international consumption risk sharing this paper formally examines the implications of international consumption risk sharing for a panel of industrialized countries we theoretically derive the international consumption insurance proposition in a simple setup and show how to modify it in more complicated models we analyze the implications of the theory for pairs of countries and find that aggregate domestic consumption is almost completely insured against idiosyncratic real demographic fiscal and monetary shocks over short cycles but that it covaries with these variables over medium and long cycles the cross equation restrictions imposed by the theory are rejected the policy implications are discussed

characterizing cross country consumption correlations general equilibrium models of international fluctuations that assume complete asset markets predict that consumption will be highly correlated across countries while the data display correlations that are rather low it has become common to characterize this empirical regularity by noting that cross country consumption correlations tend to be lower than corresponding output correlations this note reconsiders that charac terization and demonstrates that it is not particularly robust it also documents a related regularity that is more pervasive consumption fluctuations are more highly correlated with domestic production than with world output this provides an alternative standard for evaluating models of international fluctuations

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

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

the taylor principle fights back part ii abstract the existing literature holds that the taylor principle often leads to indeterminacy in new keynesian models that allow for capital accumulation and limited asset market participation this conclusion is special however to the case of continuous full employment when the assumption of perfect wage flexibility is relaxed very slightly so that the labor market clears quickly but not instantaneously determinacy is the norm the threat of indeterminacy is limited to a tiny irrelevant corner of the parameter space where the elasticity of labor supply is unusually high and real wage adjustment is unbelievably fast everywhere else the taylor principle guarantees a unique rational expectations equilibrium the dramatic difference in results reflects the sensitivity of the monetary transmission mechanism to the speed of adjustment in the labor market

variable capital utilization and international business cycles this paper develops a two country international business cycle model with variable capital utilization using a standard depreciation in use technology variable capital utilization significantly reduces the required size of productivity shocks needed to replicate observed output volatility by 20 40 further the model generates positive comovement across countries in wages hours and investment while preserving empirically accurate predictions regarding the relative cross country correlations of output and consumption and the countercyclical behavior of net exports finally accounting for variable capital utilization reduces cross country correlation of true productivity shocks relative to that of the standard solow residual

the role of energy in real business cycle models abstract this paper modifies hansen s 1985 analysis of a real business cycle mode with indivisible labor by explicitly including energy as a productive input and modelling the relative price of energy as an exogenous random process one goal is to determine the extent to which the introduction of energy price shocks reduces the reliance of the real business cycle model on unobserved technology shocks the other goal following christiano and eichenbaum 1991 is to compare the correlation between real wages and hours predicted by the energy inclusive model to that predicted by hansen s model

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

saving investment associations and capital mobility on the evidence from japanese regional data abstract the paper examines the magnitude of the saving retention coefficient b in a setting of known near perfect capital mobility japanese regions first we find that on total regional saving and investment rate data inclusive of regional government saving and investment the estimate of b is negative this negative relationship in the total rates across japanese regions appears to arise from the strong negative association in the government saving and investment rates second on private regional investment and saving rate data b is insignificantly different from zero this is evidence consistent with the hypothesis of feldstein and horioka economic journal 1980 that in a financially integrated economy b would be close to zero

determinants of the current account balance in the united states this article studies the role of public and private imbalances in the behaviour of the current account balance in the united states in the context of an intertemporal model the estimation evaluates the effects of public and private imbalances on the dynamics of the current account correlation coefficients support the ricardian equivalence higher budget deficit correlates with a reduction in private consumption and an increase in private savings government saving does not vary significantly with macroeconomic variables in the short or in the long run in contrast fluctuations in government investment vary significantly with a number of economic variables in the long and in the short run accordingly fluctuations in the budget deficit are likely to be driven by fluctuations in public investment in contrast to government savings private savings vary significantly with macro variables in the long and in the short run fluctuations in private investment appear less evident compared to that in privat

country specific effect in the feldstein horioka paradox a panel data analysis abstract using panel data methods this study leads to a new interpretation of the feldstein horioka paradox a high estimated saving investment coefficient may be due less to low capital mobility than to the existence of specific individual country effects

