Table 2 - uploaded by Andrea Gerali
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In this paper we estimate several speciflcations of a two-country new open econ- omy macroeconomics (NOEM) model with the objective of analyzing the dynamics of the euro-dollar real exchange rate. The model features home bias, nontradable goods and incomplete international flnancial markets; we estimate versions of it with and without international...
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... are not informative about the degree of substitutability between tradeables and nontradeables ρ and the coefficient of relative risk aversion σ. 23 In order to comment on the parameters measuring the degrees of price stickyness and to allow for a better comparison with other empirical analyses, it is useful to transform them into probability of not adjusting prices and frequency of adjustments. Table 2, which reports these results, suggests that in each country wages are the most rigid prices, followed by those of nontradeables and tradeables. As we'll see, these two features allow fitting the real exchange rate and the inflation rates without the need of having extremely high values of import price stickiness or home bias to insulate stable domestic nominal prices from highly volatile international relative prices. ...
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Citations
This paper develops and estimates a dynamic stochastic general equilibrium New Keynesian model of a small open economy with partial dollarization. We use Bayesian techniques and Peruvian data to evaluate two forms of dollarization: currency substitution (CS) and price dollarization (PD). Our empirical results are as follows. First, we find that the two forms of partial dollarization are important to explain the Peruvian data. Second, models with both forms of dollarization dominate models without dollarization. Third, a counter-factual exercise shows that by eliminating both forms of partial dollarization the response of both output and consumption to a monetary policy shock doubles, making the interest rate channel of monetary policy more effective. Forth, based on the variance decomposition of the preferred model (with CS and PD), we find that demand type shocks explain almost all the fluctuation in CPI inflation, being the monetary shock the most important (39 percent). Remarkably, foreign disturbances account for 34 percent of output fluctuations.
This paper analyses the determinants of international asset portfolios, using a neoclassical dynamic general equilibrium model with home bias in consumption. For plausible parameter values, the model explains the fact that typical investors hold most of their wealth in domestic assets (portfolio home bias). In the model, the current account balance (change in net foreign assets) is mainly driven by fluctuations in equity prices; the current account is predicted to be highly volatile and to exhibit low serial correlation; changes in a country's foreign equity assets and liabilities are predicted to be highly positively correlated. The paper constructs current account series that include external capital gains/losses, for 17 OECD economies. The behaviour of those series confirms the theoretical predictions.
