the impact of nationalism patriotism and internationalism on consumer ethnocentric tendencies the study investigates the impact of patriotism nationalism and internationalism as antecedents to consumer ethnocentrism in turkey and the czech republic controlling for demographics the findings indicate that the impact of patriotism and nationalism is not consistent across the two countries consumer ethnocentrism in turkey is fueled by patriotism and in the czech republic by nationalism internationalism does not have a significant effect on consumer ethnocentrism in either country managerial implications of these findings are considered and future research directions are identified

bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

monetary policy rules in the open economy effects on welfare and business cycles abstract this paper computes welfare maximizing taylor style interest rate rules in a business cycle model of a small open economy the model assumes staggered price setting and shocks to domestic productivity to the world interest rate to world inflation and to the uncovered interest rate parity condition optimized policy rules have a pronounced anti inflation stance and entail significant nominal and real exchange rate volatility the country responds to an increase in external volatility by holding more foreign assets the policy rule affects the variance and the mean of consumption the effect on the mean matters significantly for welfare

exchange rate policy for developing countries according to the imf in the mid 1970 s approximately 85 percent of developing countries had pegged exchange rate arrangements since then the situation has changed drastically today most developing countries have either managed floats or flexible exchange rates argentina hong kong and a few others may persevere with their currency boards additional nations may well imitate them and movements toward common currencies a la the european union may gain strength here and there nonetheless it seems clear that the political and financial prerequisites to adopt such hard pegs are extremely stringent new attempts are the exception not the rule the question for most emerging market economies is no longer to float or not to float but how to float in this note we review some key issues in defining the right answer to this question

on the international spillovers of us quantitative easing this article analyses the effects of the federal reserve s quantitative easing qe on global portfolio flows differentiating across recipient region of the flows type of flow and qe rounds furthermore the analysis differentiates between the impact of qe expansionary announcements and the actual market operations the analysis shows that qe1 resulted in slight rebalancing towards the us while qe2 and qe3 resulted in rebalancing towards non us assets this suggests that qe increased the pro cyclicality of flows outside the us in particular into emerging market equities the results also suggest a link between us macro financial conditions and the transmission of qe to portfolio flows

financial globalization financial crises and contagion abstract two observations suggest that financial globalization played an important role in the recent financial crisis first more than half of the rise in net borrowing of the u s non financial sectors since the mid 1980s has been financed by foreign lending second the collapse of the u s housing and mortgage backed securities markets had worldwide effects on financial institutions and asset markets using an open economy model where financial intermediaries play a central role we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country specific shocks to bank capital the impacts of these shocks on asset prices are amplified by bank capital requirements based on mark to market

exchange rate regimes banking and the non tradable sector abstract this paper presents a small open economy two good version of the diamond and dybvig model with cash constraints to analyze the implications on banking of different exchange rate regimes and monetary policies i show that fixed exchange rates with a central bank providing liquidity in local currency imply pareto efficiency with conditions for a run equilibrium stronger than in the literature in a flexible exchange rate regime multiple equilibria may not be eliminated in particular for very a expansive monetary policy there exists an equilibrium where a fraction of patient consumers purchases dollars in the interim period which constitutes a partial currency run a dollarized banking system without international short run credit may also implement the efficient allocation under certain conditions

optimal monetary policy rules financial amplification and uncertain business cycles abstract this paper studies optimal monetary policy in the presence of uncertainty time variation in cross sectional dispersion of firms productive performance using a model with financial market imperfections the results suggest that i optimal policy is to dampen the strength of financial amplification by responding to uncertainty at the expense of creating mild degree of fluctuations in inflation ii higher uncertainty makes the welfare maximizing planner more willing to relax financial constraints iii credit spreads are a good proxy for uncertainty hence a non negligible response to credit spreads together with a strong anti inflationary policy stance achieves the highest aggregate welfare possible