twin deficits openness and the business cycle in this paper we study the co movement of the government budget balance and the trade balance at business cycle frequencies in a sample of 10 oecd countries we find that the correlation of the two time series is negative but less so in more open economies moreover for the us the cross correlation function is s shaped we show that a standard business cycle model featuring government spending and technology shocks is able to replicate these empirical regularities the model predicts that conditional on spending shocks the correlation of the budget balance and the trade balance is close to perfect consistent with the twin deficit hypothesis despite this high correlation however the economic effect of spending shocks on the trade balance is contained if the economies are not very open to trade

international capital mobility in the long run and the short run can we still learn from saving investment data the idea to learn about international capital mobility from saving and investment data remains appealing our approach is based on var methods and overcomes some of the problems associated with saving investment regressions when the data are non stationary we propose a new measure of long run capital mobility that can be easily calculated as a by product of the estimation procedure of a cointegrated var in an application to historical us and british data we find long run capital mobility to have been remarkably stable over the century whereas variations in the mobility of capital primarily seem to have affected short run capital flows

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

can exchange rate variations or trade policy alter the equilibrium current account abstract paul krugman has pointed out that much work needs to be done before the intertemporal open economy model can replace the open economy is lm model as a guide to policy making the objective here is to take a step in this direction by examining if an exogenous increase in world demand for home goods as via trade policy can improve the equilibrium current account within an open economy intertemporal model in the process the paper explores the theoretical issue as to whether a variation in the real exchange rate can alter the difference between saving and investment the key idea is that uncovered interest parity plus some degree of mean reversion in the real exchange rate imply that a modern version of the laursen metzler harberger effect is operative the result is that a policy induced increase in the trade balance will alter the real exchange rate which in turn increases the difference between home saving and investment and thereby improves the equilibrium current account

structural factors associated with primary fiscal balances in developing countries the study explores the conditions under which a government in a developing country is likely to run a balanced or surplus budget we contend that primary fiscal deficits are likely to persist where the economy is too saving constrained to raise private sector investment to conduct the investigation a logit model is applied to a sample of developing countries to see whether the saving constraints are associated with the fiscal stance of governments accordingly income level growth external current account balance and foreign direct investment are used as indicators of the saving constraint with the exception of economic growth positive developments in these variables turned out to be significant to the likelihood of the government adopting a surplus budget

manufacturing growth and financial development evidence from oecd countries recent theoretical models conjecture that the development of the financial sector is essential for economic growth we investigate this hypothesis from a time series perspective and find that financial sector gdp is cointegrated for many oecd countries not so much with manufacturing gdp but mostly with manufacturing total factor productivity moreover this relation is in some instances characterized by long run causality in the sense of granger and lin however even within this homogeneous group of countries the variety of results suggests a more complex picture than is apparent from cross sectional evidence

a quantitative assessment of the decline in the u s current account low frequency changes in the u s current account can be understood in terms of the influence of differences in productivity growth rates across time and across countries using standard growth theory in particular the secular decline is primarily driven by the increase in the u s tfp growth rate relative to its trading partners differences in population growth rates or fiscal policy have no significant effects on the low frequency changes in the u s current account

adjustment costs in investment time preferences and the current account abstract this paper studies the effects of supply and demand shocks on the optimal investment and savings decisions of economic agents in a small open economy the two building blocks of the setup are adjustment costs in investment and a recursive time preference structure it is shown that the model can mimic certain stylized facts

an endogenous growth model with expanding ranges of consumer goods and producer durables this paper constructs a growth model with the feature that the range of differentiated consumption goods and the range of specialized producer durables are both endogenously determined the author shows that this feature allows the domestic investment rate to be closely associated with the domestic saving rate even when international financial markets are integrated he also argues that this feature is important in explaining the observed cross country diversity in growth performance and saving behavior copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

capital mobility and foreign debt sustainabilty some evidence from turkey this paper address the extent of capital mobility and foreign debt sustainability in turkey over the 1962 2003 period by examining the relationship between saving and investment and imports and exports respectively the empirical investment is based on cointegration error correction models and threshold and momentum threshold autoregressive models our findings are consistent with the existence of capital mobility and the strong form of foreign debt sustainability

