayesian methods our main focus is the conduct of monetary policy in australia canada new zealand and the uk we consider generic taylor type rules where the monetary authority reacts in response to output inflation and exchange rate movements we perform posterior odds tests to investigate the hypothesis whether central banks do target exchange rates the main result of this paper is that the central banks of australia and new zealand do not whereas the bank of canada and the bank of england do include the nominal exchange rate in its policy rule this result is robust for various specification of the policy rule we also find that terms of trade movements do not contribute significantly to domestic business cycles

monopolistic competition increasing returns to scale and the importance of productivity shocks abstract the neoclassical growth model is extended to incorporate monopolistic competition and increasing returns to scale implications for the measurement of productivity change through the solow residual are studied it is found that for this extension productivity fluctuations continue to account for a substantial fraction of output volatility the model cannot account for volatility of employment

exchange rate based inflation stabilization the initial real effects of credible plans abstract this paper studies the initial effects of exchange rate based stabilization programs within a dynamic general equilibrium model of a small open economy in which inflation acts as a tax on intermediate transactions and capital accumulation is subject to convex adjustment costs and gestation lags the model replicates the typical pattern of slow inflation convergence sustained real exchange rate appreciation trade balance deterioration and expansion in domestic spending followed by a deflationary slowdown without resorting to sticky prices imperfect credibility or adaptive expectations calibrated versions of the model are compared with the initial effects of the argentine convertibility plan of april 1991

tfp news and sentiments the international transmission of business cycles we propose a novel identification scheme for a non technology business cycle shock that we label sentiment this is a shock orthogonal to identified surprise and news tfp shocks that maximizes the short run forecast error variance of an expectational variable alternatively a gdp forecast or a consumer confidence index we then estimate the international transmission of three identified shocks surprise tfp news of future tfp and sentiment from the us to canada the us sentiment shock produces a business cycle in the us with output hours and consumption rising following a positive shock and accounts for the bulk of short run business cycle fluctuations in the us the sentiment shock also has a significant impact on canadian macro aggregates in the short run it is more important than either the surprise or the news tfp shocks in generating business cycle comovement between the us and canada accounting for up to 50 of the forecast error variance of canadian gdp and about one third of canadian hours imports and exports the news shock is responsible for some comovement at 5 10 years and surprise tfp innovations do not generate synchronization

tough love and intergenerational altruism tough love and intergenerational altruism this article develops and studies a tough love model of intergenerational altruism we model tough love by modifying the barro becker standard altruism model in two ways first the child s discount factor is endogenously determined so lower childhood consumption leads to a higher discount factor later in life second the parent evaluates the child s lifetime utility with a constant high discount factor our model predicts that parental transfers will fall when the child s discount factor falls this is in contrast with the standard altruism model which predicts that parental transfers are independent of exogenous changes in the child s discount factor

a flexible finite horizon alternative to long run restrictions with an application to technology shocks abstract recent studies using long run restrictions question the validity of the technology driven real business cycle hypothesis we propose an alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long but finite horizon in small sample monte carlo experiments our identification outperforms standard long run restrictions by significantly reducing the bias in the short run impulse responses and raising their estimation precision unlike its long run restriction counterpart when our max share identification technique is applied to u s data it delivers the robust result that hours worked responds negatively to positive technology shocks

stock prices news and economic fluctuations comment beaudry and portier 2006 propose an identification scheme to study the effects of news shocks about future productivity in vector error correction models vecms this comment shows that when applied to their vecms with more than two variables the identification scheme does not have a unique solution the problem arises from a particular interplay of cointegration assumptions and longrun restrictions jel e32 e44 g12 g14 in a highly influential paper beaudry and portier 2006 estimate vector error correction models vecms on us data and find that shocks generating a stock market boom but no contemporaneous movement in total factor productivity tfp henceforth called tfp news are closely related to shocks driving long run variations in tfp moreover these tfp news shocks lead to increases in consumption investment output and hours on impact and constitute an important source of business cycle fluctuations these results run counter to basic dynamic stochastic general equilibrium models and have sparked a new literature attempting to generate news driven positive comovement among macroeconomic aggregates 1 this comment shows that in the vecms with more than two variables estimated by beaudry and portier 2006 their identification scheme fails to determine tfp news yet these higher dimension systems are crucial to quantify the business cycle effects of tfp news 2 the identification problem arises from the interplay of two assumptions first the beaudry portier identification scheme called bp restrictions from here on requires that one of the nonnews shocks has no permanent impact on either tfp or consumption second the vecms estimated by beaudry and portier 2006 impose that tfp and consumption are cointegrated this cointegration means that tfp and consumption have the same permanent component which makes one