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

measuring the economic impact of monetary union the case of okinawa data from okinawa s monetary union with the united states in 1958 and with japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies with monetary union the variance of the real exchange rate between two economies declines and their business cycle linkage becomes stronger a var analysis of output and price data for okinawa and japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller monetary union thus seems to facilitate both nominal and real convergence

financial intermediation real exchange rates and unconventional policies in an open economy we discuss unconventional policies in an open economy where financial intermediaries face occasionally binding collateral constraints the model highlights interactions among the real exchange rate interest rates and financial frictions the real exchange rate can affect international credit constraints via a net worth effect and a novel leverage ratio effect unconventional policies are non neutral if financial constraints bind credit programs are most effective when targeted towards financial intermediaries sterilized interventions matter because the increased availability of tradables associated with sterilization relaxes financial frictions

breaking free of the triple coincidence in international finance the traditional approach to international finance is to view capital flows as the financial counterpart to savings and investment decisions assuming further that the gdp boundary defines both the decision making unit and the currency area this triple coincidence of gdp area decision making unit and currency area is an elegant simplification but misleads when financial flows are important in their own right first the neglect of gross flows when only net flows are considered can lead to misdiagnoses of financial vulnerability second inattention to the effects of international currencies may lead to erroneous conclusions on exchange rate adjustment third sectoral differences between corporate and official sector positions can distort welfare conclusions on the consequences of currency depreciation as macroeconomic risks may be underestimated this paper illustrates the pitfalls of the triple coincidence through a series of examples from the global financial system in recent years and examines alternative analytical frameworks based on balance sheets as the unit of analysis

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

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

international spillovers of large scale asset purchases this paper evaluates the international spillover eects of large scale asset purchases lsaps using a two country dynamic stochastic general equilibrium model with nominal and real rigidities and portfolio balance eects portfolio balance eects arise from imperfect substitution between short and long term bond portfolios in each country as well as between domestic and foreign bonds within these portfolios we show that lsaps lower both domestic and foreign long term yields and stimulate economic activity in both countries international spillover eects

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

does joint modelling of the world economy pay off evaluating global forecasts from a bayesian gvar we analyze how modeling international dependencies improves forecasts for the global economy based on a bayesian gvar with ssvs prior and stochastic volatility to analyze the source of performance gains we decompose the predictive joint density into its marginals and a copula term capturing the dependence structure across countries the gvar outperforms forecasts based on country specific models this performance is solely driven by superior predictions for the dependence structure across countries whereas the gvar does not yield better predictive marginal densities the relative performance gains of the gvar model are particularly pronounced during volatile periods and for emerging economies

the transmission mechanism of business cycles among germany japan the uk and the usa the study analyses the interdependent relationships of business cycles among four major countries using la var methods the results are compared with results obtained using a standard var model for the total sample 1962 1995 it is found that the economies of individual countries move independently and that inter dependence is weak however causality from the usa to japan and from japan to germany can be observed it is also found that the ripple effect differs in the first 1962 1973 and second 1973 1995 sample periods a change in the international ripple effect on the business cycle may have occurred at the time of the first oil crisis these results are almost robust to the empirical techniques employed in the analysis

monetary and macroprudential policies in an estimated model with financial intermediation abstract we estimate the smets wouters model featuring the gertler karadi banking sector on us data using real and financial observables we investigate the gains from coordination between a flexible inflation targeting central bank and a macroprudential regulator charged with safeguarding financial stability the potential gains from coordination depend on how much importance is given to the output gap in the macroprudential mandate coordination conflicts can be avoided by assigning similar importance to this common objective in the respective mandates of both policies when we derive optimal mandates for monetary and macroprudential policy under no coordination we find that both policy makers should place a higher weight than society on the output gap

a model of financial crises in emerging markets recent events in mexico asia russia and brazil have underscored that a satisfactory explanation of financial crises in emerging markets remains elusive not too long ago the prevailing view was that crises were the inevitable outcome of ongoing fiscal imbalances coupled with fixed exchange rates but this first generation view pioneered by krugman 1979 has fallen out of fashion because in many crises the crucial fiscal disequilibria were absent and as obstfeld 1994 has argued currency crises have sometimes occurred even though central banks had more than enough resources to prevent them witness much of europe in the early 1990s obstfeld put forward a second generation view in which central banks may decide to abandon an exchange rate peg when the unemployment costs of defending it become too large this new perspective implied that crises could be driven by self fulfilling expectations since the costs of defending the peg may themselves depend on anticipations that the peg will be maintained but obstfeld s emphasis on mounting unemployment and domestic recession while appropriate for the erm 1992 crisis was at odds with the facts in mexico in 1994 and east asia in 1997 asian