regional capital mobility in china economic reform with limited financial integration abstract this paper assesses the changes in the regional capital mobility in china during the period of economic reform in 1978 2008 by employing a panel time varying coefficient tvp model this approach is much more suitable to model china s evolution in the regional capital mobility than a standard structural break model as china s reforms took place gradually and were often implemented over several stages using the tvp model we find that 1 china s provincial capital mobility demonstrated a moderate improvement over the sample period but worsened temporarily between 1994 and 1997 this is probably due to the government s effort to combat inflation which reduced the investment and transfers to regions 2 regions with the most developed and least developed provinces experienced higher degree of capital mobility improvement than those in the middle

how do fiscal and technology shocks affect real exchange rates new evidence for the united states abstract using vector autoregressions on u s time series relative to an aggregate of industrialized countries this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade to achieve identification we derive robust restrictions on the sign of several impulse responses from a two country general equilibrium model we find that both the real exchange rate and the terms of trade whose responses are left unrestricted depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks

elasticities of substitution in real business cycle models with home production this paper constructs a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution in market consumption ies and the static elasticity of substitution between home and market consumption ses understanding this connection is important because there is a large body of empirical evidence suggesting that the ies is small but little evidence on the size of the ses we use our framework to shed light on the properties of a home production model with a low ies we find that such a model must have three fundamental properties in order to match key aspects of aggregate u s data first the steady state growth rate of technology must be the same across sectors second shocks to technology must be sufficiently positively correlated across sectors third capital must be used more intensively in the market sector than in the home sector a home production model with these three properties can be surprisingly successful at reconciling the rbc paradigm with evidence for a low ies

do country specific shocks matter evidence from australia and high income countries a stylized fact of global upward trend in domestic world output ratio for major small open economies is recognized in comparison with australia s dichotomous experience with the ratio this fact is used to shed light on the importance of country specific shocks for small open economies using a simple real business cycle model while it has been previously found that country specific shocks are more significant source of business cycle fluctuations than worldwide shocks for australia before the 1990s this article suggests that the country specific shocks may have become an important driver of output growth only in the early 1990s for australia

the mother of all puzzles would not go away abstract this paper studies the short run and long run relationships between saving and investment rates for 123 countries using an error correction framework the conventional wisdom suggests that capital should be more mobile for the countries with high per capita income our estimates suggest that capital is mobile for 16 countries most with a low per capita income

international capital mobility what do national saving investment dynamics tell us abstract we interpret the relationship between national saving and investment in the long run as reflecting a solvency constraint and interpret the ease with which a country can run current account imbalances in the short run before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint as being positively related to the degree of international capital mobility we apply panel error correction techniques to data for 20 oecd countries from 1960 to 1999 we find that saving and investment display a long run cointegration relationship that is consistent with the interpretation that a long run solvency constraint is binding for each country over time however deviations from this long run equilibrium relation have become more persistent which suggests that capital mobility has increased

economic impacts value added and benefits in regional project analysis comment in a recent article appearing in this journal hamilton whittlesey robison and ellis hwre address five issues that can arise from the estimation of secondary benefits in regional project analysis in examining these issues hwre argue that at most only a small part of secondary benefits resulting from any regional project can be treated as regional net benefits the argument is well articulated and represents the latest of a long line of articles dealing with the problem of using estimates of regional economic impact usually estimated with a regional input output model as a measure of project benefits or costs cooke stabler et al hamilton and gardner young and gray the principal concern in hwre is to ensure that changes in regional value added or income due to a project are not mistaken for project benefits in benefit cost calculations we are reminded that the as

u s agriculture in a general equilibrium framework analysis with a social accounting matrix traditionally the analysis of u s agricultural policy has been carried out in a partial equilibrium framework it has thus ignored the linkages of the agricultural sector with the rest of the economy it is only recently that the importance of various economic linkages has started being recognized in work on u s agriculture the importance to the agricultural sector of exchange rates and other instruments of monetary and fiscal policies was first emphasized by schuh his seminal work sparked other studies of the interaction between agricultural production and incomes and traditional instruments of macroeconomic policy see also shei chambers and just freebairn rausser and de gorter the partial equilibrium analysis of u s agriculture stands in sharp contrast to traditional approaches to the formulation of agricultural policy in developing countries development economists have long been sensitive to the importance of leakages from policies aimed at the agricultural sector to the rest of the economy and vice versa in this paper we discuss how multisectoral models of the sort often used in developing countries can be used to analyze such issues in the united states we construct a u s social accounting matrix sam for 1982 and use a variety of multiplier models to analyze the impact of different exogenous shocks on agriculture focusing on the links between the agricultural and nonagricultural sectors a longer version of this article is provided by adelman and robinson soci accounting matrices