trade integration and business cycle convergence is the relation robust across time and space in this paper we investigate the relationship between trade intensity and the business cycle correlation using a panel data set taken from 24 countries over the period 1959 2003 most previous studies did not account for the possibility that the business cycle correlation may be influenced by unobservable country pair specific effects our estimates using both fixed and random effects methodologies suggest that trade intensity and the business cycle correlation are positively related to one another however detailed investigation shows that this relationship exists mainly for the european countries

news noise and fluctuations an empirical exploration a common view of the business cycle gives a central role to anticipations consumers and firms continuously receive information about the future which is sometimes news and sometimes just noise based on this information consumers and firms choose spending and because of nominal rigidities spending affects output in the short run if ex post the information turns out to be news the economy adjusts gradually to a new level of activity if it turns out to be just noise the economy returns to its initial state therefore the dynamics of news and noise generate both short run and long run changes in aggregate activity this view appears to capture many of the aspects often ascribed to fluctuations the role of animal spirits in affecting demand spirits coming here from a rational reaction to information about the future the role of demand in affecting output in the short run together with the notion that in the long run output follows a natural path determined by fundamentals in this paper we examine whether this view is consistent with the data we reach three main conclusions the first two methodological the third substantive structural vars typically cannot recover news and noise shocks the reason is straightforward if agents face a signal extraction problem and are unable to separate news from noise then the econometrician faced with either the same data as the agents or a subset of these data cannot do it either while structural estimation methods cannot recover the actual time series for news and noise shocks either they can recover underlying structural parameters and thus the relative role and dynamic effects of news and noise shocks estimation of both a simple model and then of a more elaborate dsge model suggest that agents indeed solve such a signal extraction problem and that noise shocks play an important role in determining short run dynamics recent efforts to estimate business cycle models in which expectations about the future play an important role include christiano et al 2010 and schmitt grohe and uribe 2012 those papers follow the approach of jaimovich and rebelo 2009 and model news as perfectly anticipated productivity changes that will occur at

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

technology growth and the business cycle using a partial equilibrium model that allows for factor hoarding i construct series on input utilization rates for ten oecd countries these series are used in growth accounting computations of total factor productivity which filter out cyclical variations in input utilization rates the main findings are as follows i adjusted solow residuals grow consistently faster than standard measures ii the variability of the adjusted solow residual is in some cases smaller than the standard residual s iii adjusted solow residuals are less procyclical than standard residuals and fare better at usual exogeneity tests iv supply shocks are no more synchronized between european countries than elsewhere and v observed increased output synchronization in europe is due to demand factors

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

social networking websites who survives abstractthis article studies the relationship between the characteristics of social networking sites snss and their probability of survival the data sample includes 224 snss launched throughout the world from 1995 to 2015 and that can be described by focus strategy business financing methods and interactions with external companies such as partnerships mergers and acquisitions three factors are systematically associated with closure hazard rates first compared with snss that address a specialized audience generalist snss have a three times higher probability of closing second being the target of a merger or acquisition more than doubles the probability of closure third new entrants have higher probability to survive if compared with snss with experience in the industry

optimal monetary policy with uncertain fundamentals and dispersed information this paper studies optimal monetary policy in a model where aggregate fluctuations are driven by the private sector s uncertainty about the economy s fundamentals information on aggregate productivity is dispersed across agents and there are two aggregate shocks a standard productivity shock and a noise shock affecting public beliefs about aggregate productivity neither the central bank nor individual agents can distinguish the two shocks when they are realized despite the lack of superior information monetary policy can affect the economy s relative response to the two shocks as time passes better information on past fundamentals becomes available the central bank can then adopt a backward looking policy rule based on more precise information about past shocks by announcing its response to future information the central bank can influence the expected real interest rate faced by forward looking consumers with different beliefs and thus affect the equilibrium allocation if the announced future response is sufficiently aggressive the central bank can completely eliminate the effect of noise shocks however this policy is typically suboptimal as it leads to an excessively compressed distribution of relative prices the optimal monetary policy balances the benefits of aggregate stabilization with the costs in terms of cross sectional efficiency copyright wiley blackwell