country of origin effects for uni national and bi national products this study examines the effects of country of origin and brand name cues on consumer evaluations of uni national and bi national products and estimates the perceived values of such cues from personal interviews with a regional quota sample of household residents the study found the salience of country of origin in product evaluations under within subject experimental design finally managerial implications are discussed in regards to international branding and sourcing strategies

a meta analysis of country of origin effects this note reports a quantitative analysis of the country of origin coo effect based on fifty two articles or papers containing sixty nine independent studies and 1 520 effect sizes an analysis of fifteen study characteristics revealed that country of origin effects are only somewhat generalizable using omega squared as the measure of effect size verbal product descriptions produced larger coo effect sizes than did the presence of an actual product likewise single cue studies produced larger coo effect sizes than did multiple cue studies and larger samples produced effect sizes that on average were greater than those produced by smaller samples the size of an observed coo effect was a function of whether the dependent variables was a quality reliability perception or a purchase intention the average effect size of quality reliability perceptions was 30 whereas the average effect size for purchase intentions was 19 purchase intentions were most susceptible to methodological artifacts than were quality reliability perceptions study findings selectively confirm and refute common beliefs regarding the impact of a country of origin cue on product perceptions and purchase intentions

capital mobility and international sharing of cyclical risk this paper investigates whether the international globalization of financial markets allows for significant cross country risk sharing at the business cycle frequency we find that cross country risk sharing is still limited and this is unlikely to be the result of financial frictions that limit state contingent contracts part of the limited international risk sharing could be the consequence of frictions that de facto reduce the short term mobility of financial capital but even with these frictions we find significant divergence between model predictions and the data

banks debt maturity and financial crises abstract we develop a model in which the maturity of external debt of banks their level of international reserves and the term structure of interest rates are jointly determine self fulfilling runs may occur and banks take this possibility into account when choosing the structure of their assets and liabilities if the probability of a run is sufficiently small banks will deliberately choose an illiquid asset liability position and expose themselves to a run in that case short term debt will be cheaper than long term debt and the maturity structure of foreign debt will depend on attitudes towards risk

measuring sovereign risk spillovers and assessing the role of transmission channels a spatial econometrics approach abstract we contribute to the literature on international risk spillovers by developing a unified framework based on spatial econometrics that enables us to address the following questions i what are the effective transmission channels real linkages and informational channels of international risk spillovers across countries and or regions ii what are the most dominant ones and iii which countries are most at risk for their environment and which are suffering the most from international exposure our analysis based on 41 advanced and emerging economies from 2008q1 to 2012q4 shows that among the considered channels for explaining international spillovers of sovereign bond spreads the informational channel is of utmost importance our results challenge previous findings from the literature in which the empirical strategy did not accommodate altogether important features of country spillovers such as the co existence of multiple transmission channels in the presence of contemporaneous and time lagged interactions ultimately our stress testing analysis reveals important insights on countries prone either to international spillovers international exposure or both at the regional and the worldwide level

income effects on the trade balance this paper investigates the income effects on the trade balance with particular attention to the distinction between permanent and transitory disturbances for the united states japan germany and the united kingdom in all four countries movements in the trade balance have mostly been associated with transitory changes in income the latter also are negatively associated with the trade balance in marked contrast permanent changes in income have little to do with the trade balance these results are examined in light of intertemporal models and real business cycle models copyright 1996 by mit press

