Search Results
Working Paper
Catch-up growth followed by stagnation: Mexico, 1950–2010
In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982?1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico 1877? 2010. We conclude that the growth 1950?1981 was driven by urbanization, industrialization, and education and that Mexico would have grown even more rapidly if trade and investment had been liberalized sooner. If Mexico is to resume rapid growth ? so that it can approach U.S. levels of income ? it needs ...
Report
Determinacy of equilibria in dynamic models with finitely many consumers
We consider a production economy with a finite number of heterogeneous, infinitely lived consumers. We show that, if the economy is smooth enough, equilibria are locally unique for almost all endowments. We do so by converting the infinite-dimensional fixed point problem stated in terms of prices and commodities into a finite-dimensional Negishi problem involving individual weights in a social value function. By adding artificial fixed factors to utility and production functions, we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of ...
Monograph
Great depressions of the twentieth century
The worldwide Great Depression of the 1930s was a watershed for both economic thought and economic policymaking. It led to the belief that market economies are inherently unstable and to the revolutionary work of John Maynard Keynes. Its impact on popular economic wisdom is still apparent today. ; This book, which uses a common framework to study sixteen depressions, from the interwar period in Europe and America as well as from more recent times in Japan and Latin America, challenges the Keynesian theory of depressions. It develops and uses a methodology for studying depressions that relies ...
Report
Gambling for redemption and self-fulfilling debt crises
We develop a model for analyzing the sovereign debt crises of 2010?2012 in the Eurozone. The government sets its expenditure-debt policy optimally. The need to sell large quantities of bonds every period leaves the government vulnerable to self-fulfilling crises in which investors, anticipating a crisis, are unwilling to buy the bonds, thereby provoking the crisis. In this situation, the optimal policy of the government is to reduce its debt to a level where crises are not possible. If, however, the economy is in a recession where there is a positive probability of recovery in fiscal ...
Report
Risk Loving and Fat Tails in the Wealth Distribution
We study the dynamic properties of the wealth distribution in an overlapping generations model with warm-glow bequests and heterogeneous attitudes towards risk. Some dynasties of agents are risk averters, and others are risk lovers. Agents can invest in two types of Lucas trees. The two types of trees are symmetric in the sense that one type has a high return in states where the other has a return of zero. This symmetry allows risk averters to perfectly ensure their future income and eliminates aggregate uncertainty in the model. Furthermore, risk lovers take extreme portfolio positions, ...
Discussion Paper
Chronic sovereign debt crises in the Eurozone, 2010-2012
Two years after the rescue package for Greece provided by the European Union and the International Monetary Fund in May 2010, sovereign debt crises continue to threaten a growing number of countries in the eurozone. We develop a theory for analyzing these crises based on the research of Cole and Kehoe (1996, 2000) and Conesa and Kehoe (2012). In this theory, the need to frequently sell large quantities of bonds leaves a country vulnerable to sovereign debt crisis. This vulnerability provides a strong incentive to the country?s government to run surpluses to pay down its debt to a level where ...
Report
Modeling great depressions: the depression in Finland in the 1990s
This paper is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990?93 was driven by a combination of a drop in total factor productivity (TFP) during 1990?92 and of increases in taxes on labor and consumption and increases in government consumption during 1989?94, which drove down hours worked in Finland. We attempt to ...
Discussion Paper
Improving the Analysis of Trade Policy
The standard model that economists use to analyze the impact of trade reforms systematically underpredicts changes in trade patterns. It not only underestimates overall trade magnitudes, but also fails to predict which industries experience the largest trade increases. This failure results from not accounting for rapid growth in post-liberalization trade of the products that these industries produce. {{p}} This paper documents these weaknesses and demonstrates an alternative methodology. {{p}} Our modified model performs better because it accounts for the rapid growth of trade in products ...
Journal Article
Modeling great depressions: the depression in Finland in the 1990s
This article is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990?93 was driven by a combination of a drop in total factor productivity (TFP) during 1990?92 and of increases in taxes on labor and consumption and increases in government consumption during 1989?94, which drove down hours worked in Finland. We attempt to ...
Journal Article
Capturing NAFTA's impact with applied general equilibrium models
We examine the results of four static applied general equilibrium (AGE) modeling teams' analyses of the effects of NAFTA. What they show is that Mexico's economy, because it's the smallest, will see the biggest NAFTA-produced increase in economic welfare: from 2 to 5 percent of GDP. The U.S. welfare increase will be small, around 0.1 percent of GDP; Canada will notice no welfare increase due to NAFTA. We then discuss two examples of dynamic phenomena?labor force adjustment and capital flows?which are likely to influence NAFTA's welfare impact, but that aren't easy to incorporate into static ...