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

do small plants grow faster evidence from the taiwan electronics industry abstract the relationships between plant size age labor productivity and growth rates are examined for a sample of taiwan electronics plants plant growth is negatively related to both size and age and positively related to labor productivity

a simple dynamic general equilibrium model abstract we analyse a single sector economy with h 1 infinitely lived agents that operate in a continuous time framework utility functions are recursive but not additive both efficient and perfect foresight competitive equilibrium allocations are considered the existence and stability of such allocations are investigated locally i e in a neighbourhood of steady state allocations the model is shown to be useful for explaining the distribution of wealth and consumption across agents and for analysing the way in which wealth redistribution can affect the dynamics of aggregate economic variables

do shocks to animal spirits cause output fluctuations we evaluate whether shocks to animal spirits affect real outcomes at business cycle frequencies using data on consumer confidence and region and state level coincident activity indexes in a vector autoregression var with long run restrictions we assume that animal spirits shocks do not affect the long run level of activity innovations in fundamentals explain most variation in the level of activity but animal spirits have economically significant effects at business cycle frequencies a positive innovation in animal spirits causes real activity to rise by between 0 2 and 0 6 in the medium term and animal spirits may explain up to about half of real fluctuations in the medium run

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

monopolistic competition business cycles and the composition of aggregate demand abstract we develop a dynamic general equilibrium model with monopolistically competitive firms and endogenous markups and show the possibility of equilibria with persistent fluctuations driven by self fulfilling revisions of expectations for some parameter values such fluctuations are characterized by time series properties similar to those observed in u s postwar business cycles in contrast with the existing literature our results do not rely on the presence of increasing returns or nominal rigidities a key ingredient of the model is the link between markups and the composition of aggregate demand some econometric evidence on the latter is also reported journal of economic literature classification number d43 d58 e32

market structure and cyclical fluctuations in u s manufacturing the relevance of imperfect competition for models of economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization the authors outline a new methodology for estimating industry markups of price over marginal cost and the influence of market structure on cyclical movements in total factor productivity measures of industry concentration import competition and unionization are important for explaining markups in some industry groups much of the estimated markup of price over marginal cost is accounted for by noncapital fixed costs finally the authors show that their estimated margins fluctuate substantially over the cycle in particular markups are countercyclical especially in concentrated durable goods industries copyright 1988 by mit press

the price consumption puzzle of currency pegs abstract a defining stylized fact associated with exchange rate based stabilization programs is that their initial phase is characterized by several years of continuous expansion in private consumption and a gradual appreciation of the real exchange rate this paper shows that a large class of standard optimizing models is unable to account for this empirical regularity in particular models in this class predict that a gradual appreciation of the real exchange rate must necessarily be accompanied by a declining path of consumption the paper suggests several possible solutions to this problem and develops one in detail namely the relaxation of the assumption of time separability in preferences specifically it shows that under habit formation currency pegs induce a positive comovement between consumption and the real exchange rate the paper also establishes that habit formation provides an explanation for why in failed currency pegs a contraction in aggregate demand sets in before the collapse of the program

market entry and international propagation of business cycles abstract in this paper pro cyclical market entry acts as an international transmission mechanism for business cycle shocks in an imperfectly competitive dynamic equilibrium model an expansion in one open economy leads to additional business formation in a parallel large open economy through demand spillovers business formation causes a decline in markups leading to an expansion in employment production and investment in both economies the modeling of the entry decision is critical only when the entry game is modelled as sequential with incumbents enjoying a first mover advantage are markups sufficiently elastic to cause international comovement

can the standard international business cycle model explain the relation between trade and comovement abstract recent empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles we assess whether the standard international business cycle framework can replicate this intuitive result we employ a three country model with transportation costs we simulate the effects of increased goods market integration under two asset market structures complete markets and international financial autarky our main finding is that under both asset market structures the model can generate stronger correlations for pairs of countries that trade more but the increased correlation falls far short of the empirical findings even when we control for the fact that most country pairs are small with respect to the rest of the world the model continues to fall short we also conduct additional simulations that allow for increased trade with the third country or increased tfp shock comovement to affect the country pair s business cycle comovement these simulations are helpful in highlighting channels that could narrow the gap between the empirical findings and the predictions of the model

