Time Series Analysis of Export Demand Equations: A Cross-Country Analysis

The paper estimates export demand elasticities for a large number of developing and industrial countries, using time-series techniques that account for the nonstationarity in the data. The average long-run price and income elasticities are found to be approximately -1 and 1.5, respectively. Thus, exports do react to both the trade partners' income and to relative prices. Africa faces the lowest income elasticities for its exports, while Asia has both the highest income and price elasticities. The price and income elasticity estimates have good statistical properties. Copyright 1999, International Monetary Fund

Threshold Effects in the Relationship Between Inflation and Growth

This paper re-examines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1-3 percent for industrial countries and 11-12 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications. Copyright 2001, International Monetary Fund

Time-Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis

A structural import demand equation is derived and estimated for a large number of countries, using recent time-series techniques that address the problem of nonstationarity. The average price elasticity is close to zero in the short run but is slightly higher than one in the long run. A similar pattern holds for income elasticities: the short-run income elasticities are on average less than 0.5, while the long-run income elasticities are close to 1.5. The paper also analyses the small-sample properties of both the ordinary-least-squares (OLS) and the fully modified (FM) estimators of the short- and long-run elasticities, using Monte Carlo methods.

Sources of Economic Growth: An Extensive Growth Accounting Exercise

A growth accounting exercise is conducted for 88 countries for 1960-94 to examine the source of cross-country differences in total factor productivity (TFP) levels. Two differences distinguish this analysis from that of the related literature. First, the critical technology parameter - the share of physical capital in output - is econometrically estimated and the usual assumption of identical technology across regions is relaxed. Second, while the few studies on the determinants of cross-country differences in TFP have focused on growth rates of real output this analysis is on levels. Recent theoretical as well as empirical arguments point to the level of TFP as the more relevant variable to explain. Copyright 2000, International Monetary Fund

Two common problems related to the use of the Armington aggregator in computable general equilibrium models

This note highlights two common problems with the application of the population CES aggregator introduced by Armington. Both are related to the dependence of the input shares on the elasticity of substitution even when relative prices are held constant. A modified CES aggregator is proposed which avoids these problems.

Adjustment of a small open economy to external shocks

Perhaps, one of the main contributions of the Real Business Cycle (RBC) theory has been to narrow the gap between dynamic general equilibrium theory and empirical macroeconomics. While this literature focuses on explaining some important facts of developed countries business cycle, this dissertation examines some important policy issues particularly relevant for developing countries. As in the RBC literature, the framework used is a stochastic dynamic general equilibrium model. However, the model developed herein differs sharply from the standard RBC model because it tries to capture some important characteristics of LDC economies: The theoretical economy has accumulated a large foreign debt, it relies on imports of investment goods for its capital formation and it faces an upward sloped supply of foreign loans. The policy issues analyzed within this framework are: The Harberger-Laursen-Mezler effect or the impact of transitory movements in terms of trade on the cyclical behavior of the current account, the sources of debt accumulation, the relation between saving and investment and the potential crowding out effect of investment by foreign debt. While productivity shocks play a crucial role in the RBC literature, terms of trade and world interest rate fluctuations constitute the major shocks affecting LDC economies

Adjustment of a small open economy to external shocks

Perhaps, one of the main contributions of the Real Business Cycle (RBC) theory has been to narrow the gap between dynamic general equilibrium theory and empirical macroeconomics. While this literature focuses on explaining some important facts of developed countries business cycle, this dissertation examines some important policy issues particularly relevant for developing countries. As in the RBC literature, the framework used is a stochastic dynamic general equilibrium model. However, the model developed herein differs sharply from the standard RBC model because it tries to capture some important characteristics of LDC economies: The theoretical economy has accumulated a large foreign debt, it relies on imports of investment goods for its capital formation and it faces an upward sloped supply of foreign loans. The policy issues analyzed within this framework are: The Harberger-Laursen-Mezler effect or the impact of transitory movements in terms of trade on the cyclical behavior of the current account, the sources of debt accumulation, the relation between saving and investment and the potential crowding out effect of investment by foreign debt. While productivity shocks play a crucial role in the RBC literature, terms of trade and world interest rate fluctuations constitute the major shocks affecting LDC economies