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Creator: Backus, David, Kehoe, Patrick J., and Kehoe, Timothy Jerome, 1953- Series: Modeling North American economic integration Abstract:
We look for the scale effects on growth predicted by some theories of trade and growth based on dynamic returns to scale at the national or industry level. The increasing returns can arise from learning by doing, investment in human capital, research and development, or development of new products. We find some evidence of a relation between growth rates and the measures of scale implied by the learning by doing theory, especially total manufacturing. With respect to human capital, there is some evidence of a relation between growth rates and per capita measures of inputs into the human capital accumulation process, but little evidence of a relation with the scale of inputs. There is also little evidence that growth rates are related to measures of inputs into R&D. We find, however, that growth rates are related to measures of intra-industry trade, particularly when we control for scale of industry.
Palavra-chave: External effects, Intra-industry trade, Specialization indexes, Increasing returns to scale, Learning by doing, Research and development, Human capital, and International trade Sujeito: F43 - Economic Growth of Open Economies and O41 - One, Two, and Multisector Growth Models
Creator: Kehoe, Timothy Jerome, 1953- and Meza, Felipe Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 693 Abstract:
In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982–1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico 1877–2010. We conclude that the growth 1950–1981 was driven by urbanization, industrialization, and education and that Mexico would have grown even more rapidly if trade and investment had been liberalized sooner. If Mexico is to resume rapid growth — so that it can approach U.S. levels of income — it needs further reforms.
Palavra-chave: Total factor productivity, Mexico, and Economic growth Sujeito: O54 - Economywide Country Studies: Latin America; Caribbean, N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean, and O11 - Macroeconomic Analyses of Economic Development
Creator: Kehoe, Timothy Jerome, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 563 Abstract:
To illustrate the use of social accounting matrices (SAMs) in applied general equilibrium (GE) modeling, we use an aggregated SAM for the Spanish economy to calibrate a simple applied GE model. The idea is to construct artificial people—households, government, and a foreign sector—who make the same transactions in the equilibrium of the model economy as do their counterparts in the data. This calibration procedure can be augmented, or partially substituted for, by statistical estimation of key parameters. We show the usefulness of such a model by presenting the results of a comparative exercise that mimics the policy changes that took place in Spain during its 1986 integration into the European Community. Sub-sequent data shows the model results to be remarkably accurate, especially if we account for other major shocks affected the Spanish economy in 1986.
Creator: Kehoe, Timothy Jerome, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 491 Abstract:
The current tool of choice for analyzing the impact of a potential North American Free Trade Agreement on the economies of Canada, Mexico, and the United States is the static applied general equilibrium model. Although this type of model can do a good job in analyzing, and even in predicting, the impact of trade liberalization or tax reform on relative prices and resource allocation over a short time horizon, it does not attempt to capture the impact of government policy on growth rates. For this we need a dynamic model. This paper outlines some of the issues that confront a researcher interested in building a dynamic general equilibrium model to assess the potential economic impact of a NAFTA, including the impact on growth rates. Simple calculations based on preliminary empirical work indicate that the dynamic benefits of increased openness could dwarf the static benefits found by more conventional applied general equilibrium models.
Creator: Kehoe, Timothy Jerome, 1953- Descrição:
Data supporting the chapter "What Can We Learn from the 1998-2002 Depression in Argentina?"
Creator: Kehoe, Timothy Jerome, 1953-, Rossbach, Jack, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 492 Abstract:
This paper develops a methodology for predicting the impact of trade liberalization on exports by industry (3-digit ISIC) based on the pre-liberalization distribution of exports by product (5-digit SITC). Using the results of Kehoe and Ruhl (2013) that much of the growth in trade after trade liberalization is in products that are traded very little or not at all, we predict that industries with a higher share of exports generated by least traded products will experience more growth. Using our methodology, we develop predictions for industry-level changes in trade for the United States and Korea following the U.S.-Korea Free Trade Agreement (KORUS). As a test for our methodology, we show that it performs significantly better than the applied general equilibrium models originally used for the policy evaluation of the North American Free Trade Agreement (NAFTA).