how do us credit supply shocks propagate internationally a gvar approach abstract we study how us credit supply shocks are transmitted to other economies we use the recently developed gvar approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983 2009 we experiment with inter country links based on bilateral trade portfolio investment foreign direct investment and banking exposures capturing both bilateral trade and financial exposures in a gvar fits the data better than using trade weights only we use sign restrictions on the short run impulse responses in the us model to identify the credit supply shocks we find that negative credit supply shocks have strong negative effects on us and foreign gdp credit and equity markets in several countries respond clearly to the shocks exchange rate responses are consistent with a flight to quality to the us dollar the credit supply shocks explain about a fifth of one year ahead output forecast error variance in the us and about a tenth in the euro area and the uk but considerably less elsewhere

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

explaining international comovements of output and asset returns the role of money and nominal rigidities abstract output and asset returns are highly positively correlated across the u s and the remaining major industrialized countries standard business cycle models that assume flexible prices and wages in the real business cycle rbc tradition have great difficulties explaining this fact this paper presents a dynamic optimizing stochastic general equilibrium model of a two country world with sticky nominal prices and wages the structure here generates cross country correlations of output and returns that are markedly higher and hence closer to the data than the cross country correlations that obtain when flexible prices and wages are assumed

the international transmission of economic fluctuations abstract this paper suggests that for a wide class of international real business cycle models including models with imperfect competition the traditional channels of international transmission of business cycles through world interest rate and terms of trade variations cannot explain the cyclical response of the canadian economy to innovations in u s output empirically testable quantitative models of the effects on canadian economic activity of shocks to the u s economy are developed and their empirical relevance is tested by comparing impulse responses estimated from vector autoregressions to the quantitative predictions of the theoretical models

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

the impact of monetary policy shocks on stock prices evidence from canada and the united states abstract using structural var models with short run restrictions appropriate for canada and the united states we empirically examine whether trade and financial market openness matter for the impact on and transmission to stock prices of monetary policy shocks we find that in canada the immediate response of stock prices to a domestic contractionary monetary policy shock is small and the dynamic response is brief whereas in the united states the immediate response of stock prices to a similar shock is relatively large and the dynamic response is relatively prolonged we find that these differences are largely driven by differences in financial market openness and hence different dynamic responses of monetary policy shocks between the two countries that we model in this paper

market power in banking countercyclical margins and the international transmission of business cycles abstract by introducing an imperfectly competitive banking sector into a standard two country two good rbc model with complete asset markets we study the international transmission of aggregate tfp shocks in an environment with noncompetitive financial intermediation in this model price cost margins in a global loan market are endogenous and countercyclical as a result a positive tfp shock in one country spills over to another through a reduction in the global cost of both credit and externally financed investment the quantitative analysis shows that countercyclical margins on loans play a key role in bringing the predictions of the theory closer to the observed cross country cyclical co movements of consumption employment investment and output recessions are deeper when the cost of credit rises during these economic downturns thus a financial accelerator arises in our framework unveiling the increased importance of stabilization policies in economies where margins in credit markets are countercyclical

post entry behaviour and the cycle evidence from germany abstract based on a rich database on establishments in western germany the paper aims at characterising the relationship between on the one hand growth and exit of entering cohorts and on the other hand aggregate business fluctuations a main finding is that exit is not responsive to the cycle which is at odds with views of recessions as times of cleansing where creative destruction processes occur the growth of survivors also displays little cyclical sensitivity but tends to become more responsive to aggregate business fluctuations as the cohort ages two possible explanations for this role of age on the cyclical sensitivity of surviving units are offered in the final section of the paper the first draws on the product specialisation of young and more established plants the second on the role of irreversible investment and industry selection

