1 Business-Cycle Facts Around the World 1

Transcription

1 Contents Preface xvii 1 Business-Cycle Facts Around the World Measuring Business Cycles Business-Cycle Facts Around the World Business Cycles in Poor, Emerging, and Rich Countries Country Size and Observed Business Cycles Hodrick-Prescott (HP) Filtering Growth Rates Business-Cycle Facts with Quarterly Data Duration and Amplitude of Business Cycles in Emerging and Developed Countries Appendix Countries with at Least 30 Years of Annual Data Derivation of the HP Filter Country-by-Country Business-Cycle Statistics at Annual and Quarterly Frequency Exercises 25 2 An Open Endowment Economy The Model Economy Stationary Income Shocks Stationary Income Shocks: AR(2) Processes Nonstationary Income Shocks Testing the Intertemporal Approach to the Current Account Exercises 45 vii

2 viii Contents 3 An Open Economy with Capital The Basic Framework A Steady-State Equilibrium Adjustment to a Permanent Productivity Shock Adjustment to Temporary Productivity Shocks Capital Adjustment Costs Dynamics of the Capital Stock A Permanent Technology Shock Exercises 69 4 The Open Economy Real-Business-Cycle Model The Model Inducing Stationarity: External Debt-Elastic Interest Rate (EDEIR) Equilibrium Decentralization Households in the Decentralized Economy Firms Producing Final Goods Firms Producing Capital Goods The Decentralized Equilibrium Functional Forms Deterministic Steady State Calibration Approximating Equilibrium Dynamics The Performance of the Model The Role of Persistence and Capital Adjustment Costs The Complete Asset Markets (CAM) Model What Is the Current Account When Markets Are Complete? Quantitative Predictions of the CAM Model Alternative Ways to Induce Stationarity The Internal Debt-Elastic Interest Rate (IDEIR) Model The Portfolio Adjustment Cost (PAC) Model The External Discount Factor (EDF) Model The Internal Discount Factor (IDF) Model The Model with No Stationarity-Inducing Features (NSIF) The Perpetual-Youth (PY) Model Basic Intuition 106

3 Contents ix Perpetually Young Households Firms Producing Consumption Goods Firms Producing Capital Goods Equilibrium Inducing Stationarity: Quantitative Comparison of Alternative Methods Global Solution Appendix First-Order Accurate Approximations to Dynamic General Equilibrium Models Local Existence and Uniqueness of Equilibrium Computing Second Moments Computing Impulse Response Functions Matlab Code for Linear Perturbation Methods Exercises Business Cycles in Emerging Countries: Productivity Shocks versus Financial Frictions Can the Open Economy RBC Model Generate Excess Consumption Volatility? An Open Economy RBC Model with Stationary and Nonstationary Technology Shocks Letting Technology Shocks Compete with Other Shocks and Frictions Households Firms with Working-Capital Constraints Interest-Rate Shocks Equilibrium Bayesian Estimation on a Century of Data How Important Are Trend Shocks? The Role of Financial Frictions Imperfect Information and Noise Shocks Using the Kalman Filter to Compute Future Expected TFP Growth Computation and Estimation Incomplete Information Versus Noisy Information Estimation and Model Fit The Importance of Noise Shocks How Important Are Nonstationary Productivity Shocks? Exercises 180

4 x Contents 6 Interest-Rate Shocks An Empirical Model Impulse Response Functions Variance Decompositions An Open Economy Subject to Interest-Rate Shocks Firms and Working-Capital Constraints Capital Accumulation and Gestation Lags Households and Habit Formation Driving Forces Equilibrium Estimation by Limited Information Methods Theoretical and Estimated Impulse Responses Theoretical and Estimated Conditional Volatilities Global Risk Factors and Business Cycles in Emerging Economies Exercises Importable Goods, Exportable Goods, and the Terms of Trade A Simple Empirical Model of the Terms of Trade The Terms of Trade and the Trade Balance: Empirics Terms of Trade and the Trade Balance: Simple Explanations, Old and New The Harberger-Laursen-Metzler Effect The Obstfeld-Razin-Svensson Effect Testing for the ORS Effect The ORS Effect in the SOE-RBC Model How Important Are Terms-of-Trade Shocks? The MX Model Households Production of Final Goods Production of Importable and Exportable Goods Equilibrium Observables Parameterization of the MX Model Preferences and Technologies in the MX Model Calibration of the Elasticity of Substitution between Importables and Exportables, μ Calibration of the Share Parameter, χ 241

