SAVINGS, INVESTMENT, EMPLOYMENT, AND INFLATION IN A SMALL OPEN ECONOMY WITH HABIT PERSISTENCE

2010 ◽  
Vol 14 (3) ◽  
pp. 365-387 ◽  
Author(s):  
Arman Mansoorian ◽  
Leo Michelis ◽  
Mohammed Mohsin
Keyword(s):  
Steady State ◽  
Open Economy ◽  
Inflation Rate ◽  
Small Open Economy ◽  
Living Standards ◽  
Representative Agent ◽  
Habit Persistence ◽  
High Inflation ◽  
Net Foreign Asset ◽  
Over Time

The effects of inflation are studied for a small open economy with a cash-in-advance constraint on consumption in which the representative agent has preferences with habit persistence. An increase in the inflation rate requires a fall in the steady state living standards. On impact, to maintain living standards, the representative agent reduces his savings and labor supply. Investment falls and the current account turns into a deficit. In support of this model, we provide evidence from eight high-inflation countries suggesting that after an increase in the inflation rate, output and investment fall, and the net foreign asset position deteriorates over time.

The Risky Steady State

2011 ◽  
Vol 101 (3) ◽  
pp. 398-401 ◽  
Author(s):  
Nicolas Coeurdacier ◽  
Hélène Rey ◽  
Pablo Winant
Keyword(s):  
Steady State ◽  
Interest Rate ◽  
Open Economy ◽  
Quantitative Method ◽  
Small Open Economy ◽  
Foreign Asset ◽  
Stochastic Interest Rate ◽  
Stochastic Interest ◽  
Net Foreign Asset

We propose a simple quantitative method to linearize around the risky steady state of a small open economy. Unlike when the deterministic steady state is used, the net foreign asset position is well defined. We allow for stochastic income and stochastic interest rate.

Introduction: Changing Business Systems in the Netherlands in the Twentieth Century

2010 ◽  
Vol 84 (4) ◽  
pp. 737-750 ◽  
Author(s):  
Keetie Sluyterman
Keyword(s):  
Twentieth Century ◽  
The Netherlands ◽  
Open Economy ◽  
Small Open Economy ◽  
Economic Activities ◽  
Business Systems ◽  
Business System ◽  
National Business Systems ◽  
National Business ◽  
Over Time

The organization of economic activities differs among countries and over time. Differences between nations have been highlighted in academic discussions about national business systems and the varieties of capitalism. This group of articles about the Dutch business system contributes to these debates by offering new empirical research from the perspective of a small, open economy and highlighting changes that have occurred during the second half of the twentieth century. While they discuss developments in the Netherlands, the articles also explore general themes, including corporate governance, cartels, and the organization of multinational companies. While the articles show that business systems are in constant flux, comparisons between the Dutch and U.S. systems seem to suggest that each moves at a different pace. A particularly striking aspect of the Dutch stories is the large impact of developments abroad.

scholarly journals An Investigation into Rule of Thumb Behaviour in New Zealand

2021 ◽  
Author(s):  
◽  
Adam Malanchak
Keyword(s):  
New Zealand ◽  
Open Economy ◽  
Full Range ◽  
Small Open Economy ◽  
Estimation Procedure ◽  
New Keynesian ◽  
Specification Tests ◽  
Habit Persistence ◽  
Rule Of Thumb ◽  
Mcmc Estimation

<p>In recent times, macroeconomic models have begun to describe aggregate consumer and firm behaviour by allowing some proportion to behave in a rule of thumb manner. This dissertation attempts to address two main issues that are concurrent in the literature. First I test for the proportion of aggregate behaviour that deviates from Classical consumer allocation theory and New Keynesian firm pricing theory in New Zealand. Rule of thumb consumers are assumed to consume out of current income as opposed to obeying the Permanent Income Hypothesis, while rule of thumb firms set prices in a backward looking manner. Using the GMM estimation procedure, I examine the sensitivity of estimates across a range of instrumental variables. After positive GMM specification tests I find the proportion of rule of thumb consumers is 0.21 and the proportion of backward looking price setters is 0.82. These results suggest that specifications which fail to allow for rule of thumb behaviour cannot fully reflect consumer and firm decisions. The second main issue seeks to address how these estimates compare to those estimated in a small open economy DSGE model. Monte Carlo Markov Chain (MCMC) estimation finds an estimated degree of external habit persistence of 0.9, proportion of rule of thumb consumers of 0.34, and the proportion of backward looking price setters falls to 0.7. A full range of MCMC diagnostics is subsequently computed. The diagnostic tests are largely favourable.</p>

scholarly journals Retail Space for Rent! Macroeconomic Determinants of Shopping Complex Occupancy Rate

2021 ◽  
Vol 21 (1) ◽  
pp. 268-284
Author(s):  
Shan-Shan Goh ◽  
Tuck-Cheong Tang ◽  
Alex Hou-Hong Ng
Keyword(s):  
Interest Rate ◽  
Gross Domestic Product ◽  
Open Economy ◽  
Inflation Rate ◽  
Positive Impact ◽  
Small Open Economy ◽  
Policy Implications ◽  
Occupancy Rate ◽  
Causality Tests ◽  
Macroeconomic Determinants