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

identifying monetary policy in a small open economy under flexible exchange rates abstract previous empirical study on the effects of monetary policy shocks in small open economies has generated puzzling dynamic responses in various macroeconomic variables this paper argues that these puzzles derive from an identification of monetary policy that is inappropriate for such economies to remedy this it is proposed that a structural model be estimated to explicitly account for the features of the small open economy such a model is applied to canada with tightly estimated results overall the dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the exchange rate as a transmission mechanism

climate contracts a game of emissions investments negotiations and renegotiations the paper presents a dynamic game where players can contribute to a public bad invest in technologies and write incomplete contracts despite the n 1 stocks in the model the analysis is tractable and the symmetric markov perfect equilibrium unique the framework helps to analyze emissions investments and international environmental agreements if only the emission levels are contractible then investments are suboptimally small if the contract is short term or close to its expiration date to encourage investments the optimal contract is more ambitious if it is short term and it is tougher to satisfy close to its expiration date and for countries with small investment costs if renegotiation is possible such an incomplete contract implements the rst best the results have important lessons for how to design a climate treaty

innovation accounting for the impact of fluctuations in u s variables on the canadian economy innovation accounting is conducted on a nine variable vector autoregression estimated using u s and canadian monthly data for january 1971 to december 1983 this reveals inter alia a positive impact of the u s interest rate on the canadian rate with the role the exchange rate plays in cushioning this impact being clearly apparent a positive effect of the u s money supply on both u s and canadian interest rates a positive albeit muted response of canadian production to a shock in u s production and a persistent influence of u s prices on production negatively and prices positively in canada are also detected l impact des fluctuations dans les variables americaines sur l eonomie canadienne une analyse utilisant la technique d innovation accounting les auteurs utilisent la technique d innovation accounting dans le cadre d un systeme a neuf variables estime comme autoregression vectorielle a l aide de donnees mensuelles canadiennes et americaines couvrant la periode de janvier 1971 a decembre 1983 cette analyse revl un effet positif de la masse monetaire americaine a la fois sur les taux d interet canadiens et americains une reaction positive mais en sourdine du niveau de production au canada a un choc dans le niveau de production americaine et une influence persistence des niveaux de prix americains sur le niveau de production au canada influence negative ainsi que sur les niveaux de prix canadiens influence positive we should like to thank gordon anderson douglas clarke john kennan john kuszczak angelo melino and stanely winer for a number of helpful discussions earlier versions of the paper were presented at the meetings of the canadian economics association in vancouver in june 1983 at the winter meetings of the econometric society in san francisco in december 1983 and in a session of invited papers at the meetings of the canadian economics association in guelph in june 1984 our discussants jacques raynauld in vancouver thomas doan and stephen king in san francisco and allan gregory in guelph offered many useful comments as too did the members of the money macro workshop at the university of western ontario alan harrison also thanks the economics department at the university of warwick for its hospitality and the social science and humanities research council of canada for financial support canadian journal of economics revue canadienne d economique xviii no 4 november novembre 1985 printed in canada imprime au canada 0008 4085 85 784 98 1 50 canadian economics association this content downloaded from 40 77 167 14 on fri 16 sep 2016 06 02 12 utc all use subject to http about jstor org terms impact of fluctuations in us variables 785

can world real interest rates explain business cycles in a small open economy abstract 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 re examine 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

oil price shocks and their transmission mechanism in an oil exporting economy a var analysis informed by a dsge model abstract this paper examines the macroeconomic effects of oil price shocks and the oil shock transmission mechanism in an oil exporting country canada we use a structural var with sign restrictions that comes from a two country dynamic stochastic general equilibrium dsge model to jointly identify oil price domestic supply and u s and domestic monetary policy shocks this identification strategy not only controls for reverse causality from the canadian and u s macroeconomic conditions to the real oil prices but more importantly it also allows for contemporaneous interactions between the canadian and u s variables we find that oil shocks have a stimulative effect on canadian aggregate demand appreciate the canadian dollar improve the terms of trade and reduce real wages foreign disturbances including innovations in oil prices and the u s interest rate have a significant influence on canadian economic activities our counterfactual analysis indicates that the reaction of the u s interest rate as an indirect transmission channel for oil price shocks plays a moderate role in explaining the real exchange rate and inflation but has negligible impacts on the canadian output and interest rate

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

the impact of oil price shocks in the canadian economy a structural investigation on an oil exporting economy abstract oil price shocks and monetary policy response by oil producing economies have been the subject of important theoretical investigation in the modern literature this topic seems to be well grounded since fluctuations in the us dollar which is affected by us monetary policy plays an important role in exacerbating run ups and precipitous falls in world oil prices we investigate the economic consequences of oil price shocks using an open economy dsge model that incorporates demand for and supply of oil while allowing for interaction between domestic and foreign monetary policy using canadian and u s data we quantify the relative importance of oil price shocks and monetary policy response on macroeconomic variables we show that domestic monetary policy is a key channel that accounts for over 40 of discounted variation in domestic output across a 4 year horizon after an oil shock in contrast us monetary policy is of lesser importance in propagating oil price shocks on an oil exporting economy through the international channel

