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  • 4q77fr34w?file=thumbnail
    Creator: Cole, Harold Linh, 1957-, Ohanian, Lee E., Riascos, Alvaro, and Schmitz, James Andrew
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 351

    Latin American countries are the only Western countries that are poor and that aren’t gaining ground on the United States. This paper evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to TFP differences. Latin America’s TFP gap is not plausibly accounted for by human capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding low Latin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries. We also document a number of microeconomic cases in Latin America in which large reductions in competitive barriers increase productivity to Western levels.

    Stichwort: Latin America
    Fach: N26 - Economic History: Financial Markets and Institutions: Latin America; Caribbean and N20 - Economic History: Financial Markets and Institutions: General, International, or Comparative
  • S7526c524?file=thumbnail
    Creator: Alvarez, Fernando, 1964-, Atkeson, Andrew, and Kehoe, Patrick J.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 260

    This paper analyses the effects of open market operations on interest rates in a model in which agents must pay a fixed cost to exchange assets and cash. Asset markets are endogenously segmented in that some agents choose to pay the fixed cost and some do not. When the fixed cost is zero, the model reduces to the standard one in which persistent money injections increase nominal interest rates, flatten the yield curve, and lead to a downward-sloping yield curve on average. In contrast, if markets are sufficiently segmented, then persistent money injections decrease interest rates, steepen or even twist the yield curve, and lead to an upward-sloping yield curve on average.

    Fach: E52 - Monetary Policy and E43 - Interest Rates: Determination, Term Structure, and Effects
  • Rx913p965?file=thumbnail
    Creator: Marshall, Robert and Merlo, Antonio
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 220

    Many unions in the United States have for several years engaged in what is known as pattern bargaining—a union determines a sequence for negotiations with firms within an industry where the agreement with the first firm becomes the take-it-or-leave-it offer by the union for all subsequent negotiations. In this paper, we show that pattern bargaining is preferred by a union to both simultaneous industrywide negotiations and sequential negotiations without a pattern. In recent years, unions have increasingly moved away from patterns that equalized wage rates across firms when these patterns did not equalize interfirm labor costs. Allowing for interfirm productivity differentials within an industry, we show that for small interfirm productivity differentials, the union most prefers a pattern in wages, but for a sufficiently wide differential, the union prefers a pattern in labor costs.

    Fach: J50 - Labor-Management Relations, Trade Unions, and Collective Bargaining: General and L13 - Oligopoly and Other Imperfect Markets
  • Vd66vz98m?file=thumbnail
    Creator: McGrattan, Ellen R. and Prescott, Edward C.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 407

    Appendix A provides firm-level and industry-level evidence that is consistent with several key features of our model, including the predictions that rates of return increase with a firm’s intangible investments and foreign affiliate rates of return increase with age and with their parents’ R&D intensity. Appendix B provides details for the computation of our model’s equilibrium paths, the construction of model national and international accounts, and the sensitivity of our main findings to alternative parameterizations of the model. We demonstrate that the main finding of our paper—namely, that the mismeasurement of capital accounts for roughly 60 percent of the gap in FDI returns—is robust to alternative choices of income shares, depreciation rates, and tax rates, assuming the same procedure is followed in setting exogenous parameters governing the model’s current account. Appendix C demonstrates that adding technology capital and locations to an otherwise standard two-country general equilibrium model has a large impact on the predicted behavior of labor productivity and net exports.

    Fach: F32 - Current Account Adjustment; Short-term Capital Movements and F23 - Multinational Firms; International Business
  • 2514nk59j?file=thumbnail
    Creator: Kaplan, Greg
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 449

    This paper uses an estimated structural model to argue that the option to move in and out of the parental home is an important insurance channel against labor market risk for youths who do not attend college. Using data from the NLSY97, I construct a new monthly panel of parent-youth coresidence outcomes and use it to document an empirical relationship between these movements and individual labor market events. The data is then used to estimate the parameters of a dynamic game between youths and their altruistic parents, featuring coresidence, labor supply and savings decisions. Parents can provide both monetary support through explicit financial transfers, and non-monetary support in the form of shared residence. To account for the data, two types of exogenous shocks are needed. Preference shocks are found to explain most of the cross-section of living arrangements, while labor market shocks account for individual movements in and out of the parental home. I use the model to show that coresidence is a valuable form of insurance, particularly for youths from poorer families. The option to live at home also helps to explain features of aggregate data for low-skilled young workers: their low savings rates and their relatively small consumption responses to labor market shocks. An important implication is that movements in and out of home can reduce the consumption smoothing benefits of social insurance programs.