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

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

international portfolios a comparison of solution methods we compare the performance of the perturbation based local portfolio solution method of devereux sutherland 2010a 2011 with a global solution method as a test suite we use model specifications that broadly capture features of international financial trade between advanced economies and between advanced and emerging economies we consider both symmetric country setups and asymmetric setups that capture important empirical facts such as differences in macroeconomic volatility differences in portfolio composition and high equity premia we find that the local method performs well at business cycle frequencies both in the symmetric and asymmetric settings while significant differences arise at long horizons in asymmetric settings

financial crises bank risk exposure and government financial policy a macroeconomic model with nancial intermediation is developed in which the intermediaries banks can issue outside equity as well as short term debt this makes bank risk exposure an endogenous choice the goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk but can also account for why banks adopt such a risky balance sheet in the rst place we use the model to assess quantitatively how perceptions of fundamental risk and of government credit

financial intermediation resource allocation and macroeconomic interdependence abstract during the first decade of the euro southern countries experienced a boom bust cycle in bank lending non tradable sector growth and capital inflows i develop a quantitative open economy model of banking that is consistent with the banks behavior in credit allocation and foreign borrowing observed in spanish data i illustrate how movements in the frictions of cross border deposits generate an endogenous asymmetric allocation of bank credit toward non traded sectors while producing a persistent and climbing current account deficit a common central bank s unconventional policies in response to sudden stops are successful at ameliorating the downturn

the internationalisation of monetary policy abstract the case for formal central bank cooperation remains limited and practical considerations make its implementation difficult that being said central banks need to be engaged in a constant dialogue so as to remain ready for rapid coordinated action in exceptional circumstances also they should strive to strengthen the global financial safety nets within their monetary policy mandates so that they can better address global or regional liquidity crises thereby limiting the case for self insurance

financial integration and international business cycle co movement international business cycle transmission through integrated financial markets occurs through wealth and balance sheet effects balance sheet effects lead to business cycle convergence but wealth effects lead to divergence this paper shows empirically that debt market integration has a positive effect on co movement implying that balance sheet effects are the main conduit for international transmission through integrated debt markets equity market integration has a negative effect implying that wealth effects are the main channel for international transmission through integrated equity markets distinguishing between wealth and balance sheet effects resolves some key discrepancies between empirical and theoretical findings in international macroeconomics

dynamic effects of financial intermediation over the business cycle ping wang this paper provides a empirical evidence that the financial intermediation disturbances can generate business cycles we examine three countries whose financial sectors are fully developed but quite distinct in their institutional and regulatory circumstances thus we can infer whether financial intermediation disturbances differ across dissimilar financial environments we find that the dynamic responses of output to financial intermediation shocks exhibit similar patterns in all cases studied however the various institutional and regulatory circumstances have generated different propagation mechanisms transmitting the financial disturbance to output in ways that lead the magnitudes of the responses to deviate across economies jel e32 e44 i introduction does the financial sector veil the real economy although some economists such as lucas 1988 argue that financial factors are over stressed there is a growing literature that theoretically cultivates the channels through which financial intermediation can influence economic fluctuations and long run growth rather than focus on the traditional monetary transmission mechanism this literature plants itself in the microfoundations of asymmetric information and contract theory the new financial intermediation literature stems from seminal works by diamond 1984 townsend 1983a 1983b and boyd and prescott 1986 that demonstrate that in the presence of private information and costly state verification it is optimal for borrowing and lending to be conducted under financial intermediary arrangements these ideas were then extended by williamson 1987 to show how disturbances in the financial intermediation sector can generate business cycle fluctuations essentially when investment projects become more risky or difficult to evaluate loan supply falls and business cycle movements emerge 1 moreover other financial intermediation impulses are likely to be important as well these include changes to the institutional framework or the regulatory environment and any other event that enhances or hinders the intermediaries capacity to allocate capital efficiently among competing alternative uses e g financial innovation yet despite the theoretical rhetoric on the importance of financial intermediation to output fluctuations the empirical relevance of financial intermediation remains an unsettled question this paper brings us one step closer to the solution by econometrically identifying structural financial intermediation disturbances and estimating their effect on output movements in three major industrialized countries germany the united kingdom and the united states we choose these three advanced economies not only because their financial sectors are fully developed but also because their distinct banking structures and regulatory environments are capable of generating and transmitting financial intermediation disturbances in different ways that is the depth of financial intermediation is relatively similar across countries therefore the cross country analysis allows us to focus on the ability of financial intermediation to generate short run cycles and to draw some suggestive insights regarding the role of regulatory and institutional factors across countries the existing empirical evidence linking financial factors to real economic activity has involved noticing statistical correlations between some financial variables and some real variables goldsmith 1969 using data from 1860 to 1963 showed that there is a positive relationship between economic development and the size of the financial sector kuznets 1971 in a cross section study of 57 developed and developing economies found that the share of banking insurance and real estate in gross domestic product rises as income increases mckinnon 1973 showed that the ratios of private credit to national income and a broad monetary aggregate to national income are positively related to per capita income