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

consumption real exchange rates and the structure of international asset markets abstract international real business cycle irbc models that assume complete asset markets yield strong restrictions for consumption and bilateral real exchange rate series empirical tests with data for the us japan france uk italy canada and sweden suggest that neither the trend behavior nor high frequency movements of consumption and real exchange rates are well explained by irbc models with complete markets it appears however that high frequency fluctuations of consumption and real exchange rates are consistent with unrestricted international trade in risk free bonds

group inefficiency in a common property resource game with asymmetric players if the joint preferences of asymmetric players having different discount rates are represented by the sum of intertemporal utilities they become time inconsistent it is shown how time consistent solutions for this problem can be strongly inefficient the sum of payoffs can be higher if cooperation or coordination is forbidden than if it is allowed

do technology shocks lead to a fall in total hours worked this paper contributes to the debate initiated by gali in 1999 i provide a theory with capital income taxation labor hoarding as well as long run shifts in the social attitudes to the workplace modelled as leisure at the workplace to argue that there are other shocks that may influence labor productivity in the long run i introduce medium run identification and show it to be superior to long run identification or standard short run identification when applied to artificial data with u s data and medium run identification i find the robust result that technology shocks lead to a hump shaped response of total hours worked which is mildly positive following a near zero initial response jel e32 e24 c32 c15 copyright c 2004 the european economic association

a theory of demand shocks this paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity agents are hit by heterogeneous productivity shocks they observe their own productivity and a noisy public signal regarding aggregate productivity the public signal gives rise to noise shocks which have the features of aggregate demand shocks they increase output employment and inflation in the short run and have no effects in the long run numerical examples suggest that the model can generate sizable equilibrium dsge models of the business cycle include a large number of shocks to technol ogy monetary policy preferences etc but typically do not include expectational shocks as independent drivers of short run fluctuations 1 this paper explores the idea of expectation driven cycles looking at a model where technology determines equilibrium output in the long run and consumers receive noisy signals about technology in the short run the presence of noisy signals produces expectational errors this paper studies the role of these expectational errors in gener ating volatility at business cycle frequencies the model is based on two ingredients first consumers take time to recognize permanent changes in aggregate fundamentals although they may have good information on the current state of the individual firm or sector where they operate they have only limited information regarding the long run determinants of aggregate activity second consumers have access to public information that is relevant to estimate long run productivity this includes news about technological innovations publicly released macroeconomic and sectoral statistics financial market prices and public statements by policy makers however these signals provide only a noisy forecast of the long run effects of technological innovations this opens the door to noise shocks which induce consumers to temporarily overestimate or underestimate the productive capacity of the economy

recursive nash bargaining over a productive asset abstract we propose an equilibrium concept the recursive nash bargaining solution that describes the outcome of repeated negotiations between two rational agents under the assumptions that the state of the economic system under consideration changes according to the actions of the players and that neither party can make binding commitments to future behavior this equilibrium is dynamically consistent but typically not pareto efficient as an application we compute the recursive nash bargaining solution in a model of two heterogeneous agents bargaining over the use of a productive asset with constant gross rate of return and study how the time preference rates and the elasticities of substitution affect the solution

can negotiations prevent fish wars abstract the standard alternating offer model is extended by integrating it with the levhari and mirman fish war model in order to investigate negotiations over fish quota the disagreement actions are endogenous the interior and linear markov perfect equilibrium mpe results in immediate agreement on an efficient path of fish quota this mpe is not analytically tractable numerical solutions show that patience is a disadvantage in this mpe and small differences in patience lead to large asymmetries in the bargaining outcome

semi parametric predictions of the intertemporal approach to the current account abstract this paper uses the method dynamic programming dp by gmm and canadian data to estimate a dynamic model of a small open economy dp by gmm has several appealing features it does not impose certainty equivalence it accommodates multiple shocks and imposes few restrictions on the properties of the shocks in the model also since it uses the actual shocks series to estimate approximate decision rules it produces sample paths for the endogenous variables in the model the model estimated fits the data well in particular the variance of the predicted trade balance output ratio matches its empirical counterpart

