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Real interest rates and productivity in small open economies

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  • Monacelli, Tommaso
  • Sala, Luca
  • Siena, Daniele

Abstract

We construct factor utilization-adjusted measures of aggregate TFP for a sample of advanced (AEs) and emerging market small open economies (EMEs). We estimate the effects of real interest rate shocks on TFP and GDP using structural VARs. The results are starkly different in the two groups of countries. While TFP is pro-cyclical in both sets of countries, lower real interest rates - a proxy for capital inflows - lead to productivity booms in EMEs, whereas they lead to a contraction in productivity in AEs.

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  • Monacelli, Tommaso & Sala, Luca & Siena, Daniele, 2023. "Real interest rates and productivity in small open economies," Journal of International Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:inecon:v:142:y:2023:i:c:s0022199623000326
    DOI: 10.1016/j.jinteco.2023.103746
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    Cited by:

    1. Daniele Siena, 2021. "The Euro Area Periphery and Imbalances: Is it an Anticipation Story?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 278-308, April.
    2. Born, Benjamin & Müller, Gernot J. & Pfeifer, Johannes & Wellmann, Susanne, 2020. "Different no more: Country spreads in advanced and emerging economies," University of Tübingen Working Papers in Business and Economics 129, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    3. Alimov, Behzod, 2019. "Private debt, public debt, and capital misallocation," IWH-CompNet Discussion Papers 7/2019, Halle Institute for Economic Research (IWH).
    4. Jalles, João Tovar & Karras, Georgios, 2023. "Macroeconomic volatility and the current account: Extending the evidence," Economic Modelling, Elsevier, vol. 125(C).
    5. Mikhail Mamonov & Anna Pestova, 2023. "The Price of War: Macroeconomic and Cross-Sectional Effects of Sanctions on Russia," CERGE-EI Working Papers wp756, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    Keywords

    Aggregate productivity; Real interest rates; Capital inflows; Structural VARs;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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