5 Contents xi Calibration of the Share of Exports of Value-Added in GDP, s x Calibration of the Share of Exportable Output in GDP, s yx Estimation of the Capital Adjustment Cost Parameters, φ m and φ x, and the Debt Elasticity of the Interest Rate, ψ Response of the MX Model to Terms-of-Trade Shocks Terms-of-Trade Shocks: Less Important in Data Than in Theory Sensitivity Analysis Exercises Nontradable Goods and the Real Exchange Rate The Real Exchange Rate The TNT Model The Real Exchange Rate and the Relative Price of Nontradables The Equilibrium Real Exchange Rate Adjustment of the Real Exchange Rate to Terms-of-Trade Shocks Adjustment of the Real Exchange Rate to Interest-Rate Shocks Adjustment of Output to Terms-of-Trade Shocks in the TNT Model Empirical Evidence on the Effects of Terms-of-Trade Shocks on the Real Exchange Rate and Aggregate Activity The MXN Model Households Firms Producing Final Goods Firms Producing the Tradable Composite Good Firms Producing Importable, Exportable, and Nontradable Goods Market Clearing Competitive Equilibrium Observables Functional Forms Calibration of the MXN Model Response of the Real Exchange Rate and Real Activity to Terms-of-Trade Shocks in the MXN Model The Terms-of-Trade Disconnect Exercises Nominal Rigidity, Exchange Rates, and Unemployment An Open Economy with Downward Nominal Wage Rigidity Households Firms 293

6 xii Contents Downward Nominal Wage Rigidity and the Labor Market Equilibrium Currency Pegs A Peg-Induced Externality Volatility and Average Unemployment Adjustment to a Temporary Fall in the Interest Rate Optimal Exchange-Rate Policy The Full-Employment Exchange-Rate Policy Pareto Optimality of the Full-Employment Exchange-Rate Policy When Is It Inevitable to Devalue? Empirical Evidence on Downward Nominal Wage Rigidity Evidence from Micro Data Evidence from Informal Labor Markets Evidence from the Great Depression of Evidence from Emerging Countries and Inference on γ The Case of Equal Intra- and Intertemporal Elasticities of Substitution Approximating Equilibrium Dynamics Parameterization of the Model Estimation of the Exogenous Driving Process Calibration of Preferences, Technologies, and Nominal Rigidities External Crises and Exchange-Rate Policy: A Quantitative Analysis Definition of an External Crisis Crisis Dynamics under a Currency Peg Crisis Dynamics under Optimal Exchange-Rate Policy Devaluations, Revaluations, and Inflation in Reality Empirical Evidence on the Expansionary Effects of Devaluations Exiting a Currency Peg: Argentina Post Convertibility Exiting the Gold Standard: Europe The Welfare Costs of Currency Pegs Symmetric Wage Rigidity The Mussa Puzzle Endogenous Labor Supply Production in the Traded Sector Product Price Rigidity Downward Price Rigidity Symmetric Price Rigidity Staggered Price Setting: The Calvo Model Households Firms Producing Final Nontraded Goods 348

7 Contents xiii Firms Producing Nontraded Intermediate Goods Aggregation and Equilibrium The Flexible-Price Equilibrium Optimal Exchange-Rate Policy The Open Economy New-Keynesian Phillips Curve Crisis Dynamics in the Calvo Model Welfare Costs of Currency Pegs in the Calvo Model Exercises Exchange-Rate Policy and Capital Controls First-Best Fiscal Policy under Fixed Exchange Rates Labor Subsidies Equivalence of Labor Subsidies and Devaluations Sales Subsidies Consumption Subsidies Capital Controls Capital Controls as a Distortion of the Interest Rate Equilibrium under Capital Controls and a Currency Peg Optimal Capital Controls under Fixed Exchange Rates The Optimality of Prudential Capital Control Policy Optimal Capital Controls during a Boom-Bust Episode Level and Volatility Effects of Optimal Capital Controls under a Currency Peg Overborrowing under Fixed Exchange Rates The Welfare Cost of Free Capital Mobility in Fixed Exchange-Rate Economies Are Observed Capital Controls Prudential? Appendix: Equilibrium for t 1 in Section Exercises Policy Credibility and Balance-of-Payments Crises The Model Households The Government Equilibrium A Credible Tax Reform A Noncredible Tax Reform Lack of Credibility and Overborrowing Equivalence of Imperfect Credibility and Temporariness 407

