The Impact of Monetary Policy Shocks on Stock Prices: Evidence from Canada and the United States

monetary policy shocks; stock prices; open economy; structural vector autoregressive model

Financing Constraints and Investment Decline in Mexico

To what extent can financing constraints, which have been so central to foreign debt related explanations of investment decline in heavily indebted economies, account for low investment rates in Mexico after 1982? In order to investigate the implications of financing constraints hypothesis on investment decisions, this study employs a cost-of-adjustment model of investment and annual panel data of Mexican manufacturing industries covering the period 1970 to 1990. It is found that part of the debt crisis effects on investment, identified in the earlier literature, may be due to binding financing constraints in Mexico.debt crisis; financing constraints; investment; Mexican manufacturing industry

Productivity growth and the U.S. saving rate

Over the last half century, the saving rate in the United States exhibited significant variations. In this paper, I examine whether a general equilibrium model that allows for shifts in the growth rate of total factor productivity can account for these variations. The model generates significant medium-run variations in the U.S. saving rate, and establishes a link between episodes of productivity growth slowdowns or accelerations and the saving rate--two concepts that have often been treated in isolation. While a productivity-growth based explanation is able to account for broader trends in the rising consumption-income ratio from about 1980 to 2000, there are other episodes during which the model is less successful.Consumption-income ratio Saving rate Productivity growth United States

The Terms of Trade, Productivity Shocks, and The Current Account

This paper extends the analytical framework provided by Glick and Rogoff (JME 1995) to an economy with traded and nontraded goods, and it analyzes the impact of country- specific and global productivity shocks on the current account and investment. Each of these disturbances have different implications for the current account and investment that are largely consistent with the empirical results. First, the current account responds by more than investment to country-specific traded productivity growth. Second, global traded productivity and country-specific nontraded productivity growth have no effect on the current account, but they have significant impact on investment. Third, global component of nontraded productivity is negligible and has no significant impact on either the current account or investment. In addition, the response of the current account and investment to relative prices (the terms of trade and exchange rate) are insignificant. This paper also discusses the potential reasons for it.Current account; productivity; terms of trade; investment; tradables; nontradables

Investment and the Current Account: A Triangular Model of the G-7 Key words: Investment; current account; triangular simultaneous equations model; random coefficients regression model

The joint behavior of investment and the current account is derived as a triangular simultaneous equations model. To estimate this model for the G7 countries, we propose a full-information GLS estimator for panel data that extends Zellner-Theil three-stage least squares estimator and allows for parameter heterogeneity across individual countries. We find that the null of parameter homogeneity is rejected, that global productivity shocks common to the G7 significant impact on individual country investment movements, and that their influence on investment exceeds that of country-specific productivity shocks. The common productivity shocks are also found to have significant effect on the current account, but the response is asymmetric across countries.

Engel versus Baumol: Accounting for structural change using two centuries of U.S. data

In the last two centuries, the reallocation of labor out of agriculture has been a dominant feature of structural change and economic growth in the United States. This paper uses an accounting framework founded in economic theory to decompose this reallocation into three components: a demand-side effect due to the low income elasticity of demand for agricultural goods (Engel effect), and two supply-side effects, one due to differential sectoral productivity growth rates (Baumol effect), and the other to differential capital deepening. The results show that the Engel effect accounts for almost all labor reallocation until the 1950s, after which the Baumol effect becomes a key determinant. Our framework provides a unified account of long-run structural change, and demonstrates that historical interpretations and theoretical models that emphasize only one dimension of this process cannot properly account for the dramatic history of labor reallocation in the United States.Long-run structural change Engel's law Differential sectoral productivity growth Differential sectoral capital deepening

Productivity Shocks and Consumption Smoothing in the International Economy

We develop a two-country, dynamic general equilibrium model that links cross-country differences in net foreign asset and consumption dynamics to differences in discount factors and steady-state levels of productivity. We compare the results of the model to those of VARs for the G3 economies. We identify country-specific productivity shocks by assuming that productivity does not respond contemporaneously to other variables in these VARs. We identify global productivity shocks by estimating the VARs in common trend representation after testing for and imposing model-based, long-run cointegration restrictions. We then compare the model's predictions for net foreign asset and consumption dynamics in response to productivity shocks with the estimated VAR impulse responses. We find that the two sources of heterogeneity we consider go some way toward reconciling the consumption smoothing hypothesis with the data and explaining variations in net foreign asset and consumption dynamics across countries.net foreign assets, consumption smoothing, heterogeneity, productivity shocks