macroeconomic effects of asset price shocks in a globalized financial market in this paper i study a model in which shocks to asset prices affect the real sector of the economy through a credit channel as financial markets become internationally integrated the economy becomes less vulnerable to domestic asset price shocks but more vulnerable to foreign asset price shocks to the extent that monetary policy stabilization is feasible and desirable the globalization of financial markets shifts the focus of monetary policy from domestic asset prices to worldwide asset prices

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

an empirical analysis on capital flows the case of korea and mexico this paper discusses causes of capital flows in korea and mexico both countries received substantial amounts of foreign capital in the late 1980s and early 1990s international capital helped these countries achieve a higher standard of living and faster economic growth however undesirable macroeconomic effects such as appreciation of real exchange rate and widening current account deficits usually accompany foreign capital inflows the vector autoregressive var method is applied to investigate the underlying shocks causing the capital inflows the main findings are that the u s business cycle and shocks to foreign interest rates account for more than 50 of capital inflows to both countries in the past two decades

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

economic organization with limited communication this paper presents formal stylized representations of communication accounting systems oral assignment portable object written message and telecommunication systems are considered the environments that allow this formalization are characterized by spatial separation private information and a need to keep track of past actions transfers and shocks in environments that have spatial separation and private information beneficial multilateral arrangements can depend critically on agents ability to communicate to one another values of contemporary shocks and to keep track of histories of past transfers or past announced shocks this paper formalizes this idea and focuses on com

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

does trade integration cause convergence abstract using a business cycle model we analyse the conditions for trade integration to produce economic convergence we find large stable economies with integrated structures are likely to diverge but smaller more volatile or less well integrated economies will converge the symmetry of shocks is unimportant

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

limited participation in international business cycle models a formal evaluation in this paper we study the role of limited asset market participation lamp for international business cycles we show that when limited participation is introduced into an otherwise standard model of international business cycles the performance of the model improves signi cantly especially in matching cross country correlations to perform formal evaluation of the models we develop a novel statistical procedure that adapts the test of vuong 1989 to dsge models and accounts for the possibility that models are misspeci ed based on this test we show that the improvements brought out by lamp are statistically signi cant leading a model with lamp to outperform a representative agent model furthermore when lamp is introduced a model with complete markets is found to do better than a model with no trade in nancial assets a well known favorite in the literature our results remain robust to the inclusion of investment speci c technical change

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

trade and business cycle synchronization in oecd countries a re examination this paper re examines the relationship between trade intensity and business cycle synchronization for 21 oecd countries in the period 1970 2003 instead of using instrumental variables we estimate a multivariate model including variables capturing specialization and similarity of economic policies we confirm that trade intensity affects synchronization but the effect is much smaller than previously reported other factors like specialization and convergence in monetary and fiscal policies have a similar impact on business cycle synchronization as trade intensity the effect of trade on synchronization is not driven by outliers however the impact of trade on synchronization is not robust across deciles c 2007 elsevier b v all rights reserved

money banking and capital formation we consider a monetary growth model in which banks arise to provide liquidity in addition there is a government that issues not only money but interest bearing bonds these bonds compete with capital in private portfolios when the government fixes a constant growth rate for the money stock we show that there can exist multiple nontrivial monetary steady states one of these steady states is a saddle while the other can be a sink moreover paths approaching a steady state can display damped endogenous fluctuations and development trap phenomena are common across different steady states low capital stocks are associated with high nominal interest rates the latter signal the comparative inefficiency of the financial system also increases in the steady state inflation rate can easily reduce the steady state capital stock journal of economic literatureclassification numbers e13 e44 e50 g20 o16