8 xiv Contents 11.4 Lack of Credibility and Exchange-Rate Policy A Cash-in-Advance Economy A Noncredible Exchange-Rate-Based Inflation-Stabilization Program Balance-of-Payments Crises Discussion and Extensions Appendix: The Hamiltonian Exercises Financial Frictions and Aggregate Instability Stock Collateral Constraints The Steady-State Equilibrium Frictionless Adjustment to Regular Shocks Adjustment to Large Shocks: Fisherian Debt Deflations and Deleveraging Stock Collateral Constraints and Self-Fulfilling Financial Crises Flow Collateral Constraints Flow Collateral Constraints and Self-Fulfilling Financial Crises Debt Dynamics in a Stochastic Economy with a Flow Collateral Constraint Calibration Equilibrium Selection Computation of Equilibrium Equilibrium Debt Distributions The Unconstrained Economy Financial Amplification Optimal Capital Control Policy Overborrowing or Underborrowing? An Analytical Example Implementation Overborrowing and Underborrowing: A Quantitative Analysis Is Optimal Capital Control Policy Macroprudential? Optimal Consumption Taxes Aggregate Versus Individual Collateral Constraints Exercises Sovereign Default Empirical Regularities Frequency and Length of Defaults 481

9 Contents xv Haircuts Debt and Default Country Premia Country Spreads and Default Probabilities: A Sample Mismatch Problem Do Countries Default in Bad Times? The Cost of Default: Empirical Evidence Exclusion from Financial Markets Output Losses International Trade Sanctions Default Incentives with State-Contingent Contracts The Optimal Debt Contract with Commitment The Optimal Debt Contract without Commitment Direct Sanctions Reputation Default Incentives with Non-State-Contingent Contracts The Eaton-Gersovitz Model The Default Set Default Risk and the Country Premium Saving and the Breakdown of Reputational Lending Quantitative Analysis of the Eaton-Gersovitz Model Serial Correlation of the Endowment Process Finite Exclusion Period Output Cost of Default The Model Calibration and Functional Forms Computation Quantitative Predictions of the Eaton-Gersovitz Model Dynamics Around a Typical Default Episode Goodness of Approximation of the Eaton-Gersovitz Model Alternative Output Cost Specification The Quantitative Importance of Output Costs of Default The Quantitative Irrelevance of Exclusion The Role of Discounting Changing the Volatility of the Endowment Process Time-Varying Volatility, Country Spreads, and Default Varying the Persistence of the Output Process The Welfare Cost of Lack of Commitment 541

10 xvi Contents 13.8 Decentralization of the Eaton-Gersovitz Model Households The Government Competitive Equilibrium Equilibrium under Optimal Capital Control Policy The Optimal-Policy Equilibrium as a Decentralization of the Eaton-Gersovitz Model Capital Control Dynamics Optimal Default Policy without Capital Controls Risk-Averse Lenders Long-Term Debt and Default A Random-Maturity Model A Perpetuity Model The Perpetuity Model as a Special Case of the Random-Maturity Model Endogenous Choice of Maturity Debt Renegotiation The Eaton-Gersovitz Model with Debt Renegotiation Quantitative Predictions of the Debt-Renegotiation Model Default and Monetary Policy The Twin Ds A Model of the Twin Ds Optimality of the Full-Employment Devaluation Policy Default Dynamics under Optimal Devaluation Policy and Currency Pegs Appendix: Sovereign Default Dates, Exercises 586 References 591 Index 601