Sudden Stops, Sectoral Reallocations, and Real Exchange Rates

Transcription

1 Sudden Sops, Secoral Reallocaions, and Real Exchange Raes Timohy J. Kehoe Universiy of Minnesoa Federal Reserve Bank of Minneapolis and Kim J. Ruhl NYU Sern School of Business

2 Wha Happens During a Sudden Sop? Mexico Opens o capial flows: lae 1980s rade deficis real exchange rae appreciaion Sudden sop: rade surplus real exchange rae depreciaion reallocaion from nonraded goods o raded goods fall in GDP, TFP End of sudden sop rade deficis real exchange rae appreciaion recovery of GDP, TFP

3 Mexico: rade balance share of GDP (%)

4 Mexico-U.S. real exchange rae rer log(rer) rer N

5 Value added by secor index (1994 = 100) Traded Nonraded

6 Mexico: oupu and TFP 110 index (1994 = 100) GDP/N TFP

7 Candidae Explanaions labor hoarding variable capial uilizaion Measured TFP mus decline! Growh Accouning Discipline

8 Our model Small open economy mulisecor: raded, nonraded cosly o adjus labor across secors Sudden sop radable good price increase, increase producion capial and labor misallocaed Model accouns for: real exchange rae, relaive prices rade balance Misses: TFP, GDP

9 Model overview Growh model: small open economy Nonraded good, y N, and domesic raded good, y D producion use inermediaes, capial, and labor Composie raded y = f ( y, m ) T D Fricions: cosly o move labor across secors Quaniaive model

10 Consumers max β u (,, ) 1980 ct c = N s.. ptct + pncn + qi + b + 1 = w + ( 1+ r ) b + rk + T, k = 1 k( 1 + δ ) + i iniial condiions on k 1988, b 1988 where ηψ ρ ρ ρ ( 1 η) ψ 1 c T c N u( ct, cn, ) = ε ( 1 ε) 1 ψ + n n.

11 We also experimen wih a quasi-linear uiliy funcion 1 ψ ρ ρ η 1 ρ c c uc (,, ) T ( 1 ) N T cn = ε ε λg 1 ψ + n n. which, when ψ = 0, is c uc ( T, cn, ) = log ε + ( 1 ε) λg n n No income effecs on labor supply. 1 ρ ρ η T c ρ N.

12 Producion funcions Domesically produced raded good ( ) 1 α D y = min z / a, z / a, A k g Θ (, ) αd D TD TD ND ND D D D D D 1 D D 1 Nonraded good D D 1 ΘD D 1, D = g θd D 1 where ( ) ( ) 1 α N y = min z / a, z / a, A k g Θ (, ) α N N TN TN NN NN N N N N N 1 N N 1 N N 1 ΘN N 1, N = g θn N 1 where ( ) Θ, = Θ, = 0. Base case ses ( ) ( ) D D 1 D N N 1 N 2 2

13 Composie raded good (Armingon aggregaor) Foreign demand Invesmen good Balance of paymens Marke clearing. ( ( ) ) 1 μ + μ y = M x 1 m ζ ζ T D ζ (( ) ) 1 1 τ 1 x = D + p ζ F F T i + i = Gz z γ 1 γ D N TI NI ( δ ) ( δ ) k i k = + D+ 1 D 1 D k i k = + N+ 1 N 1 N ( ) b + r b = + p x m 1 1 T F

14 Exogenous processes Counry ineres rae premia, mex σ 1. wih access o inernaional capial mex r = r* + σ mex 2. wihou access o inernaional capial mex r is domesically deermined Adul equivalen populaions, n, and working age populaion, Mexican ariff raes, τ D, and world ariff raes, τ F

15 Ineres rae premia 18.0 annual ineres rae Daa Beliefs in sudden sop case Beliefs in no sudden sop case

16 Calibraion Res of world is U.S. 72% of impors o Mexico from U.S. ( ) 60% of foreign direc invesmen from U.S. ( ) r* = 0.04 β Elasiciies raded versus nonraded consumpion: 0.5 (Kravis, e al.) ineremporal elasiciy: 0.5 domesic raded versus impors: 2.0 Labor Adjusmen ( θ = θ ) labor shif from sudden sop: 6.7% D N

17 Calibraion coninued Se δ = 0.06 so ha δ K1988 / Y1988 = 0.11 Normalize prices in 1988 o Mexican inpu-oupu marix share parameers: atd, and, atn, ann, α D, αn, ε, μ scale parameers: A, A, M, D mex Ineres rae in 1988: r 1988 = D N Tax on capial income in 1989 o mach 1988 invesmen: τ K1989 = 0.20 Exogenous growh: g = 1.02

18 Commodiy 1988 Inpu-Oupu Marix Traded Inpu Final Demand Nonraded Toal in. demand Consumpion Invesmen Expors Toal final demand Traded Nonraded Toal inermediae consumpion Employee compensaion Reurn o capial Value added Impors Tariffs Toal Gross Oupu Toal Demand a TN z = TN1988 = = = y N1988 inermediae inpu raded gross oupu nonraded w 1988 = 1 D1988 = 22.11, N 1989 =