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

can government enforcement permanently alter fertility the case of china i introduction in developing countries per capita output growth objectives are often stymied by high birth rates 1 traditional values ignorance of birth control technology and labor intensive farming are all factors which contribute to high fertility rates for those reasons many developing countries experiencing high birth rates adopt population control policies while most programs combine educational efforts with some form of persuasion many also provide strong economic disincentives to high fertility 2 of particular interest from this vantage point is the experience of the people s republic of china which stands alone in its use of quotas on child bearing decisions 3 china s population control policy began with a massive campaign in 1953 reversing an earlier pro natalist stance however that campaign was curtailed by the political turmoil arising from the great leap forward and the cultural revolution population control programs resumed in 1970 with the issuance and enforcement of three reproductive norms late marriage longer spacing between births and fewer children in 1979 the authorities went even further allowing each household to have only one child interest in china s experience arises not only from the severity of the restrictions but also due to the government s ability to enforce them the feasibility of enforcing these restrictions is a result of the deep penetration of the communist party into most aspects of an individual s life including its control over housing employment and salaries 4 however despite the government s extensive involvement in birth planning those who study chinese demography have debated the extent to which government policies are responsible for the large fertility decline in the 1970s 5 this paper uses recent advances in economic theory and econometrics to quantitatively assess the main sources of fertility fluctuations in china specifically we employ a model with endogenous fertility choice which modifies the framework of razin and ben zion 1975 and barro and becker 1989 6 in contrast to other papers we focus on the relationship between government enforcement of population control policies and fertility outcomes we also allow the fertility rate to be affected by 1 household preferences including alterations in taste as well as in education health care and the changing role of women and 2 production technology which mostly captures changes in agricultural output or income we perform simple comparative static analysis to examine long cycles in fertility and output and characterize the transitional dynamics which govern short cycles easterlin 1968 and lee and loschky 1987 provide nice discussions of long fertility cycles the long run steady state predictions will be used to identify the empirical structural vector autoregression var system as well as interpret the underlying structural disturbances additionally the transitional dynamics results can be compared to the estimated dynamic structure finally we employ a structural var as in blanchard and quah 1989 and ahmed ickes wang and yoo 1993 to econometrically disentangle the relative contributions of policy and economic development factors to changes in fertility growth the structural disturbances include a change in the government s enforcement power a technological advance in agricultural production and a preference shift toward a higher fertility rate all of which are capable of generating both short and long cycles in fertility and output we find that government enforcement power has a significant negative effect on fertility accounting for about one third of the variance of the forecast error for fertility growth after the first year an expansion in agricultural output on the other hand yields a short run positive impact on fertility growth and is responsible for almost one fifth of fertility growth variations furthermore while theoretically all shocks have the potential to generate long cycles only preference shifts have statistically significant long run effects

central banking in the credit turmoil an assessment of federal reserve practice abstract central banking is understood in terms of the fiscal features of monetary credit and interest on reserves policies monetary policy expanding reserves by buying treasuries transfers all revenue from money creation directly to the fiscal authorities credit policy selling treasuries to fund loans or acquire non treasury securities is debt financed fiscal policy interest on reserves frees monetary policy to fund credit policy independently of interest rate policy an ambiguous boundary of responsibilities between the fed and the fiscal authorities contributed to economic collapse in fall 2008 accord principles are proposed to clarify fed credit policy powers and secure its independence on monetary and interest rate policy the fed needs more surplus capital from the fiscal authorities to be fully flexible against both inflation and deflation at the zero interest bound

unconventional monetary and fiscal policies in interconnected economies do policy rules matter abstract this paper examines the effects of adopting unconventional policies in a crisis environment characterised by the international transmission of negative financial intermediation and real capital quality shocks using a two country model with financial frictions we compare adjustments in both countries we condition one country to adopt a credit easing rule as the monetary regime regardless of the source of the crisis we consider results when the other country does nothing or implements a fiscal tax rate policy rule our results show that when both countries experience massive asymmetric shocks the adoption of optimal policy rules can be used effectively to mitigate negative consequences for both economies however if the crisis events are due to similar shocks unconventional monetary policy or fiscal policy can improve conditions in own country whilst worsening economic conditions in the other country generating beggar thy neighbor growth outcomes

