Search Results
Journal Article
Understanding Global Trends in Long-run Real Interest Rates
The authors explore trends in long-run real interest rates and their underlying factors for the 20 largest economies from the 1950s through the present day. {{p}}Real, or inflation-adjusted, interest rates may well be the most important prices for any nation?s economy. They govern intertemporal purchasing decisions facing households, firms, and all levels of government. That is, virtually all interactions in the marketplace that entail making a choice between spending now and spending later necessarily involve real interest rates, which specify the real cost of borrowing to make a purchase ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
The global welfare impact of China: trade integration and technological change
This paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ric a rdian-Heckscher-Ohlin model implemented on 75 countries. We simulate two alternative productivity growth scenarios: a balanced one in which China's productivity grows at the sam e rate in each sector, and an unbalanced one in which China's comparative disadvantage sectors catch up disproportionately faster to the world productivity frontier. Contrary to a well-known conjecture (Samuelson 2004), the large majority of countries in the sample, including the developed ones, ...
Working Paper
The Relationship between Debt and Output
In this paper we empirically explore the relationship between debt and output in a panel of 72 countries over the period 1970–2014 using a vector autoregression (VAR). We document two puzzling empirical findings that contrast with what is predicted by a standard small open economy model by Aguiar and Gopinath (2007), where debt and output endogenously respond to total factor productivity (TFP) shocks. First, developing countries’ debt falls after a positive output shock, while the model predicts a debt expansion. Second, output declines in developed and developing countries after a debt ...
Report
Firm dynamics and financial development
This paper studies the impact of cross-country variation in financial market development on firms? financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms? financial structure in the data and show that financial restrictions can account for the ...
Working Paper
Trade Integration, Global Value Chains and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multistage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
A Quantitative Analysis of Tariffs Across U.S. States
We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2% to 25% across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to –0:3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred" tariff rate varies greatly across states. Foreign retaliation in trade policy ...
Newsletter
The dynamic relationship between global debt and output
Given the ramifications of indebtedness for global growth, researchers and policymakers are keenly interested in the mechanisms underlying the linkages between debt and economic output. In our research, summarized in this article, we find that a debt shock adversely affects future economic output, and the impact is most pronounced in developing countries and in countries with a fixed exchange rate regime. This information and related results from the study are useful for policymakers considering appropriate levels of debt as well as an exchange rate regime that is most conducive to economic ...
Report
Structural change in an open economy
We develop a tractable, three-sector model to study structural change in a two-country world. The model features an endogenous pattern of trade dictated by comparative advantage. We derive an intuitive expression linking sectoral employment shares to sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in productivity and in trade barriers affect expenditure and net export shares, and thus, employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country ...
Discussion Paper
Real Interest Rates over the Long Run
Long-term interest rates have a crucial influence on virtually all major financial decisions faced by households, businesses and governments. This paper reviews several decades of data on long-term rates internationally, explores several factors that determine them and discusses implications of this evidence. {{p}} The data indicate declining long-term rates since the 1980s, converging internationally at very low levels. This implies that the rate decline is not due to the Great Recession or to the early 2000s downturn. It further suggests a higher likelihood than before of hitting the zero ...