The Role of Transitory and Persistent Shocks in the Consumption Correlation and International Comovement Puzzles

Wada, Tatsuma

doi:10.1017/s1365100512000922

Cited by 3 publications

(1 citation statement)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…IRBC models comprise an extension of the closed economy Real Business Cycle models to an international setting where transactions take place both in goods as well as in financial markets [e.g., King et al (1988), Dmitriev and Krznar (2012), Wada (2014)]. In this setting, the models exhibit risk sharing across countries and a link emerges between the real exchange rate and a ratio of marginal utilities [see, e.g., Chari et al (2002)].…”

Section: International Real Business Cycle Modelsmentioning

confidence: 99%

A Nonlinear Analysis of the Real Exchange Rate–consumption Relationship

2017

View full text Add to dashboard Cite

A variety of international macroeconomic models predict a relationship between the real exchange rate and consumption. The empirical evidence in favor of such a relationship is limited, the so-called Backus and Smith puzzle. In this paper, we extend the analysis to allow for nonlinear dynamics and volatility changes across exchange rate regimes. Our findings suggest that long-run relationships in line with standard international business cycle models do exist for many Organization for Economic Co-operation and Development (OECD) countries. Further, Monte Carlo experiments illustrate that the nonlinear models can generate the Backus and Smith and the exchange rate disconnect puzzles. In this paper, we also contribute to the nonlinear real exchange rate literature by establishing a theoretical relationship between volatility and persistence. In accordance with the theoretical results, our empirical findings suggest that the increase in volatility in the post-Bretton Woods era is associated with relatively fast mean reversion of the real rate toward its equilibrium value.

show abstract

Section: International Real Business Cycle Modelsmentioning

confidence: 99%

A Nonlinear Analysis of the Real Exchange Rate–consumption Relationship

2017

View full text Add to dashboard Cite

show abstract

Measuring business cycles with structural breaks and outliers: Applications to international data

Perron

Wada

2016

Research in Economics

Self Cite

View full text Add to dashboard Cite

This paper first generalizes the trend-cycle decomposition framework of Perron and Wada (2009) based on unobserved components models with innovations having a mixture of normals distribution, which is able to handle sudden level and slope changes to the trend function as well as outliers. We investigate how important are the differences in the implied trend and cycle compared to the popular decomposition based on the Hodrick and Prescott (HP) (1997) filter. Our results show important qualitative and quantitative differences in the implied cycles for both real GDP and consumption series for the G7 countries. Most of the differences can be ascribed to the fact that the HP filter does not handle well slope changes, level shifts and outliers, while our method does so. Then, we reassess how such different cycles affect some socalled "stylized facts" about the relative variability of consumption and output across countries.JEL Classification: C22, E32.

show abstract

Sovereign Debt in the United States and Growth Expectations

Equiza-Goñi

2018

Macroecon. Dynam.

View full text Add to dashboard Cite

This paper shows empirical evidence and theory consistent with the US government using debt optimally to adjust the federal budget to news about long-term growth. First, using historical forecasts from the Congressional Budget Office (CBO) since 1984, I find that government purchases and deficits are positively correlated with expectations about long-term productivity, real gross domestic product, and tax revenue growth, whereas tax receipts are negatively correlated. A structural vector autoregression estimated with US quarterly data in 1955–2015 identifies permanent and transitory productivity shocks and points to “trend” shocks as the source of these correlations. Second, I present an open economy real business-cycle model with stochastic productivity trend and optimal public purchases and taxes. Calibrating the model to the US economy, the Ramsey planners' allocation yields moments aligned with those observed in the data.

show abstract

The Role of Transitory and Persistent Shocks in the Consumption Correlation and International Comovement Puzzles

Cited by 3 publications

References 47 publications

A Nonlinear Analysis of the Real Exchange Rate–consumption Relationship

A Nonlinear Analysis of the Real Exchange Rate–consumption Relationship

Measuring business cycles with structural breaks and outliers: Applications to international data

Sovereign Debt in the United States and Growth Expectations

Contact Info

Product

Resources

About