a cross country comparison of the cyclicality of real wages this paper contains the first cross country comparison of the cyclical behaviour of real wages using microdata after controlling for changes in labour quality i find that real wages are strongly procyclical in canada the united kingdom and the united states in contrast the cyclicality of government published real aggregate hourly wages varies substantially across these three countries the disparity suggests that a direct comparison of the cyclical behaviour of real aggregate wages is misleading finally i show that variations in labour quality also bias the cross country correlation of several key labour market variables jel classification j3 e3 une comparaison transversale entre pays du caractere cyclique des salaires reels ce memoire presente la premiere comparaison entre pays du comportement cyclique des salaires reels a l aide de micro donnees apres normalisation pour tenir compte des changements dans la qualite du travail cette etude montre que les salaires reels sont pro cycliques au canada au royaume uni et aux etats unis au contraire le caractere cyclique des donnees sur les salaires horaires agreges varie substantiellement entre ces trois pays cette disparite suggere qu une comparaison directe du comportement cyclique des salaires reels agreges peut etre trompeuse finalement cette etude montre que les variations dans la qualite du travail biaisent aussi les correlations entre pays de plusieurs variables du marche du travail

networks and local environmental characteristics in the survival of new firms this study seeks firstly to clarify which networks at start up situation and early in life influence the survival of new firms secondly the study examines regional differences in the success of new firms the subjects were firms which had closed down during their fourth to sixth year of operations and they were compared with firms continuing in business the results indicate firstly that it is networks internal to firm that create competitive advantage innovation and efficiency secondly management based on working in groups was emphasized in the firms that continued in business in a typical family enterprise ownership management and family are united in a single entity in other types of firms networks are seen as participating in the strategic management of the firm thirdly close downs were often caused by uncontrolled risks a firm which fails after a successful start up often tends to grow rapidly in the beginning leaning on its product idea but this rate of growth is too high from the viewpoint of the financing and the management of the firm in firms which closed the growth objectives were too ambitions compared with the resources of the entrepreneur

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

macroeconomic policy exchange rate dynamics and optimal asset accumulation the paper develops a model of exchange rate and current account determination for a small economy peopled by infinitely lived utility maximizing households in this setting a central bank purchase of foreign exchange has no real effects when central bank foreign reserves earn interest at the world rate and proceeds are returned to the public in contrast an increase in the monetary growth rate does have real effects even in the long run the model developed here implies that an increase in government spending may lead to a surplus on current account the external adjustment process predicted by the model is one in which consumption real balances and external assets all rise or fall simultaneously

central bank communication in the media and investor sentiment abstract this paper explores the relationship between central bank communication and investor sentiment we first use media coverage on fed chair s communication to quantify the degree of confidence and optimism expressed by the fed chair and call this variable the overconfidence indicator second we relate the overconfidence indicator to investor sentiment our results show that an overconfident fed chair is significantly associated with higher investor sentiment further extensions suggest that i investors are more sensitive to central bank communication during a recession and that ii they adjust rapidly their sentiment following central bank communication thus showing that there is no underreaction bias these findings provide additional insights on how central bank communication shapes investor sentiment in the context of the global financial crisis and the zero lower bound on nominal interest rates

understanding the cross country effects of u s technology shocks abstract business cycles are substantially correlated across countries yet most existing models are not able to generate substantial transmission through international trade we show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices we augment a standard international macroeconomic model to incorporate three key features a weak short run wealth effect on labor supply variable capital utilization and imported intermediate inputs for production this model can generate large and significant endogenous transmission of technology shocks through international trade we demonstrate this by estimating the model using data for canada and the united states with limited information bayesian methods we find that this model can account for the substantial transmission of permanent u s technology shocks to canadian aggregate variables such as output and hours documented in a structural vector autoregression transmission through international trade is found to explain the majority of the business cycle comovement between the united states and canada

tough love and intergenerational altruism this chapter develops and studies a tough love model of intergenerational altruism we model tough love by modifying the barro becker standard altruism model in two ways first the child s discount factor is endogenously determined so lower childhood consumption leads to a higher discount factor later in life second the parent evaluates the child s lifetime utility with a constant high discount factor our model predicts that parental transfers will fall when the child s discount factor falls this is in contrast with the standard altruism model which predicts that parental transfers are independent of exogenous changes in the child s discount factor