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

international capital mobility in oecd countries the feldstein horioka puzzle revisited abstract we utilise the most recent time series techniques of dynamic ols and examine international capital mobility across 23 oecd countries we adopt the saving investment approach where the endogeneity problem is confronted our findings show that capital has been remarkably mobile in most countries over the last three decades

the feldstein horioka puzzle and spurious ratio correlation abstract this study shows that the feldstein horioka puzzle resembles a spurious ratio correlation due to a common deflator pearson 1896 7 empirically the feldstein horioka specification and its counterpart with an arbitrary deflator final domestic demand give similar results monte carlo results also indicates that the slope and r 2 of the ratio regression are upward biased theoretically assuming each of the original undeflated variables are linear homogeneous functions of the deflator and random disturbances formulas for and r 2 are derived as saving and investment rates are numerically small relative to the disturbances both and r 2 are predominantly determined by the disturbances and they tend towards unity when the disturbances are close in magnitude the feldstein horioka results are therefore noisy though not entirely spurious and do not necessarily reflect a strong correlation between investment and savings

heterogeneity cross section dependence and capital mobility in developing countries abstract the purpose of this paper is to show that another puzzle a smaller saving investment regression coefficient for developing countries than for developed countries disappears when heterogeneity and cross sectional dependence are explicitly taken into account in a panel structure robust to i 0 and also i 1 innovations

the feldstein horioka puzzle revisited a monte carlo study abstract this study revisits the feldstein horioka fh puzzle by employing a variety of asymptotically efficient cointegration estimators and by using the critical values obtained from monte carlo simulations to test the hypothesis of a unit retention coefficient this leads to a lower rejection of the null than standard critical values would have implied despite ample evidence supporting the fh result there appears to be considerable heterogeneity in terms of the savings investment association and only 25 of the 23 oecd countries we examine can be characterised as open economies in the fh sense whether or not one subscribes to the fh interpretation the fh result does not appear to be robust

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

international business cycles with complete markets abstract kehoe and perri 2002 show that a two country business cycle model with endogenously incomplete markets helps to resolve the international comovement puzzle baxter 1995 and the quantity anomaly backus et al 1992 backus et al 1995 we claim that a similar performance can be achieved without resorting to market incompleteness we show that a model with complete markets driven by productivity shocks alone can account for the international comovement puzzle our model features time nonseparable preferences that allow arbitrarily small wealth effects on labor supply it matches the data by predicting i positive cross country correlations of investment and hours worked ii realistic cross country correlations of consumption it reduces the gap between international correlations of output and consumption but fails to change their order unlike models with restricted international markets ours show little sensitivity to the parameterization of the forcing process

asset pricing and the propagation of macroeconomic shocks this paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks in a model that is capable of matching asset pricing moments a short lived shock that destroys a small fraction of the economy s stock of pledgeable collateral generates a persistent recession a stock market crash and a flight to safety effect this novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks

growth and risk sharing with private information abstract we examine the impact of incomplete risk sharing on growth and welfare the source of market incompleteness in our economy is private information a household s idiosyncratic productivity shock is not observable by others risk sharing between households occurs through long term contracts with intermediaries we find that incomplete risk sharing tends to reduce the rate of growth relative to the complete risk sharing benchmark numerical examples indicate that the welfare cost and the growth effect of private information are small

understanding the persistence properties of international macroeconomic aggregates in this paper the ability of a two country model of growth and cycles is evaluated to explain the persistence properties of output and consumption across countries simulated output and consumption levels replicate the observed appearance of noncointegration across countries simulated output growth rates however do not explain the observed positive serial correlation of output growth rates the reallocation of resources in response to technology shocks generates a negative serial correlation for output growth rates

