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Working Paper
Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations
Gertler, Mark; Santacreu, Ana Maria; Comin, Diego (2009-06-01)
We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The frame- work shares the emphasis of the recent ?new shock? literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. As we show, the model also ...
Working Papers , Paper 2014-45

Working Paper
When does the cost channel pose a challenge to inflation targeting central banks?
Smith, Andrew Lee (2015-06-01)
In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank's inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper bound, but coefficients in the range of those on the Taylor rule place the economy well within the determinacy region. However, when there is time-variation in the share of firms who finance their inputs (i.e. Markov-Switching) then inflation targeting interest rate rules are often found to result in ...
Research Working Paper , Paper RWP 15-6

Working Paper
Perturbation methods for Markov-switching DSGE models
Rubio-Ramirez, Juan F.; Foerster, Andrew T.; Zha, Tao; Waggoner, Daniel F. (2014-08-01)
Markov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method," partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem ...
FRB Atlanta Working Paper , Paper 2014-16

Working Paper
Credit Search and Credit Cycles
Wen, Yi; Dong, Feng; Wang, Pengfei (2015-08-01)
The supply and demand of credit are not always well aligned and matched, as is reflected in the countercyclical excess reserve-to-deposit ratio and interest spread between the lending rate and the deposit rate. We develop a search-based theory of credit allocations to explain the cyclical fluctuations in both bank reserves and the interest spread. We show that search frictions in the credit market can not only naturally explain the countercyclical bank reserves and interest spread, but also generate endogenous business cycles driven primarily by the cyclical utilization rate of credit ...
Working Papers , Paper 2015-23

Working Paper
On what states do prices depend? answers from ecuador
Landry, Anthony E.; Crucini, Mario J.; Benedict, Craig (2016-08-12)
In this paper, we argue that differences in the cost structure across sectors play an important role in the decision of firms to adjust their prices. We develop a menu cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut due to the high volatility in wholesale gasoline prices ...
Globalization Institute Working Papers , Paper 278

Working Paper
The effects of government spending on real exchange rates: evidence from military spending panel data
Miyamoto, Wataru; Nguyen, Thuy Lan; Sheremirov, Viacheslav (2016-10-01)
Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account deteriorates in both groups of countries. These findings are not consistent with standard ...
Working Papers , Paper 16-14

Working Paper
Interest Rate Volatility and Sudden Stops : An Empirical Investigation
Tenorio, Gabriel; Reyes-Heroles, Ricardo M. (2017-07)
Using a multi-country regime-switching vector autoregressive (VAR) model we document the existence of two regimes in the volatility of interest rates at which emerging economies borrow from international financial markets, and study the statistical relationship of such regimes with episodes of sudden stops. Periods of high volatility tend to be persistent and are associated with high interest rates, the occurrence of sudden stops in external financing, and large declines in economic activity. Most strikingly, we show that regime switches drive the countercyclicality of interest rates in ...
International Finance Discussion Papers , Paper 1209

Working Paper
A Theory of Sticky Rents: Search and Bargaining with Incomplete Information
Verbrugge, Randal; Gallin, Joshua H. (2017-05-05)
The housing rental market offers a unique laboratory for studying price stickiness. This paper is motivated by two facts: 1. Tenants? rents are remarkably sticky even though regular and expected recontracting would, by itself, suggest substantial rent flexibility. 2. Rent stickiness varies significantly across structure type; for example, detached unit rents are far stickier than large apartment unit rents. We offer the first theoretical explanation of rent stickiness that is consistent with these facts. In this theory, search and bargaining with incomplete information generates stickiness in ...
Working Papers (Old Series) , Paper 1705

Working Paper
Does the US current account show a symmetric behavior over the business cycle?
Duncan, Roberto (2015-09-01)
Traditionally, the literature that attempts to explain the link between the current account and output finds a linear negative relationship (e.g., Backus et al., 1995). Using nonparametric regressions, we find a robust U-shaped relationship between the U.S. current account and the GDP cycle. When output is above (below) its trend the current account and detrended output are positively (negatively) correlated. We argue that this nonlinearity might be caused by persistent productivity shocks coupled with uncertainty shocks about future productivity.
Globalization Institute Working Papers , Paper 253

Working Paper
Globalisation, domestic inflation and the global output gaps: evidence from the Euro era
Calza, Alessandro (2008)
This paper tests whether the proposition that globalisation has led to greater sensitivity of domestic inflation to the global output gap (the "global output gap hypothesis") holds for the euro area. The empirical analysis uses quarterly data over the period 1979?2003. Measures of the global output gap using two different weighting schemes (based on PPPs and trade data) are considered. We find little evidence that global capacity constraints have either explanatory or predictive power for domestic consumer price inflation in the euro area. Based on these findings, the prescription that ...
Globalization Institute Working Papers , Paper 13

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