Topics in Applied Macrodynamic Theory / Edition 1

Topics in Applied Macrodynamic Theory / Edition 1

by Peter Flaschel, Gangolf Groh, Christian Proano, Willi Semmler
     
 

ISBN-10: 3540725415

ISBN-13: 9783540725411

Pub. Date: 09/25/2008

Publisher: Springer Berlin Heidelberg

This book presents topics in applied dynamic macrotheory for closed and open economies. The authors give an advanced treatment of macroeconomic topics such as the Phillips curve, forward and backward looking behavior, open economy macrodynamics, structural macroeconometric model building as well as the empirics of Keynesian oriented macro models. They start from the

Overview

This book presents topics in applied dynamic macrotheory for closed and open economies. The authors give an advanced treatment of macroeconomic topics such as the Phillips curve, forward and backward looking behavior, open economy macrodynamics, structural macroeconometric model building as well as the empirics of Keynesian oriented macro models. They start from the closed economy and consider open economies for fixed and flexible exchange rate systems with free international capital flows later on. The dynamics of open economies in the context of interacting two country models are treated as well. The macrofounded approach extends and integrates non-market-clearing traditions in macrodynamics. It is compared to New Keynesian approaches which are generally rigorously microfounded, but often neglect to study macroeconomic feedback mechanisms (that may be stabilizing or destabilizing). The chapters - though representing a coherent whole - are self-contained and can be used independently of each other.

Product Details

ISBN-13:
9783540725411
Publisher:
Springer Berlin Heidelberg
Publication date:
09/25/2008
Series:
Dynamic Modeling and Econometrics in Economics and Finance Series, #10
Edition description:
2008
Pages:
512
Product dimensions:
6.30(w) x 9.40(h) x 1.30(d)

