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  • K3569438f?file=thumbnail
    Creator: Kehoe, Timothy Jerome, 1953-
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 318
    Abstract:

    Currently, Argentina is experiencing what the government describes as a “great depression.” Using the “Great Depressions” methodology developed by Cole and Ohanian (1999) and Kehoe and Prescott (2002), we find that the primary determinants of both the boom in Argentina in the 1990s and the subsequent depression were changes in productivity, rather than changes in factor inputs. The timing of events links the boom to the currency-board-like Convertibility Plan and the crisis to its collapse. To gain credibility, the Argentine government took measures to make abandoning the plan more costly. Because the government was unable to enforce fiscal discipline, however, these increased costs failed to make the plan more credible and instead made the crisis far worse when it failed.

  • Rf55z789j?file=thumbnail
    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.

  • Js956f91x?file=thumbnail
    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.

  • B2773v791?file=thumbnail
    Creator: Kehoe, Timothy Jerome, 1953-
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 460
    Abstract:

    Economic equilibria are usually solutions to fixed point problems rather than solutions to convex optimization problems. This leads to two difficulties that are closely related: First, equilibria may be difficult to compute. Second, a model economy may have more than one equilibrium. This paper explores these issues for a number of stylized economies, including static economies that involve both pure exchange and production, economies that have infinite numbers of goods because of time and uncertainty, and economies with distortionary taxes and externalities. There are numerous numerical examples that illustrate the theory and could serve as test problems for algorithms.

  • 4x51hj10s?file=thumbnail
    Creator: Kehoe, Timothy Jerome, 1953-
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 320
    Abstract:

    This paper evaluates the performances of three of the most prominent multisectoral static applied general equilibrium models used to predict the impact of the North American Free Trade Agreement. These models drastically underestimated the impact of NAFTA on North American trade. Furthermore, the models failed to capture much of the relative impacts on different sectors. Ex-post performance evaluations of applied GE models are essential if policymakers are to have confidence in the results produced by these models. Such valuations also help make applied GE analysis a scientific discipline in which there are well-defined puzzles with clear successes and failures for competing theories. Analyzing sectoral trade data indicates the need for a new theoretical mechanism that generates large increases in trade in product categories with little or no previous trade. To capture changes in macroeconomic aggregates, the models need to be able to capture changes in productivity.

  • Hq37vn616?file=thumbnail
    Creator: Kehoe, Timothy Jerome, 1953-
    Description:

    Data supporting the chapter "What Can We Learn from the 1998-2002 Depression in Argentina?"

  • R207tp578?file=thumbnail
    Creator: Kehoe, Patrick J. and Kehoe, Timothy Jerome, 1953-
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 18, No. 2
    Abstract:

    In this paper, we describe and analyze the basic structure of the applied general equilibrium (AGE) models used to assess the effects of government trade policies. Once we have constructed the basic model, we extend it to cover features such as increasing returns to scale, imperfect competition, and differentiated products, following the AGE modeling trend of the past 10 years. We then compare a static AGE model's predictions with the actual data on how Spain was affected by entering the European Community and find that, when exogenous effects are included, a static AGE model's predictions are fairly accurate.

  • Tx31qh83m?file=thumbnail
    Creator: Kehoe, Patrick J. and Kehoe, Timothy Jerome, 1953-
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 18, No. 2
    Abstract:

    We examine the results of four static applied general equilibrium (AGE) modeling teams' analyses of the effects of NAFTA. What they show is that Mexico's economy, because it's the smallest, will see the biggest NAFTA-produced increase in economic welfare: from 2 to 5 percent of GDP. The U.S. welfare increase will be small, around 0.1 percent of GDP; Canada will notice no welfare increase due to NAFTA. We then discuss two examples of dynamic phenomena—labor force adjustment and capital flows—which are likely to influence NAFTA's welfare impact, but that aren't easy to incorporate into static AGE models. Early results indicate that this is an important direction for future study.

  • T722h895k?file=thumbnail
    Creator: Kehoe, Timothy Jerome, 1953- and Prescott, Edward C.
    Description:

    Chapter 1 of Great Depressions of the Twentieth Century, Timothy J. Kehoe and Edward C. Prescott, eds.