Palavra-chave: Product , Trade liberalization, and Industry Sujeito: F17 - Trade: Forecasting and Simulation, F14 - Empirical Studies of Trade, and F13 - Trade Policy; International Trade Organizations
Creator: Kehoe, Timothy Jerome, 1953-, Ruhl, Kim J., and Steinberg, Joseph B. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 489 Abstract:
Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.
Palavra-chave: Global imbalances, Structural change, and Real exchange rate Sujeito: F34 - International Lending and Debt Problems, O41 - One, Two, and Multisector Growth Models, and E13 - General Aggregative Models: Neoclassical
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 453 Abstract:
Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.
Sujeito: E23 - Macroeconomics: Production, F14 - Empirical Studies of Trade, O20 - Development Planning and Policy: General, O10 - Economic Development: General, E65 - Studies of Particular Policy Episodes, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Kehoe, Timothy Jerome, 1953- and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 418 Abstract:
Three of the arguments made by Temin (2008) in his review of Great Depressions of the Twentieth Century are demonstrably wrong: that the treatment of the data in the volume is cursory; that the definition of great depressions is too general and, in particular, groups slow growth experiences in Latin America in the 1980s with far more severe great depressions in Europe in the 1930s; and that the book is an advertisement for the real business cycle methodology. Without these three arguments — which are the results of obvious conceptual and arithmetical errors, including copying the wrong column of data from a source — his review says little more than that he does not think it appropriate to apply our dynamic general equilibrium methodology to the study of great depressions, and he does not like the conclusion that we draw: that a successful model of a great depression needs to be able to account for the effects of government policy on productivity.
Palavra-chave: General equilibrium models, Depressions, and Economic fluctuations Sujeito: E32 - Business Fluctuations; Cycles and N10 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative
Creator: Fernández de Córdoba, Gonzalo, 1966- and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 421 Abstract:
Studying the experience of countries that have experienced great depressions during the twentieth century teaches us that massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression.
Creator: Betts, Caroline M. and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 415 Abstract:
We study the quarterly bilateral real exchange rate and the relative price of non-traded to traded goods for 1225 country pairs over 1980–2005. We show that the two variables are positively correlated, but that movements in the relative price measure are smaller than those in the real exchange rate. The relation between the two variables is stronger when there is an intense trade relationship between two countries and when the variance of the real exchange rate between them is small. The relation does not change for rich/poor country bilateral pairs or for high inflation/low inflation country pairs. We identify an anomaly: The relation between the real exchange rate and relative price of non-traded goods for US/EU bilateral trade partners is unusually weak.
Palavra-chave: Real Exchange Rates, Relative Prices, Non-Traded Goods, and Trade Relationships Sujeito: F14 - Empirical Studies of Trade, F41 - Open Economy Macroeconomics, F30 - International Finance: General, and F10 - Trade: General
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 414 Abstract:
A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994–95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.
Palavra-chave: Tradable, Nontradable, Mexico, Developing country crisis, Sudden stop, Real exchange rate, and Total factor productivity Sujeito: F34 - International Lending and Debt Problems, E21 - Macroeconomics: Consumption; Saving; Wealth, O41 - One, Two, and Multisector Growth Models, F43 - Economic Growth of Open Economies, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, F21 - International Investment; Long-term Capital Movements, F32 - Current Account Adjustment; Short-term Capital Movements, and O54 - Economywide Country Studies: Latin America; Caribbean
Creator: Conesa, Juan Carlos, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 401 Abstract:
This paper is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990–93 was driven by a combination of a drop in total factor productivity (TFP) during 1990–92 and of increases in taxes on labor and consumption and increases in government consumption during 1989–94, which drove down hours worked in Finland. We attempt to endogenize the drop in TFP in variants of the model with an investment sector and with terms-of-trade shocks but are unsuccessful.
