Productivity Growth and the Future of the U.S. Saving Rate

consumption-income ratio; saving rate; medium-run; productivity growth; U.S.

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

Financial Integration and the Wealth Effect of Exchange Rate Fluctuations

A growing body of research emphasizes the direct impact of exchange rate movements on the value of U.S. foreign assets. Because a substantial amount of U.S. assets are denominated in foreign currencies, a depreciation of the dollar leads to large capital gains. First, we present a detailed decomposition of the U.S. balance sheet, which exhibits substantial leverage in terms of currencies and across asset categories. The United States holds 50 percent of GDP in foreign-currency assets and is long in FDI (foreign direct investment) and equity positions and short in debt and banking positions. Then, we incorporate these features of international financial integration in a simple general equilibrium model and analyze how they affect the international transmission of monetary shocks. We find that financial integration is a central component of the model, with the valuation gains from an exchange rate depreciation leading to a welfare effect that is at least as large as that stemming from nominal rigidities alone but possibly much larger. We characterize how interdependence is affected by the composition of the portfolio across asset categories and how structural features of the model interact with financial integration

Present Value Tests of the Current Account with Durables Consumption

The present value tests of intertemporal model of the current account usually assume that all goods are traded and that aggregate consumption decisions can be closely approximated by a random walk process. This paper extends these models by explicitly introducing durables and nontraded goods into an intertemporal model of the current account, and tests the model using Canadian data. Since aggregate consumption expenditures on durables do not exhibit random walk behaviour even when the aggregate consumer has a quadratic utility function, the model that includes durables makes predictions that differ from those of the basic approach. When nontraded goods are also incorporated into the model, the most appropriate income variable becomes output net of nontraded production. These implications are examined using present value tests. The results suggest that introduction of both durables and nontraded goods improves upon the model with (traded) nondurables only. This seems to be due to the combination of durables and nontraded goods, as durables alone do not sufficiently refine the basic model.current account; durables; traded and nontraded goods; Canada

Trade Liberalization and Productivity-A Panel Study of the Mexican Manufacturing Industry

In recent years there has been a revival of interest in the trade-growth nexus. A number of authors have suggested that regional economic integration and liberalization of international trade are likely to have positive effects not only on productivity levels but also on long-term productivity growth rates in developing countries. Using a panel of Mexican manufacturing industries, this paper examines several alternative mechanisms through which trade contributes positively to productivity levels and growth rates. Special attention is paid to the comprehensive trade liberalization policies implemented in Mexico after 1986. The results indicate that productivity growth is significantly correlated with the share of imported intermediate inputs in sectoral output. Reductions in rates of protection are found to have significant positive effects on sectoral productivity levels. The estimates also suggest that after liberalization increasing share of exports in total output increased average productivity level by about 5 percent. However, the effects of trade liberalization on long-term productivity growth rates are found to be statistically insignificant.trade liberalization; productivity; growth; Mexican manufacturing industry

How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?

High income elasticity of demand for services and low income elasticity of demand for food (Engel's law), and relatively slow productivity growth in the service sectors (Baumol's disease) have been viewed as key drivers of rising share of services in employment in the United States during the 20th century. How much of the rising share of services can be explained by these two forces? A calibrated model of structural change shows that jointly Engel's law and Baumol's disease could explain about two-thirds of the reallocation of labor into services.

Exports and capital accumulation: some empirical evidence from the Mexican manufacturing industry

New growth-trade theories have emphasized the contribution of international trade to economic growth through its effect on capital accumulation. This paper tests the hypothesis that export oriented sectors attain higher rates of investment using panel data techniques and sectoral data from the Mexican manufacturing industry between 1970 and 1990. Despite the substantial variations in export shares across sectors and over time, the study can find no evidence supportive of the hypothesis that exports lead to capital accumulation. There is evidence that common determinants, such as the real exchange rate, may be behind the correlations between exports and investment rates found in cross-country studies.

Contribution of Exports to Growth, Mexico 1970-1990: Capital Accumulation or Labour Productivity Growth?

Recent contributions to growth theory suggest two main venues through which foreign trade contributes to economic growth; enhanced capital accumulation, and increased productivity growth. These mechanisms have different implications for development policy and trade liberalization in Mexico. This paper tests these competing hypotheses using sectoral data from the Mexican manufacturing industry between 1970 and 1990. Despite large variations in export shares across sectors and over the period, overall the study finds little supportive evidence that (i) exports lead to higher sectoral investment rates, and (ii) exports lead to faster labour productivity growth. Estimates suggest that, to the extent that monetary policy can inhibit the overvaluation of the real exchange rate, it may be also conducive to both faster capital accumulation and export growth.