are correlations of stock returns justified by subsequent changes in national outputs abstract in an integrated world capital market the same pricing kernel is applicable to all securities we apply this idea to the stock returns of different countries we investigate the underlying determinants of cross country stock return correlations first we determine for a given measured degree of commonality of country outputs what should be the degree of correlation of national stock returns we propose a framework that contains a statistical model for output and an intertemporal financial market model for stock returns we then attempt to match the correlations generated by the model with measured correlations our results show that under the hypothesis of market segmentation the model correlations are much smaller than observed correlations however assuming world markets are integrated our model correlations can be matched with observed correlations

finance and international business cycles abstract business cycles are more correlated among countries that have similar financial structures we first document this empirical regularity using oecd data and then build a two country dsge model with financial frictions that replicates it alternative monetary policy regimes and parameter values are explored output co movements increase when the countries involved are linked by a credible exchange rate peg and when they open up to trade they decrease when their financial openness increases the model also accounts for a number of stylized facts of international business cycles such as the positive international correlation of output investment and employment

diagnosing measurement equivalence in cross national research many researchers have pointed out that it is necessary to ensure measurement equivalence in cross national comparative research three aspects of measurement equivalence translation metric and calibration equivalence are necessary to establish the cross national reliability and validity of items used to measure theoretical constructs this paper discusses these issues and proposes two recently developed empirical techniques multiple group lisrel and optimal scaling for use in diagnosing cross national measurement equivalence these techniques are illustrated by reanalysis of a pioneering u s and japanese study the two techniques yield convergent results indicating measurement equivalence for some but not all ordinal level items under consideration the findings demonstrate that the proposed methods are useful diagnostic tools for exploring measurement equivalence several suggestions for reducing the likelihood of problems with measurement equivalence and a number of methods for dealing with items where lack of equivalence persists are also discussed

deciding to enter a monetary union the role of trade and financial linkages abstract this paper evaluates the role of trade and financial linkages in the decision to enter a monetary union we estimate a two country dsge model for the u k economy and the euro area with financial intermediaries as in gertler and karadi 2011 we use the model to compute the welfare trade offs from joining the euro we compare the gains from trade that would occur after the adoption of the euro against the costs of relinquishing monetary policy both conventional and unconventional we also study the effects of the changes in the corporate risk premium observed during the recent crisis we find that in tranquil times when the risk premium volatility is low the net welfare gain of joining the monetary union is 2 4 percent of life time consumption during financial crises when there is a sharp increase in the volatility of the risk premium joining a monetary union would lead to a net welfare loss of 2 2 percent of life time consumption the welfare analysis underscores the importance of financial stability to sustain a monetary union over time

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

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

optimal monetary and macroprudential policy in a currency union abstract the financial crisis proved strikingly that financial frictions play a crucial role for system risk and policymakers have overlooked financial stability the obvious candidate for addressing financial stability is macroprudential policy in this paper we study the optimal ramsey monetary and macroprudential policy mix in a currency union in the case of different kinds of aggregate and idiosyncratic shocks the monetary and macroprudential instruments are modeled as independent tools with a union wide macroprudential tool full stabilization on the aggregate level is possible but welfare losses due to fluctuations in relative variables prevail with country specific macroprudential tools full stabilization of shocks is always possible but as a rule not optimal evaluating the performance of different policy regimes shows that the additional welfare gains from having country specific macroprudential tools are small and vanish as the ability of the central bank to commit decreases

global implications of national unconventional policies abstract financial integration in the markets for banks assets and liabilities makes balance sheet constraints highly correlated across countries resulting in a high degree of financial and macroeconomic interdependence likewise under financial integration unconventional policies aimed at stabilizing domestic financial and credit conditions could entail large international spillovers therefore stabilization by one country will also benefit other countries reducing incentives to implement credit policies in a classic free riding problem especially when these policies entail domestic costs we show that this outcome can emerge in an open economy model featuring financial intermediaries that face endogenously determined balance sheet constraints