  • Ng451h549?file=thumbnail
    Creator: Ayres, João, Hevia, Constantino, and Nicolini, Juan Pablo
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 584

    In this paper, we show that there is substantial comovement between prices of primary commodities such as oil, aluminum, maize, or copper and real exchange rates between developed economies such as Germany, Japan, and the United Kingdom against the US dollar. We therefore explicitly consider the production of commodities in a two-country model of trade with productivity shocks and shocks to the supplies of commodities. We calibrate the model so as to reproduce the volatility and persistence of primary commodity prices and show that it delivers equilibrium real exchange rates that are as volatile and persistent as in the data. The model rationalizes an empirical strategy to identify the fraction of the variance of real exchange rates that can be accounted for by the underlying shocks, even if those are not observable. We use this strategy to argue that shocks that move primary commodity prices account for a large fraction of the volatility of real exchange rates in the data. Our analysis implies that existing models used to analyze real exchange rates between large economies that mostly focus on trade between differentiated final goods could benefit, in terms of matching the behavior of real exchange rates, by also considering trade in primary commodities.

    Stichwort: Real exchange rate disconnect puzzle and Primary commodity prices
    Fach: F31 - Foreign Exchange and F41 - Open Economy Macroeconomics
  • Ff365535g?file=thumbnail
    Creator: Guler, Bulent, Guvenen, Fatih, and Violante, Giovanni L.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 426

    Search theory routinely assumes that decisions about the acceptance/rejection of job offers (and, hence, about labor market movements between jobs or across employment states) are made by individuals acting in isolation. In reality, the vast majority of workers are somewhat tied to their partners—in couples and families—and decisions are made jointly. This paper studies, from a theoretical viewpoint, the joint job-search and location problem of a household formed by a couple (e.g., husband and wife) who perfectly pools income. The objective of the exercise, very much in the spirit of standard search theory, is to characterize the reservation wage behavior of the couple and compare it to the single-agent search model in order to understand the ramifications of partnerships for individual labor market outcomes and wage dynamics. We focus on two main cases. First, when couples are risk averse and pool income, joint search yields new opportunities—similar to on-the-job search—relative to the single-agent search. Second, when the two spouses in a couple face job offers from multiple locations and a cost of living apart, joint search features new frictions and can lead to significantly worse outcomes than single-agent search.

    Fach: J64 - Unemployment: Models, Duration, Incidence, and Job Search, J61 - Geographic Labor Mobility; Immigrant Workers, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • Hm50tr78v?file=thumbnail
    Creator: Prescott, Edward C. and Wallenius, Johanna
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 457

    There have been tremendous advances in macroeconomics, following the introduction of labor supply into the field. Today it is widely acknowledged that labor supply matters for many key economic issues, particularly for business cycles and tax policy analysis. However, the extent to which labor supply matters for such questions depends on the aggregate labor supply elasticity—that is, the sensitivity of the time allocation between market and non-market activities to changes in the effective wage. The magnitude of the aggregate labor supply elasticity has been the subject of much debate for several decades. In this paper we review this debate and conclude that the elasticity of labor supply of the aggregate household is much higher than the elasticity of the identical households being aggregated. The aggregate household utility function differs from individuals’ utility functions for the same reason the aggregate production function differs from individual firms’ production functions being aggregated. The differences in individual and aggregate supply elasticities are what aggregation theory predicts.

  • 2227mp69j?file=thumbnail
    Creator: Amador, Manuel and Phelan, Christopher
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 564

    This paper presents a continuous-time model of sovereign debt. In it, a relatively impatient sovereign government’s hidden type switches back and forth between a commitment type, which cannot default, and an optimizing type, which can default on the country’s debt at any time, and assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price. We show that if these beliefs satisfy reasonable assumptions, in any Markov equilibrium, the optimizing type mimics the commitment type when borrowing, revealing its type only by defaulting on its debt at random times. Further, in such Markov equilibria (the solution to a simple pair of ordinary differential equations), there are positive gross issuances at all dates, constant net imports as long as there is a positive equilibrium probability that the government is the optimizing type, and net debt repayment only by the commitment type. For countries that have recently defaulted, the interest rate the country pays on its debt is a decreasing function of the amount of time since its last default, and its total debt is an increasing function of the amount of time since its last default. For countries that have not recently defaulted, interest rates are constant.

    Stichwort: Sovereign debt, Sovereign default, Debt intolerance, Reputation, Learning, and Serial defaulters
    Fach: F34 - International Lending and Debt Problems
  • Quarterly Review


    The Quarterly Review, or QR, is the Research Division's peer-reviewed scholarly journal. It presents economic research aimed at improving policymaking by the Federal Reserve System and other governmental authorities. As of 2012, the Quarterly Review became an online-only journal.

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