Sujeito: E32 - Business Fluctuations; Cycles, F59 - International Relations and International Political Economy: Other, E13 - General Aggregative Models: Neoclassical, E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, and F41 - Open Economy Macroeconomics
Creator: Kehoe, Timothy Jerome, 1953-, Machicado, Carlos Gustavo, and Peres Cajías, José Alejandro, 1982- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 579 Abstract:
After the economic reforms that followed the National Revolution of the 1950s, Bolivia seemed positioned for sustained growth. Indeed, it achieved unprecedented growth from 1960 to 1977. Mistakes in economic policies, especially the rapid accumulation of debt due to persistent deficits and a fixed exchange rate policy during the 1970s, led to a debt crisis that began in 1977. From 1977 to 1986, Bolivia lost almost all the gains in GDP per capita that it had achieved since 1960. In 1986, Bolivia started to grow again, interrupted only by the financial crisis of 1998–2002, which was the result of a drop in the availability of external financing. Bolivia has grown since 2002, but government policies since 2006 are reminiscent of the policies of the 1970s that led to the debt crisis, in particular, the accumulation of external debt and the drop in international reserves due to a de facto fixed exchange rate since 2012.
Palavra-chave: Fiscal policy, Bolivia, Public enterprises, Monetary policy, and Hyperinflation Sujeito: H63 - National Debt; Debt Management; Sovereign Debt, E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy, E52 - Monetary Policy, and N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean
Creator: Asturias, Jose, Hur, Sewon, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 544 Abstract:
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
Palavra-chave: Exit, Productivity, Entry, Barriers to technology adoption, and Entry costs Sujeito: O38 - Technological Change: Government Policy, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, E22 - Investment; Capital; Intangible Capital; Capacity, and O10 - Economic Development: General
Creator: Conesa, Juan Carlos and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 550 Abstract:
In the early 1970s, hours worked per working-age person in Spain were higher than in the United States. Starting in 1975, however, hours worked in Spain fell by 40 percent. We find that 80 percent of the decline in hours worked can be accounted for by the evolution of taxes in an otherwise standard neoclassical growth model. Although taxes play a crucial role, we cannot argue that taxes drive all of the movements in hours worked. In particular, the model underpredicts the large decrease in hours in 1975–1986 and the large increase in hours in 1994–2007. The lack of productivity growth in Spain during 1994–2015 has little impact on the model’s prediction for hours worked.
Palavra-chave: Hours worked, Distortionary taxes, Total factor productivity, and Dynamic general equilibrium Sujeito: E13 - General Aggregative Models: Neoclassical, C68 - Computable General Equilibrium Models, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and H31 - Fiscal Policies and Behavior of Economic Agents: Household
Creator: Kehoe, Timothy Jerome, 1953-, Pujolas, Pau S., and Rossbach, Jack Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 537 Abstract:
Applied general equilibrium (AGE) models, which feature multiple countries, multiple industries, and input-output linkages across industries, have been the dominant tool for evaluating the impact of trade reforms since the 1980s. We review how these models are used to perform policy analysis and document their shortcomings in predicting the industry-level effects of past trade reforms. We argue that, to improve their performance, AGE models need to incorporate product-level data on bilateral trade relations by industry and better model how trade reforms lower bilateral trade costs. We use the least traded products methodology of Kehoe et al. (2015) to provide guidance on how improvements can be made. We provide further suggestions on how AGE models can incorporate recent advances in quantitative trade theory to improve their predictive ability and better quantify the gains from trade liberalization.
Palavra-chave: Applied general equilibrium, Input-output linkages, Armington elasticities, Trade costs, and Trade liberalization Sujeito: F17 - Trade: Forecasting and Simulation, F14 - Empirical Studies of Trade, F11 - Neoclassical Models of Trade, and F13 - Trade Policy; International Trade Organizations