International Real Business Cycles

Backus, David; Kehoe, Patrick J.; Kydland, Finn E.

doi:10.1086/261838

Cited by 1,437 publications

(1,166 citation statements)

References 23 publications

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“…Analysis of two-country models has also proceeded under the assumption of complete international asset markets; cf. Backus et al (1992), Baxter and Crucini (1993). Further discussion may be found in Baxter (1997).…”

Section: Introductionmentioning

confidence: 99%

“…Further discussion may be found in Baxter (1997). 2 Glick and Rogoff (1995) and Obstfeld and Rogoff (1996) have analyzed the implications of the degree of persistence of the exogenous shocks. These issues have also been studied extensively in a partial-equilibrium context, e.g., the large literature on the permanent-income hypothesis, starting with Friedman (1957).…”

Section: Introductionmentioning

confidence: 99%

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Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Kim¹,

Kim

2001

SSRN Journal

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In this paper, we investigate the welfare implications of alternative financial market structures in a two-country endowment economy model. In particular, we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset, and we compare this welfare level with that obtained under complete asset markets. The welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent, but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent. For realistic cases in which agents are very patient and shocks are highly persistent (that is, the discount factor and the first-order autocorrelation are both near unity), the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters. Finally, using a non-linear solution algorithm, we confirm that a two-country production economy with endogenous labor supply has qualitatively similar welfare properties.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Kim¹,

Kim

2001

SSRN Journal

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“…The benchmark model in international.macroeconomics is one of complete markets, where all three roles are performed perfec,tly (e.g. Backus, Kehoe and Kydland (1992)). …”

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confidence: 99%

Growth uncertainty and risksharing

Athanasoulis

Wincoop

2000

Journal of Monetary Economics

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How large are potential benefits from global risksharing? In order to answer this question we propose a new methodology that is closely connected with the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific growth in deviation from, world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged through risksharing, we use it to obtain a measure of the potential welfare gain'for' a representative country. We find that nations can reap very large benefits from, engaging in such risksharing arrangements. We would like to thank Richard Easterlin for his help in obtaining the fertility data. We literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific growth in deviation from, world growth on a wide set of vari.ables in the information set. Since this residual risk can be entirely hedged through ri-sksharing, we use it to obtain a measure of the potential welfare gain' for' a representative country. We find that nations can reap very large benefits from, engaging in such risksharing arrangements. Using post-war data, the gain for a 35-year horizon, corresponding to an equivalent permanent increase in consumption, is 6.6% when based on a set of 49 countries, and 1.5% when based on 21 OECD countri.es. Using historical data from. 1870 to 1990, we find that the potential gain for a 120-year hori.zon ranges from. 4-9% for a small set of ri.ch countri.es to 16.5% for a broad set of 24 countri.es. Disciplines

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“…Thus, the high variance of employment explains the decrease in U.S. welfare in cases of a high cross-country substitutability. Backus et al (1992) show that the positive correlation of output between the U.S. and foreign countries is greater than the positive correlation of consumption between the U.S. and foreign countries. Providing for these observations has posed a challenge for models.…”

Section: S Monetary Policy Under Exible Exchange Ratesmentioning

confidence: 77%

“…It has been challenging for models to provide for the observation that the positive correlation of output between the U.S. and foreign countries is larger than the positive correlation of consumptions (Backus et al 1992). Under producer (local) currency pricing, a monetary shock generates a negative (positive) correlation of output across countries, but a positive (negative) correlation of consumption Rogo¤ 1995, Betts andDevereux 2000).…”

Section: Introductionmentioning

confidence: 99%

China, the Dollar Peg and U.S. Monetary Policy

Tervala

2014

SSRN Journal

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I examine the transmission of expansionary U.S. monetary policy in case where developing countries--including China--peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.JEL Classification: E32, E52, F30, F41, F44

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International Real Business Cycles

Cited by 1,437 publications

References 23 publications

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Growth uncertainty and risksharing

China, the Dollar Peg and U.S. Monetary Policy

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