what can explain the apparent lack of international consumption risk sharing recent research in international business cycles finds that international consumption comovements do not match the risk sharing predictions of standard complete markets models in this paper i ask whether two different types of explanations can help explain this result 1 nonseparabilities between tradables and nontradable leisure or goods and 2 the effects of capital market restrictions on consumption risk sharing i find that risk sharing cannot be resolved by either explanation alone however when i allow for both nonseparabilities and certain market restrictions risk sharing among unrestricted countries cannot be rejected this evidence suggests that a combination of these two effects may be necessary to explain consumption risk sharing across countries

stylized facts of investment in canada although fixed business investment accounts for a large and growing share of uptput in canada surprisingly little is known about it some stylized facts of investment in canada are set forth and the ability of some of the standard price variables to explain canadian data are briefly reviewed the behavior of aggregate investment and its components are analysed in both the time domain and in the frequency domain it is founjd that there is only a weak relationship between expenditure on non residential structures and on machinery and equipment and also that at the industry level there has been a great deal of variation of patterns in investment by industry in one example investment in the commercial services indusry is found to lead investment in the manufacturing sector it is also noted that investment and output in the united states lead investment and output in canada with the lead in investment being less strong thatn the lead in output in keeping with the patterns observed in expirical models

common and country specific fluctuations in productivity investment and the current account abstract dynamic factor analysis and kalman filtering are used to construct a measure of common economic activity for the g7 countries we find that the common fluctuations are strongly associated with movements in us investment common fluctuations have substantial impact on fluctuations in both productivity and investment in these countries but very little impact on the current account country specific investment fluctuations have a significant negative impact on the current account while country specific productivity movements have little independent effect these findings are shown to be generally consistent with the predictions of a multi country dynamic model calibrated to the empirical decomposition of productivity shocks

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

a multi country real business cycle model with heterogeneous agents a multicountry real business cycle model is developed capturing two important aspects of heterogeneity found in household survey data only a small fraction of the population holds stock and a significant fraction of nonstockholders are borrowing constrained the model is applied to data for twenty oecd countries it generates cross country consumption correlations consistent with those observed in the data potential welfare gains from international portfolio diversification by stockholders are large leaving the observed home bias as a significant puzzle the model can also account for the finding in u s data that consumption of stockholders is more volatile than that of nonstockholders copyright 1996 by the editors of the scandinavian journal of economics

liquidity and real activity in a simple open economy model abstract this paper analyzes the ability of an open economy version of lucas s 1990 liquidity model to account for properties of international data the focus is on the model s ability to account for exchange rate dynamics and measured effects of monetary policy shocks on exchange rates interest rates and real activities across countries the model generates a prediction that a positive domestic monetary innovation is associated with nominal and real currency depreciations however the model s predictions with respect to nominal and real exchange rate volatilities are low

international externalities strategic interaction and domestic politics abstract domestic politics can sometimes play an influential role when externalities have strategic and international implications if voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation on the other hand if the international externality is unilateral in nature rather than reciprocal we find that delegation is largely irrelevant since voters choice of policymaker is no longer strategic in character similarly if voters anticipate policymakers successfully coordinating their policies at a later stage there also will be no difference between the policymakers and the median voters aggregate weighting of environmental emissions

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

international business cycles in theory and in practice this paper investigates whether multi country international business models can account for international comovements in the oecd there are substantial positive comovements between many output components between levels of employment and between total factor productivities the standard international business cycle model is not consistent with these comovements except for consumption levels the model implies either negative or very low comovements this is a robust feature of the theoretical models independently of specific parameter values one interesting finding is that a more general specification of the technology shock processes lead to substantial comovements but at the cost of another deficiency

does the number of countries in international business cycle models matter until the 1980s standard models with two large open economies i e the united states and europe provided plausible representations of the world economy however with the emergence of many developing countries since the 1990s this approach no longer seems reasonable in line with this change to the global economic environment cross country output correlations between the united states and other countries have risen this paper extends the standard two country model to many countries to show that doing so produces closer cross country correlations to the data in particular based on analytical investigation with a simple model and quantitative analysis with a more general model i show that the cross country output correlation rises and the cross country consumption correlation falls as the number of countries in the two models increases jel f40 f41 f44

