Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies

The dominant view in the empirical literature on exchange rates is that the high variability of real exchange rates is due to movements in exchange-rate-adjusted prices of tradable goods. This paper shows that this dominant view does not hold in Mexican data for the periods in which the country had managed exchange rate regimes. Variance analysis of a 30-year sample of monthly data shows that movements in the price of nontradables relative to tradables account for up to 70 percent of the variability of the real exchange rate during these periods. The paper proposes a model in which this stylized fact, and the Sudden Stops that accompanied the collapse of Mexico's managed exchange rates, could result from an endogenous amplification mechanism operating via nontradables prices in economies with dollarized liabilities and credit constraints. The key feature of this mechanism is Irving Fisher's debt-deflation process. Numerical evaluation suggests that the Fisherian deflation effects on consumption, the current account, and relative prices dwarf those induced by the standard balance sheet effect typical of the Sudden Stops literature.

Lessons From the Debt-Deflation Theory of Sudden Stops

This paper reports results for a class of dynamic, stochastic general equilibrium models with credit constraints that can account for some of the empirical regularities of the Sudden Stop phenomenon of recent emerging markets crises. In these models, credit constraints set in motion Irving Fisher's debt-deflation mechanism and they bind as an endogenous equilibrium outcome when agents are highly indebted. The quantitative predictions of these models yield three key lessons: (1) Sudden Stops can occur as an endogenous response to typical realizations of adverse shocks to fundamentals, in environments in which agents plan their actions taking credit constraints and expectations of Sudden Stops into account. (2) Credit constraints cause output declines during Sudden Stops when collateral constraints limit debt to a fraction of the market value of capital, when there are limits on access to working capital, or when debt-deflation lowers the value of the marginal product of factors of production. (3) The debt-deflation mechanism has significant quantitative effects in terms of the amplification, asymmetry and persistence of the responses of macroeconomic aggregates to standard shocks, and in the occurrence of Sudden Stops as infrequent events nested within regular business cycles. Precautionary saving rules out the largest Sudden Stops from the stochastic stationary state, but Sudden Stops remain a positive-probability event in the long run.

Does X(3872)X(3872) count?

The question on whether or not weakly bound states should be effectively incorporated in a hadronic representation of the QCD partition function is addressed by analyzing the example of the $X(3872)$, a resonance close to the $D\bar D^*$ threshold which has been suggested as an example of a loosely bound molecule. This can be decided by studying the $D \bar D^*$ scattering phase-shifts in the $J^{PC}=1^{++}$ channel and their contribution to the level density in the continuum, which also gives information on its abundance in a hot medium. In this work, it is shown that, in a purely molecular picture, the bound state contribution cancels the continuum, resulting in a null occupation number density at finite temperature, which implies the $X(3872)$ does not count below the Quark-Gluon Plasma crossover ($T \sim 150$MeV). However, if a non-zero $c \bar c$ component is present in the $X(3872)$ wave function such cancellation does not occur for temperatures above $T\gtrsim 250$MeV.Comment: 4 pages, 2 figures. XVII International Conference on Hadron Spectroscopy and Structur