19 Calibraion of model Parameer Value Saisic Targe Consumer parameers b Trade balance o GDP in 1988, in percen k Real ineres rae in 1988, in percen β U.S. real ineres rae, in percen ε Traded good share in consumpion in ρ Elasiciy of subsiuion: raded o nonraded η Raio of hours worked o available hours in ψ Ineremporal elasiciy of subsiuion δ Depreciaion o GDP in 1988, in percen τ K Invesmen in Producer parameers a TD Share of raded inpus in domesic raded in a ND Share of nonraded inpus in domesic raded in a TN Share of raded inpus in domesic nonraded in a NN Share of nonraded inpus in domesic nonraded in A D Traded gross oupu in A N Nonraded gross oupu in α Capial s share of domesic raded value added in D

20 α N Capial s share of nonraded value added in γ Share of raded inpus in invesmen good producion in G Invesmen in g Growh rae of U.S. GDP per working age person, percen Trade parameers M Toal raded goods in μ Raio of impors o domesic raded good in ζ Elasiciy of subsiuion: domesic raded o impors D Expors in Time series of parameers Mexican working age populaion daa and projecions n Mexican adul equivalen populaion daa and projecions σ Mexican ineres premia D U.S. working age populaion daa and projecions τ Mexican ariffs on U.S. imposs τ U.S. ariffs on Mexican impors F

21 Model wihou sudden sop Trade balance (lef scale) percen GDP Capial-oupu raio (righ scale) 3.0 raio

22 Sudden sop! b, 1995,1996 = b 1 = agens do no foresee sudden sop agens do foresee lengh of sudden sop domesic ineres rae is endogenously deermined mex mex ineres paymens on foreign deb made a r 1994 = r* + σ 1994

23 Trade balance percen GDP Daa -6.0 Model

24 Real exchange rae RER daa RER model 0.10 RER N model log(rer) RER N daa

25 Terms of rade RER T daa Model index (1994 = 100) To daa

26 Oupu and TFP GDP/N model index (1994 = 100) GDP/N daa TFP model TFP daa

27 Labor inpu model index (1994=100) daa

28 Value added by secor 160 Traded model 140 index (1994 = 100) Nonraded model Nonraded daa Traded daa

29 Traded labor/oal labor (derended) model 16.0 index (1994=0) daa

30 no populaion growh no ariffs no ineres rae premia exogenous TFP drop Alernaive specificaions increase in foreign demand in 1995 o moderae deerioraion in erms of rade labor marke fricions variable capial uilizaion quasi-linear period uiliy perfec foresigh sudden sop is no a surprise

31 law of moion where Variable capial uilizaion ( 1 δ ( )) ( 1 δ ( )) k = u k + i D+ 1 D D D k = u k + i N+ 1 N N N δ χ ω ( u) = δ + ( u ω 1) during crisis uilizaion of nonradable capial falls sandard growh accouning: falling uilizaion = fallingtfp

32 TFP drop as exogenous robusness check: TFP drops DO NOT cause sudden sops ( τ ( ) ) 1 α D y = min z / a, z / a, A k νγ Θ (, ) αd Dτ TDτ TD NDτ ND D Dτ τ Dτ D D 1 D D 1 ( τ ( ) ) 1 α N α N yn τ = min ztn τ / atn, znn τ / ann, ANkN τ νγ τ N τ ΘN( N 1, N) N 1. ν 1.0 < 1995 = All else same

33 Increase in foreign demand in 1995 o moderae deerioraion in erms of rade

34 Terms of rade 115 Model 110 index (1994 = 100) Daa

35 Real exchange rae RER daa log(rer) RER model RER N model RER N daa

36 Labor marke fricions and variable capial uilizaion

37 Traded labor/oal labor (derended) index (1994=0)

38 Oupu and TFP GDP/N model index (1994 = 100) GDP/N daa TFP daa TFP model

39 Mexico: rade balance share of gdp (%) Daa -10 Model

40 Capial uilizaion by secor Traded index (1994=100) Nonraded

41 Exogenous TFP drop and quasi-linear period uiliy

42 Oupu and TFP TFP daa GDP/N daa index (1994 = 100) TFP model GDP/N model

43 Aggregae labor inpu Daa index (1994 = 100) Model

44 Why doesn he deerioraion in he erms of rade cause TFP and real GDP o fall? Kehoe and Ruhl (2008), Are Shocks o he Terms of Trade Shocks o Produciviy?

45 Inernaional rade as a producion echnology Inpus are expors and oupus are impors. 1 p M = X M = X p A deerioraion in he erms of rade (an increase in p ) acs as a produciviy shock.

46 Inernaional rade as a producion echnology Inpus are expors and oupus are impors. 1 p M = X M = X p A deerioraion in he erms of rade (an increase in p ) acs as a produciviy shock. Or does i?