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Productivity Shocks, Learning, and Open Economy Dynamics

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  • Mr. Jacques A Miniane

Abstract

I study the implications of productivity shocks in a model where agents observe the aggregate level of productivity but not its permanent and transitory components separately. The model's predictions under learning differ substantially from those under full information and are in line with several empirical findings: (i) the response of investment to a permanent shock is sluggish and peaks with delay; (ii) permanent shocks generate positive rather than negative savings on impact; and (iii) saving and investment are highly correlated despite the assumption of capital mobility. Unlike other standard explanations of the Feldstein-Horioka puzzle, learning induces high correlations irrespective of the assumed persistence of shocks.

Suggested Citation

  • Mr. Jacques A Miniane, 2004. "Productivity Shocks, Learning, and Open Economy Dynamics," IMF Working Papers 2004/088, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2004/088
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    References listed on IDEAS

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    Cited by:

    1. Mr. Evan C Tanner & Mr. Kevin J Carey, 2005. "The Perils of Tax Smoothing: Sustainable Fiscal Policy with Random Shocks to Permanent Output," IMF Working Papers 2005/207, International Monetary Fund.
    2. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
    3. Gregory Thwaites, 2006. "Optimal emerging market fiscal policy when trend output growth is unobserved," Bank of England working papers 308, Bank of England.

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