Global Versus Country-Specific Productivity Shocks and the Current Account

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

“…We solve the model using the stacked Newton algorithm, a numerically efficient algorithm for solving non-linear equations. 12 Compared with log-linearization, the stacked Newton algorithm is computationally more intensive, but may provide a substantially more accurate solution if the non-linear system is relatively far from being log-linear, or if the steady state exhibits large shifts in response to exogenous shocks of reasonable magnitude. The algorithm works directly with the non-linear first-order conditions and resource constraints.…”

Saving and investment causality: implications for financial integration in transition countries of Eastern Europe

“…On the other hand, several papers have challenged Feldstein and Horioka's conclusion. Theoretically, in the short-run a positive saving-investment correlation may arise, despite capital being perfectly mobile across national borders, because of country-size (Harberger 1980;Murphy 1984;Baxter and Crucini 1993;Bahmani-Oskooee and Chakrabarti 2005), commonness in technological or productivity shocks (Rasin 1993;Glick and Rogoff 1995;Eiriksson 2011), non-traded goods (Frankel 1986;Dooley et al 1987), current account targeting (Summers 1982), endogenous fiscal policy (Levy 1995), international trading costs (Backus et al 1992;Obstfeld and Rogoff 2000), long-run solvency constraint (Coakley et al 1996), financial frictions (Bai and Zhang 2010), common deflator (Chu 2012) and long-run risk component in the shock process (Chang and Smith 2014).…”

Global imbalances and the intertemporal external budget constraint: A multicointegration approach

“…Some examples are Husted (1992), Fountas and Wu (1999), Irandoust and Sjoo (2000), Irandoust and Ericsson (2004), Arize (2002), Narayan and Narayan (2005), Herzer and Nowak-Lehmann (2006), and Hamori A common feature of the previously reported empirical literature is that it does not tackle properly the complex relationships between the external de…cits (or the variables involved in this imbalance) and the evolution of the stock of external debt. Generally, the analysis of the dynamic responses of the current account to di¤erent shocks focus on the short run as in Glick and Rogo¤ (1995) and Milessi-Ferreti and Razin (1996) or they are estimated through simple cointegration techniques that are unable to capture the stock- ‡ow mechanism shared by these variables. Although this mechanism could help to a gradual rebalancing, these bene…ts could turn into a problem if policies are not consistent with a credible medium-term policy framework aimed at external and internal balances, as expectations may not be well anchored.…”