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Deflationary shocks and monetary rules: an open-economy scenario analysis
Laxton, Douglas; N'Diaye, Papa; Pesenti, Paolo (2006-12-01)
The paper considers the macroeconomic transmission of demand and supply shocks in an open economy under alternative assumptions about whether the zero interest rate floor (ZIF) is binding. It uses a two-country general-equilibrium simulation model calibrated to the Japanese economy relative to the rest of the world. Negative demand shocks have more prolonged and conspicuous effects on the economy when the ZIF is binding than when it is not binding. Positive supply shocks can actually extend the period of time over which the ZIF may be expected to bind. Economies that are more open hit the ZIF ...
Staff Reports , Paper 267

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Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies
McCarthy, Jonathan (2000-09-01)
This paper examines the impact of exchange rates and import prices on the domestic producer price index and consumer price index in selected industrialized economies. The empirical model is a vector autoregression incorporating a distribution chain of pricing. When the model is estimated over the post-Bretton Woods era, impulse responses indicate that exchange rates have a modest effect on domestic price inflation while import prices have a stronger effect. Pass-through is larger in countries with a larger import share and more persistent exchange rates and import prices. Over 1996-98, these ...
Staff Reports , Paper 111

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Growth uncertainty and risksharing
Van Wincoop, Eric; Athanasoulis, Stefano (1997-10-01)
We propose a new methodology to evaluate the gains from global risksharing that is closely connected to the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific deviations from world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged, we use it to obtain a measure of welfare gain that can be achieved by a representative country. We find that nations can reap very large benefits from engaging in such risksharing arrangements. Using post-war data, the ...
Staff Reports , Paper 30

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The Effects of the saving and banking glut on the U.S. economy
Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea (2013-10-01)
We use a quantitative equilibrium model with houses, collateralized debt, and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one-fourth and one-third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.
Staff Reports , Paper 648

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Good news is bad news: leverage cycles and sudden stops
Akinci, Ozge; Chahrour, Ryan (2015-09-01)
We show that a model with imperfectly forecastable changes in future productivity and an occasionally binding collateral constraint can match a set of stylized facts about ?sudden stop? events. ?Good? news about future productivity raises leverage during times of expansion, increasing the probability that the constraint binds, and a sudden stop occurs, in future periods. The economy exhibits a boom period in the run-up to the sudden stop, with output, consumption, and investment all above trend, consistent with the data. During the sudden stop, the nonlinear effects of the constraint induce ...
Staff Reports , Paper 738

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Is the integration of world asset markets necessarily beneficial in the presence of monetary shocks?
Tille, Cedric (2000-11-01)
This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial. The country with the more volatile shocks will benefit whereas the country where the volatility of shocks is moderate will suffer. The welfare effects reflect changes in the terms of trade that occur because forward looking price setters adjust to the changes in exchange rate volatility brought about ...
Staff Reports , Paper 114

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Capital controls: a normative analysis
De Paoli, Bianca; Lipinska, Anna (2013)
Countries' concerns about the value of their currency have been studied and documented extensively in the literature. Capital controls can be?and often are?used as a tool to manage exchange rate fluctuations. This paper investigates whether countries can benefit from using such a tool. We develop a welfare-based analysis of whether (or, in fact, how) countries should tax international borrowing. Our results suggest that restricting international capital flows through the use of these taxes can be beneficial for individual countries, although it would limit cross-border pooling of risk. The ...
Staff Reports , Paper 600

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Productivity spillovers, terms of trade, and the "home market effect"
Corsetti, Giancarlo; Martin, Philippe; Pesenti, Paolo (2005-02-01)
This paper analyzes the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a distinction between productivity gains from manufacturing efficiency and those related to firms' lower cost of entry or product differentiation. Our model suggests that countries with lower manufacturing costs have higher GDP but supply a smaller number of goods at a lower international price. Countries with ...
Staff Reports , Paper 201

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Macroeconomic Volatility and External Imbalances
Perri, Fabrizio; Fogli, Alessandra (2015-05-11)
Does macroeconomic volatility/uncertainty affect accumulation of net foreign assets? In OECD economies over the period 1970-2012, changes in country specific aggregate volatility are, after controlling for a wide array of factors, significantly positively associated with net foreign asset position. An increase in volatility (measured as the standard deviation of GDP growth) of 0.5% over period of 10 years is associated with an increase in the net foreign assets of around 8% of GDP. A standard open economy model with time varying aggregate uncertainty can quantitatively account for this ...
Staff Report , Paper 512

Working Paper
Reaction functions in a small open economy: What role for non-traded inflation?
Santacreu, Ana Maria (2005-06-01)
I develop a structural general equilibrium model and estimate it for New Zealand using Bayesian techniques. The estimated model considers a monetary policy regime where the central bank targets overall inflation but is also concerned about output, exchange rate movements, and interest rate smoothing. Taking the posterior mean of the estimated parameters as representing the characteristics of the New Zealand economy, I compare the consequences that two alternative reaction functions have on the central bank's loss, for different specifications of its preferences. I obtain conditions under ...
Working Papers , Paper 2014-44

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