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

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

an analysis of the interaction among savings investments and growth in turkey turkey has been implementing tight fiscal and monetary policies for years these policies rely on the basic understanding that savings trigger growth and investments however there are alternative theoretical discussions and empirical findings related to the interaction among these variables in this study while one of the purposes is to analyse the interaction among these variables for the turkish case the other is to try to bring an insight for other developing countries for the issues such as data production econometric analysis and as well as making policy suggestions in line with the evidence from the turkish case the findings of this study show that it is the growth that induces both savings and investments hence it is necessary to question policies that assume it is the savings triggering growth and investments

saving and investment in an open economy with non traded goods the authors examine a model of a small open economy in which there is free international mobility of financial capital investment in capital goods and a nontraded good such an environment is rich enough to explain several phenomena that are inexplicable in other models the authors explain why a high saving country may nonetheless borrow from abroad to finance investment they suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets the authors also provide an optimizing model of stages in the balance of payments copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

weakly nonseparable preferences and distortionary taxes in a small open economy this paper examines the dynamic effects of distortionary taxes in a small open economy the employed utility function implies both endogenous rates of time preference and a tractable form of weak nonseparability between consumption and leisure weak nonseparability induces novel long run welfare and wealth effects of taxes and generates very different current account movements endogenous rates of time preference facilitate the examination of a tax on international borrowing and lending copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

estimating saving investment correlations evidence for oecd countries based on an error correction model abstract saving investment correlations are important stylized facts in open economy macroeconomics and indicators of capital mobility they are best estimated by an error correction model ecm because an ecm is consistent with intertemporal general equilibrium models the ecm is a synthesis of previous approaches applying the ecm to the oecd countries we find that in general saving and investment are cointegrated the ecm is more powerful in detecting cointegration than the two step engle granger procedure estimates of the saving investment correlation are robust with respect to overdifferencing we find evidence of a large country effect and an increase in capital mobility within the oecd area

consumption smoothing channels in open economies abstract many intertemporal open economy macro models imply a theory of consumption smoothing channels thus we build an empirical model to analyze the intertemporal smoothing role of saving components fixed investments inventories and trade balance through the use of var impulse responses to different types of shocks we find that for the oecd countries the bulk of intertemporal smoothing has been carried out domestically via gross fixed investments and inventories but the trade balance has also played a relevant albeit volatile smoothing role we also characterize the dynamic behavior of each component the trade balance and inventories are mostly used as short run smoothing tools while fixed investment provides more and more smoothing over time we can also address some empirical puzzles such as the excess sensitivity of investment anomaly glick r rogoff k 1995 global versus country specific productivity shocks and the current account journal of monetary economics 35 159 192 and the saving investment correlation puzzle feldstein m horioka c 1980 domestic saving and international capital flows economic journal 90 314 329

cointegration of long span saving and investment abstract we find that saving and investment cointegrate in all or most countries in maddison s research memorandum no 443 1991 long span data set by a variety of time series and panel data tests we interpret our results as reflecting current account solvency and not capital immobility

patience persistence and welfare costs of incomplete markets in open economies abstract we investigate the welfare implications of alternative financial market structures in a two country endowment economy model we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset and we compare this welfare level with that obtained under complete asset markets the welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent for realistic cases in which agents are very patient and shocks are highly persistent the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters

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

on the international transmission of technology shocks abstract using vector autoregressions on u s time series and an aggregate of industrialized countries we find that technology shocks appreciate the terms of trade and lower the trade balance they induce an s shaped cross correlation function for both variables the s curve in calibrating a prototypical international business cycle model under complete and incomplete financial markets we find two distinct sets of parameter values while both model specifications deliver the s curve the underlying transmission mechanism of technology shocks is fundamentally different most importantly only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks as suggested by the evidence

