Impact of probability of crisis on the economy

Ankara : The Department of Economics, Bilkent Univ., 2004.Thesis (Master's) -- Bilkent University, 2004.Includes bibliographical references leaves 36-40.The increased frequency of financial crises in the last two decades led to a surge of interest in search for common elements of those crises and to the creation of early warning systems as instruments to avoid currency crises by predicting the timing of the crises. Along with the early warning systems, observation of increased frequency of crisis called forth deeper research of costs of crisis. This study combines both areas of research in it by employing a new econometric approach in assessing costs of crises. The study utilizes an early warning system in order to measure the impact of the predicted probability of crisis on the economy. Later on, the predicted probabilities of crises obtained are employed in a country-specific VAR system so as to come up with measures of consequences of currency crises. The study predicts crises for a sample of 15 emerging market economies over the period of 1980-2000. The costs of crises analysis for Latin American countries reveals that crises experienced during 1980-2000 caused significant amount of reduction in growth rates of output of those countries. Furthermore, the results suggest that the slowdown in economic activity lasts no more than two years and then the economy recovers.Ersal, EylemM.S

Trend shocks and the countercyclical U.S. current account

From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in which cross-border asset trade is limited to an international bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model generates a countercyclical current account without excessive consumption volatility

Trend shocks and the countercyclical U.S. current account

From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in which cross-border asset trade is limited to an international bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model generates a countercyclical current account without excessive consumption volatility

Growth Shocks and Portfolio Flows

This paper studies the cyclicality of portfolio flows under the presence of productivity growth rate shocks. Productivity growth rate shocks successfully replicate countercyclical net equity outflows and procyclical bond inflows for advanced countries, which couldn't be captured in a model with only level shocks. Similarly, for an emerging market economy, the model with growth rate shocks generates countercyclical net equity inflows and procyclical bond inflows in accordance with data. Following a growth rate shock, home agents experience a decrease both in equity inflows and outflows on impact. Inflows decrease due to sales of home equity to realize capital gains and outflows decrease due to initial dissaving to finance increases in consumption and investment. Equity inflows increase later, as home dividends rise. Equity outflows pick up also as wealthier home agents increase purchases of foreign assets to hedge against home productivity shocks.Portfolio Flows, Productivity Growth Rate Shocks