This study proposes anad hoc equationwhich isapplied to estimatethe impactsof macroeconomic variableson occupancy rate of shopping complex. Thecandidatemacroeconomic determinantsare interest rate, inflation rate, share priceand Gross Domestic Product (GDP), whileasupply-sidevariable, total spaceis included.Using quarterly databetween 1992and 2015 froma small open economy-Malaysia, this study findsthat interest rate,and GDP both havea positive impact on shopping complex’s occupancy rate, and total space of shopping complex shows anegative sign.The non-causality tests offer that inflation rate indirectlycauses the occupancy rate of shopping complex. This study highlights somerelevant policy implications.

scholarly journals The effect of a budget deficit on inflation: The case of Tanzania

2004 ◽  
Vol 7 (1) ◽  
pp. 100-116 ◽  
Author(s):  
M Solomon ◽  
WA De Wet
Keyword(s):  
Gross Domestic Product ◽  
Budget Deficit ◽  
Inflation Rate ◽  
Causal Link ◽  
Domestic Product ◽  
Dynamic Simulations ◽  
Fiscal Deficits ◽  
High Inflation Rate ◽  
High Inflation ◽  
Over Time

The Tanzanian economy has remained one of the limited numbers of countries that has experienced a relatively high inflation rate, accompanied by high fiscal deficits for a prolonged period in the absence of any hyperinflation. This paper examines the deficit-inflation relationship in the Tanzanian economy and establishes the causal link that runs from the budget deficit to the inflation rate usingcointegration analysis over the period 1967-2001. Some dynamic simulations are done to gauge the effect of a change in the budget deficit and gross domestic product on inflation over time. Due to monetisation of the budget deficit, significant inflationary effects are found for increases in the budget deficit.

scholarly journals The Role of Fiscal Policy in The Inflation: VAR Analysis of Kazakhstan’s Economy, 2005-2020

2021 ◽  
Author(s):  
Zhandos Ybrayev
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Inflation Rate ◽  
Social Protection ◽  
Government Expenditure ◽  
Small Open Economy ◽  
Positive Effects ◽  
Rate Vector ◽  
The Government ◽  
Domestic Inflation

Abstract The paper analyzes the patterns of dynamic effects of fiscal policy to domestic inflation in the context of a small open economy. Using 4-variable (government spending, fiscal deficit, money stock (M2), and domestic inflation rate) vector autoregression model estimated with quarterly data for Kazakhstan’s economy in the period of 2005Q1-2020Q1. We distinguish between government expenditure on consumption and investment. As a result, we find that a fiscal policy shock have certain positive effects on the inflation rate. In particular, social protection spending adds 1% to the inflation rate in the following four quarters, while the government capital purchases do not produce sizable effect on inflation dynamics even in the longer term horizons. Overall, for the fiscal policy to become inflation-neutral, we suggest several policy recommendations.

scholarly journals An Investigation into Rule of Thumb Behaviour in New Zealand

2021 ◽  
Author(s):  
◽  
Adam Malanchak
Keyword(s):  
New Zealand ◽  
Open Economy ◽  
Full Range ◽  
Small Open Economy ◽  
Estimation Procedure ◽  
New Keynesian ◽  
Specification Tests ◽  
Habit Persistence ◽  
Rule Of Thumb ◽  
Mcmc Estimation

<p>In recent times, macroeconomic models have begun to describe aggregate consumer and firm behaviour by allowing some proportion to behave in a rule of thumb manner. This dissertation attempts to address two main issues that are concurrent in the literature. First I test for the proportion of aggregate behaviour that deviates from Classical consumer allocation theory and New Keynesian firm pricing theory in New Zealand. Rule of thumb consumers are assumed to consume out of current income as opposed to obeying the Permanent Income Hypothesis, while rule of thumb firms set prices in a backward looking manner. Using the GMM estimation procedure, I examine the sensitivity of estimates across a range of instrumental variables. After positive GMM specification tests I find the proportion of rule of thumb consumers is 0.21 and the proportion of backward looking price setters is 0.82. These results suggest that specifications which fail to allow for rule of thumb behaviour cannot fully reflect consumer and firm decisions. The second main issue seeks to address how these estimates compare to those estimated in a small open economy DSGE model. Monte Carlo Markov Chain (MCMC) estimation finds an estimated degree of external habit persistence of 0.9, proportion of rule of thumb consumers of 0.34, and the proportion of backward looking price setters falls to 0.7. A full range of MCMC diagnostics is subsequently computed. The diagnostic tests are largely favourable.</p>

Consequences for welfare and pension buffers of alternative methods of discounting future pensions

2010 ◽  
Vol 10 (3) ◽  
pp. 389-415 ◽  
Author(s):  
ALESSANDRO BUCCIOL ◽  
ROEL M. W. J. BEETSMA
Keyword(s):  
The Netherlands ◽  
Open Economy ◽  
Pension System ◽  
Moving Average ◽  
Small Open Economy ◽  
Pension Funds ◽  
Alternative Methods ◽  
Olg Model ◽  
Pension Liabilities ◽  
Over Time

AbstractWe explore the implications of alternative methods of discounting future pension outlays for the valuation of funded pension liabilities. Measured liabilities affect the asset–liability ratio of pension funds and, thereby, their policies. Our framework for analysis is an applied many-generation OLG model describing a small open economy with heterogeneous agents and a two-pillar pension system (with pay-as-you-go and funded tiers) calibrated to that in the Netherlands. We compare mark-to-market discounting against various alternatives, such as discounting against a moving average of past market curves or a curve that is constant over time. The pension buffer is stabilized by adjusting indexation and contribution rates in response to demographic, economic and financial shocks in the economy. Mark-to-market valuation of liabilities produces substantially higher volatility in the pension buffers, but it also generates slightly higher aggregate welfare.

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