an intertemporal model of saving and investment this paper characterizes a market economy with infinitely long lived consumers and value maximizing firms which face costs of adjustment for capital the temporary equilibrium of this economy is similar to the short run equilibrium of standard macroeconomic models consumption is a function of wealth investment is related to the value of firms equilibrium between aggregate demand and aggregate supply is achieved by the endogenous adjustment of the sequence of current and future interest rates the dynamic behavior of output consumption and investment in this economy is the same as in an optimal growth model with adjustment costs the paper shows this equivalence and then uses it together with the equivalence of taxes to technological shocks to study the dynamic effects of fiscal policy

economic impacts value added and benefits in regional project analysis this paper addresses five issues encountered when estimating secondary benefits in regional project analysis a the correction for opportunity cost of factors used b the treatment of mobile factors c the effect of economies of size d the role of forward linkages and e the role of spatial structure of economic regions the first four are reasons that only a small part if any of regional impacts can be treated as regional net benefits the fifth is a reason that when secondary benefits or damages do exist their correct estimation can depend on the spatial structure of the affected areas

equilibrium real exchange rates closed form theoretical solutions and some empirical evidence abstract this paper generates closed form theoretical solutions for the relationships among the real exchange rate relative per capita consumption and relative wealth in a stochastic dynamic general equilibrium model of two countries representative consumers the solutions offer insight into the robust cross sectional relationship between relative per capita gdps and relative national price levels established in kravis and lipsey 1983 1987 1988 in a manner consistent with equilibrium exchange rate theories and the productivity differentials model of balassa 1964 and samuelson 1964 application of panel data from summers and heston 1988 to the model s structural equations yields economically plausible estimates of the elasticity of intertemporal substitution the relative importance of nondashtradables in consumption and the rate of time preference in several oecd countries relative to that in the united states

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

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

international business cycles the quantitative role of transportation costs we evaluate the quantitative effects of introducing costs of transportation into an international trade model we model these costs through the introduction of international transportation services sector costs of transportation have substantial long run effects on welfare and may impact the pattern of trade however the business cycle effects on relative price movements and on international comovements are less pertinent since decreased trade volatility counteract the effects of transportation cost variations nevertheless it is also shown that costs of transportation combined with delivery lags go a long way towards resolving in particular the international comovement puzzle

saving growth and investment a macroeconomic analysis using a panel of countries this paper provides a descriptive analysis of the long and short run correlations among saving investment and growth rates for 123 countries over the period 1961 94 three results are robust across data sets and estimation methods i lagges saving rates are positively related to investment rates ii investment rates granger cause growth rates with a negative sign iii growth rates granger cause investment with a positive sign

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

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

the output employment and interest rate effects of government consumption abstract we study the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model we show theoretically that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change we also show that in principle there can be an analog to the keynesian multiplier in the neoclassical growth model finally in an empirically plausible version of the model we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one our results provide counterexamples to existing claims in the literature

capital mobility and the relationship between saving and investment rates in oecd countries abstract this paper considers tests that use data on saving and investment rates to determine the degree of international capital mobility two types of evidence are presented to show that a high correlation between saving and investment rates across oecd countries can be consistent with a high degree of capital mobility this evidence qualifies the conclusions of previous studies and casts doubt on the usefulness of testing hypotheses about capital mobility with data on saving and investment rates

in search of the liquidity effect in a modern monetary model abstract this paper examines the impact of a monetary policy shock in a dynamic stochastic general equilibrium model with sticky prices and financial market frictions first we examine the shortcomings of monetary models emphasizing these frictions individually the model then is specified to limit the response of prices and savings to a current period monetary disturbance our results show that this model can account for the following key responses to an expansionary monetary policy shock a fall in the nominal interest rate a rise in output consumption and investment and a gradual increase in the price level finally a detailed sensitivity analysis shows the model s results depend on the parameters assigned to critical structural features

optimal and equilibrium membership in clubs in the presence of spillovers abstract this paper treats a partial equilibrium club economy in which clubs impose positive or negative externalities on one another both spillovers in congestable good and crowding are studied it is shown that an increase the relative strength of the first type of spillover may result in either an increase or decrease in the optimal club size and public good levels spillovers in crowding on the other hand have a definite effect on the optimal membership and production of public good these optimal outcomes are then compared to nash equilibrium club size and public good provision when clubs are established by profit maximizing entrepreneurs instead of a social planner

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

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