Table of Contents

1 Period Models, Continuous Time and Applied Macrodynamics 1

1.1 Introduction 1

1.2 The J2-Status of Macrodynamic Period Analysis 2

1.3 1D Equivalence: The Solow Model 9

1.4 2D Monetarist Baseline Analysis. Chaotic Attractors? 15

1.5 4D Complex Keynesian Macrodynamics 21

1.6 Concluding Remarks 25

Appendix A Indeterminacy for Large Periods h 28

References 31

Part I The Closed Economy

2 The AS-AD Framework: Origins, Problems and Progress 35

2.1 Introduction 35

2.2 Traditional AS-AD with Myopic Perfect Foresight. Classical Solutions in a Keynesian Setup? 39

2.3 New Keynesian AS-AD Dynamics with Staggered Wage and Price Setting 44

2.4 Matured Keynesian AD-AS Analysis: A Baseline Model 50

2.5 Feedback-Guided Local Stability Investigation 59

2.6 Wage Share Error Corrections and Interest Rate Policy Rules 64

2.7 Downward Nominal Wage Rigidities 68

2.8 Conclusion 74

Appendix A Rigorous Stability Analysis (Interest Rate Policy Case) 76

References 87

3 Wage-Price Dynamics: Basic Structural Form, Estimation and Analysis 91

3.1 Introduction 91

3.1.1 The Phillips Curve(s) 91

3.1.2 Basic Macro Feedback Chains. A Reconsideration 93

3.1.3 Outline of the Chapter 98

3.2 A Model of the Wage-Price Spiral 99

3.2.1 The Wage-Price Spiral 99

3.2.2 Technology 101

3.2.3 Aggregate Goods Demand 102

3.2.4 The Laws of Motion 103

3.2.5 The Effective Demand Function 105

3.2.6 Stability Issues 106

3.3 Estimating the U.S. Wage-Price Spiral 109

3.3.1 Data 110

3.3.2 The Money-Wage Phillips Curve 111

3.3.3 The Price Phillips Curve 114

3.3.4 System Results 116

3.3.5 Are There Adverse Rose Effects? 117

3.4 Wage Flexibility,Instability and an Extended Interest Rate Rule 119

3.4.1 Instability Due to an Unmatched Rose Effect 119

3.4.2 Stability from Blanchard-Katz Type "Error Correction" 120

3.4.3 Stability from an Augmented Taylor Rule 121

3.5 Conclusions 122

Appendix A 124

A.1 The Sectoral Budget Equations of the Model 124

A.2 Wage Dynamics: Theoretical Foundation 125

A.3 Price Dynamics: Theoretical Foundation 127

A.4 Routh-Hurwitz Stability Conditions and Hopf Bifurcations 128

A.5 Proofs of Propositions 3.2-3.7 129

References 133

4 Estimation and Analysis of an Extended AD-AS Model 137

4.1 Introduction 137

4.2 Structural Models of the Wage-Price Spiral 140

4.3 New Keynesian Phillips Curves and the Wage-Price Spiral: A Brief Comparison 145

4.4 Real-Wage Dynamics: The Critical Stability Condition 151

4.5 Estimating the Wage-Price Spiral for the U.S. Economy 153

4.5.1 Data Description 154

4.5.2 Estimation Results 157

4.6 Keynesian Macrodynamics: Empirical Reformulation of a Baseline Model 161

4.7 5D Feedback-Guided Stability Analysis 169

4.8 Estimating the Model 175

4.8.1 Data Description 178

4.8.2 Estimation of the Unrestricted VAR 179

4.8.3 Estimation of the Structural Model 181

4.9 Stability Analysis of the Estimated Model 187

4.10 Instability, Global Boundedness and Monetary Policy 196

4.11 Conclusions and Outlook 206

References 209

5 Linking Goods with Labor Markets: Okun's Law and Beyond 213

5.1 Introduction 213

5.2 Foundations for Regressions with Time-Varying Coefficients 216

5.2.1 The Random Walk Approach 217

5.2.2 Deterministic Spline Functions of the Coefficients 222

5.2.3 A Comparison of the Stochastic and Deterministic Approach 224

5.3 Okun's Law and the Natural Rate of Unemployment 229

5.3.1 The Problem of Detrending 230

5.3.2 Deriving the Natural Rate of Unemployment from the Data 238

5.4 Okun's Law as a Time-Varying Statistical Regularity 244

5.4.1 Different Specifications of the Relationship 244

5.4.2 Time Variations in the Okun Coefficient 246

5.4.3 Comovements of the Components of Output and Employment 253

5.5 A Model of a Simple Recruitment Policy of Firms 259

5.6 Gradual Adjustments of Hours and Employment 262

5.6.1 Theoretical Framework 262

5.6.2 Estimation 269

5.7 Conclusion 279

References 281

Part II The Open Economy

6 Exchange Rate and Stock Market Dynamics in a Two-Country Model 287

6.1 Introduction 287

6.2 The Dornbusch Exchange-Rate Dynamics 290

6.3 Symmetric Two-Country Exchange Rate Dynamics 292

6.4 The Blanchard Stock-Market Dynamics 303