money banking and the determination of real and nominal exchange rates the authors consider a model where spatial separation limited communication and stochastic relocation create a role for banks and country specific currencies the same factors also permit a deviation from the law of one price the authors examine how monetary policies influence real and nominal rates of exchange and real and nominal rates of interest under both fixed and flexible exchange rate regimes they also demonstrate that both regimes are characterized by an indeterminacy of both the real and the nominal rate of exchange copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

money output and income velocity this paper attempts to assess empirically the contribution of three structural shocks monetary institutional financial and fiscal and technological to output and velocity fluctuations in the national bank era and the post 1973 period to identify these shocks we impose only long run restrictions derived from a monetary growth model we find that higher money growth increases decreases velocity in the first second period depending crucially on the resulting changes in the transactions frequency credit enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp shaped effect on output whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level

international spillovers of ecb s unconventional monetary policy the effect on central europe abstractwe examine how unconventional monetary policy of the european central bank ecb influences macroeconomic stability in three central european economies we estimate various panel vector autoregressions pvars using monthly data from 2008 to 2014 using the shadow policy rate and central bank assets as measures of unconventional policies we find that output growth and inflation in central europe temporarily increase following an expansionary unconventional monetary policy shock by the ecb using both impulse responses and variance decompositions we find that the effect of unconventional policies on output growth is much stronger than the effect on inflation

country portfolios in open economy macro models this paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models the method is widely applicable simple to implement and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset it can be used in models with any number of assets whether markets are complete or incomplete and can be applied to stochastic dynamic general equilibrium models of any dimension so long as the model is amenable to a solution using standard approximation methods we first illustrate the approach using a simple two asset endowment economy model and then show how the results extend to the case of any number of assets and general economic structure

changes in the effects of monetary policy on disaggregate price dynamics abstract based on a time varying factor augmented vector autoregression we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures while many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample there is no evidence of a price puzzle at the aggregate level the share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards there also is evidence of a substantial decline in the dispersion of disaggregate price responses over time this gradual decrease in cross sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level we illustrate by means of a multi sector sticky price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics

how perceived brand globalness creates brand value in today s multinational marketplace it is increasingly important to understand why some consumers prefer global brands to local brands we delineate three pathways through which perceived brand globalness pbg influences the likelihood of brand purchase using consumer data from the u s a and korea we find that pbg is positively related to both perceived brand quality and prestige and through them to purchase likelihood the effect through perceived quality is strongest pbg effects are weaker for more ethnocentric consumers

measurement issues in cross national research substantive inference from cross national studies have important implications for theory e g because they reveal insights into generalizability and boundary conditions and managerial practice e g because they offer guidelines to mnc managers however few empirical studies attend to measurement issues involved in cross national research and still fewer recognize the risk of inferential errors that are likely to occur by overlooking measurement issues we discuss four measurement issues namely 1 standardized versus unstandardized coefficients 2 the impact of measurement error and unequal reliability 3 the overall error rate and simultaneous analysis and 4 construct equivalence using illustrate examples we demonstrate the nature of each of these problems the likely impact they can have on substantive conclusions and approaches for tackling these problems additionally we reanalyze a recently published three nation study by dubinsky michaels kotabe lim and moon 1992 to clarify these measurement concerns highlight a methodological approach and delineate the extent and severity of inferential errors our reanalysis shows that the interactive effects of these measurement issues are pervasive complex and unpredictable we close with implications for cross national research in general

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

unconventional policies and exchange rate dynamics abstract we study exchange rate dynamics under cooperative and self oriented policies in a two country dsge model with unconventional monetary and exchange rate policies the cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments self oriented policies nash equilibrium however entail limited exchange rate movements and an aggressive use of unconventional policies in both countries our results suggest that sizable exchange rate depreciations are not always a symptom of beggar thy neighbor policies they could also reflect a desirable process of external adjustment that improves global welfare

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

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities