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Long-run growth expectations and "global imbalances"

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  • Hoffmann, Mathias
  • Krause, Michael U.
  • Laubach, Thomas

Abstract

This paper examines to what extent the build-up of global imbalances since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents' perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2011/01.

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Date of creation: 2011
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Handle: RePEc:zbw:cfswop:201101

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Keywords: Open Economy DSGE Models; Trend Growth; Kalman Filter; Real-time Data; News and Business Cycles;

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References

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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
  2. Edge, Rochelle M. & Laubach, Thomas & Williams, John C., 2007. "Learning and shifts in long-run productivity growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(8), pages 2421-2438, November.
  3. Feldstein, Martin, 2008. "Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate," Scholarly Articles 2792081, Harvard University Department of Economics.
  4. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 69-102.
  5. Thomas Laubach & John C. Williams, 2001. "Measuring the natural rate of interest," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-56, Board of Governors of the Federal Reserve System (U.S.).
  6. Kahn, James A. & Rich, Robert W., 2007. "Tracking the new economy: Using growth theory to detect changes in trend productivity," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(6), pages 1670-1701, September.
  7. Martin S. Feldstein, 2008. "Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate," NBER Working Papers 13952, National Bureau of Economic Research, Inc.
  8. Charles Engel & John H Rogers, 2009. "Expected Consumption Growth from Cross-Country Surveys: Implications for Assessing International Capital Markets," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 543-573, August.
  9. Reuven Glick & Kenneth Rogoff, 1993. "Global Versus Country-Specific Productivity Shocks and the Current Acocount," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 31, Boston University, Institute for Economic Development.
  10. Robert Kollmann, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," ULB Institutional Repository 2013/7640, ULB -- Universite Libre de Bruxelles.
  11. Chen, Kaiji & Imrohoroglu, Ayse & Imrohoroglu, Selahattin, 2009. "A quantitative assessment of the decline in the U.S. current account," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(8), pages 1135-1147, November.
  12. Mico Loretan, 2005. "Indexes of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Win, pages 1-8.
  13. Ferrero, Andrea, 2010. "A structural decomposition of the U.S. trade balance: Productivity, demographics and fiscal policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(4), pages 478-490, May.
  14. James M. Nason & John H. Rogers, 2003. "The present-value model of the current account has been rejected: round up the usual suspects," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 760, Board of Governors of the Federal Reserve System (U.S.).
  15. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
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Citations

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Cited by:
  1. Amdur, David & Ersal Kiziler, Eylem, 2012. "Trend shocks and the countercyclical U.S. current account," MPRA Paper 40147, University Library of Munich, Germany.
  2. Hoffmann, Mathias & Krause, Michael U. & Laubach, Thomas, 2012. "Trend growth expectations and US house prices before and after the crisis," Discussion Papers 12/2012, Deutsche Bundesbank, Research Centre.
  3. Dan Cao & Jean-Paul L'Huillier, 2012. "Technological Revolutions and Debt Hangovers - Is There a Link?," EIEF Working Papers Series 1216, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2013.
  4. Timo Bettendorf, 2012. "Investigating Global Imbalances: Empirical Evidence from a GVAR Approach," Studies in Economics, Department of Economics, University of Kent 1217, Department of Economics, University of Kent.

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