6.5 Interacting Blanchard Stock Market and Dornbusch Exchange Rate Dynamics: A Two-Country Framework 305

6.6 A Model-Oriented Reformulation of the Taylor Interest Rate Rule 307

6.7 Symmetric Countries: Stability Analysis 310

6.7.1 The Average Economy 310

6.7.2 The Difference Economy 311

6.7.3 Summary 312

6.8 Dornbusch Inflation Dynamics 312

6.9 Outlook: Imperfect Capital Markets 315

References 319

7 Macroeconomic Imbalances and Inflation Dynamics in a Mundell-Fleming-Tobin Framework 321

7.1 Introduction 321

7.2 The General Framework 323

7.2.1 Budget Equations and Saving/Financing Decisions 324

7.2.2 Real Disposable Income and Wealth Expressions 325

7.2.3 Temporary Equilibrium: Output, Interest and Exchange Rate Determination 327

7.2.4 Dynamics and the Steady State of the Economy 330

7.2.5 Local Stability Analysis 334

7.2.6 Real Twin Deficit Accumulation and Inflation Dynamics 335

7.3 Capital Account and Inflation Dynamics under Interest and Currency Pegs 338

7.3.1 Assumptions 338

7.3.2 The Model 339

7.3.3 Steady State Determination 340

7.3.4 Stability Analysis 341

7.3.5 Twin Deficit or Surplus Accumulation 345

7.4 Overshooting Exchange Rates and Inflation Dynamics for Perfectly Flexible Exchange Rate Regimes 345

7.4.1 Equilibrium Conditions 346

7.4.2 Dynamics and Steady State Determination 347

7.4.3 Dornbusch (1976) Exchange Rate Dynamics 349

7.4.4 Capital Account and Budget Deficit Dynamics 352

7.5 International Capital Flows in the MFT Model 353

7.5.1 Budget Restrictions 353

7.5.2 Real Disposable Income and Wealth Accounting 355

7.5.3 The Four Laws of Motion of the MFT Open Economy with International Capital Flows 357

7.6 International Financial Dynamics: Some Basic Results 363

7.6.1 Inflation Dynamics and International Capital Flows under Interest and Exchange Rate Pegs 363

7.6.2 The Case of Flexible Exchange Rates 367

7.7 Conclusions 369

References 371

8 Currency Crises, Credit Rationing and Monetary Policy in Emerging Markets 373

8.1 Introduction 373

8.2 The General Framework 374

8.2.1 The Goods Markets 375

8.2.2 The Financial Markets 380

8.3 Dynamics under Fixed Prices and Flexible Exchange Rates 382

8.3.1 Local Stability Analysis 382

8.3.2 The Baseline Currency Crisis Scenario 384

8.4 Dynamics under Gradually Adjusting Prices in Fixed Currency Regimes 385

8.4.1 Local Stability Analysis 388

8.4.2 Dynamics with a Standard Phillips-Curve 390

8.4.3 Dynamics with a "Kinked" Phillips Curve 394

8.5 Dynamics under Gradually Adjusting Nominal Exchange Rates and Prices 395

8.5.1 The Case of Total Liability Dollarization v = 1 397

8.5.2 The Case of Partial Liability Dollarization 0 < v < 1 400

8.5.3 Short Term Policy Responses and Medium Term Consequences: The Rules vs. Discretion Debate 403

8.6 Econometric Analysis 406

8.7 Concluding Remarks 411

References 413

9 Keynesian Dynamics and International Linkages in a Two-Country Model 417

9.1 Introduction 417

9.2 The Baseline Open-Economy Framework 418

9.2.1 The Goods and Labor Markets 419

9.2.2 The Wage-Price Dynamics 420

9.2.3 Monetary Policy 424

9.2.4 The Nominal Exchange Rate Dynamics 425

9.2.5 Local Stability Analysis: The Small-Open Economy Case 428

9.3 The Two-Country Framework: Estimation and Evaluation 432

9.3.1 Stylized Facts of Monetary Policy 435

9.3.2 Data Sources and Descriptive Statistics 436

9.3.3 Structural Estimation Results 439

9.3.4 Dynamic Adjustments 443

9.4 Eigen-Value-based Stability Analysis 445

9.5 Concluding Remarks 449

References 451

10 Outlook: Supply Constraints in Demand-Driven Macromodels 455

10.1 Introduction 455

10.2 A Non-Walrasian Model of Monetary Growth 458

10.3 From Non-Walrasian to Keynesian Modeling of Monetary Growth 464

10.4 Regime Switching in KMG Growth 470

10.4.1 Supply Bottlenecks with Positive Inventories 471

10.4.2 Exhausted Inventories and Excessive Aggregate Demand 485

10.4.3 Numerical Analysis 491

10.5 Summary 498

References 501

Mathematical Appendix: Some Useful Theorems 503

References 511

Customer Reviews

Average Review:

Write a Review

and post it to your social network

     

Most Helpful Customer Reviews

See all customer reviews >