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Working Paper
The Domestic and International Effects of Interstate U.S. Banking
This paper studies the domestic and international effects of national bank market integration in a two-country, dynamic, stochastic, general equilibrium model with endogenous producer entry. Integration of banking across localities reduces the degree of local monopoly power of financial intermediaries. The economy that implements this form of deregulation experiences increased producer entry, real exchange rate appreciation, and a current account deficit. The foreign economy experiences a long-run increase in GDP and consumption. Less monopoly power in financial intermediation results in less ...
Working Paper
Does it matter (for equilibrium determinacy) what price index the central bank targets?
What inflation rate should the central bank target? The authors address determinacy issues related to this question in a two-sector model in which prices can differ in equilibrium. They assume that the degree of nominal price stickiness can vary across sectors and that labor is immobile. This paper?s contribution is to demonstrate that a modified Taylor principle holds in this environment. If the central bank elects to target sector A and responds to price movements in this sector with a coefficient greater than unity, then this policy rule will ensure determinacy across all sectors. These ...
Working Paper
The valuation channel of external adjustment
International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the "valuation channel" of external adjustment, namely capital gains and losses on the country's external assets and liabilities. We examine this valuation channel theoretically in a dynamic equilibrium portfolio model with international trade in equity that encompasses complete and incomplete asset market scenarios. By separating asset prices and quantities in the definition of net foreign assets, we can characterize the first-order dynamics of both valuation ...
Report
Towards new open economy macroeconometrics
I develop a model that improves upon the recent literature in open economy macroeconomics in that it lends itself more directly to empirical investigation. I solve the stationarity problem that characterizes many existing models by adopting an overlapping generations structure la Weil (1989). I model nominal rigidity by assuming that firms face explicit costs of output price inflation volatility. The specification generates an endogenous markup that fluctuates over the business cycle. I identify the two economies in my model with Canada--a small open economy--and the United States--taken as ...