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.
Keyword: Real exchange rate, Structural change, and Global imbalances Subject (JEL): F34 - International Lending and Debt Problems, E13 - General Aggregative Models: Neoclassical, and O41 - One, Two, and Multisector Growth Models
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.
Subject (JEL): E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, E13 - General Aggregative Models: Neoclassical, E32 - Business Fluctuations; Cycles, F59 - International Relations and International Political Economy: Other, and F41 - Open Economy Macroeconomics