Topics in Applied Macrodynamic Theory (eBook)

Period Models, Continuous Time and Applied Macrodynamics 20
Introduction 20
The J2-Status of Macrodynamic Period Analysis 21
1D Equivalence: The Solow Model 28
2D Monetarist Baseline Analysis. Chaotic Attractors? 34
4D Complex Keynesian Macrodynamics 40
Concluding Remarks 44
Appendix A: Indeterminacy for Large Periods h 44
References 50
Part I The Closed Economy 52
The AS--AD Framework: Origins, Problems and Progress 53
Introduction 53
Traditional AS--AD with Myopic Perfect Foresight. Classical Solutions in a Keynesian Setup? 57
New Keynesian AS--AD Dynamics with Staggered Wage and Price Setting 62
Matured Keynesian AD--AS Analysis: A Baseline Model 68
Feedback-Guided Local Stability Investigation 77
Wage Share Error Corrections and Interest Rate Policy Rules 82
Downward Nominal Wage Rigidities 86
Conclusion 92
Appendix A: Rigorous Stability Analysis (Interest Rate Policy Case) 92
References 105
Wage--Price Dynamics: Basic Structural Form, Estimation and Analysis 108
Introduction 108
The Phillips Curve(s) 108
Basic Macro Feedback Chains. A Reconsideration 110
Outline of the Chapter 115
A Model of the Wage--Price Spiral 116
The Wage--Price Spiral 116
Technology 118
Aggregate Goods Demand 119
The Laws of Motion 120
The Effective Demand Function 122
Stability Issues 123
Estimating the U.S. Wage--Price Spiral 126
Data 127
The Money-Wage Phillips Curve 128
The Price Phillips Curve 131
System Results 133
Are There Adverse Rose Effects? 134
Wage Flexibility, Instability and an Extended Interest Rate Rule 136
Instability Due to an Unmatched Rose Effect 136
Stability from Blanchard--Katz Type ``Error Correction'' 137
Stability from an Augmented Taylor Rule 138
Conclusions 139
Appendix A 139
The Sectoral Budget Equations of the Model 108
Wage Dynamics: Theoretical Foundation 110
Price Dynamics: Theoretical Foundation 115
Routh--Hurwitz Stability Conditions and Hopf Bifurcations 145
Proofs of Propositions 3.2--3.7 146
References 150
Estimation and Analysis of an Extended AD--AS Model 154
Introduction 154
Structural Models of the Wage--Price Spiral 157
New Keynesian Phillips Curves and the Wage--Price Spiral: A Brief Comparison 162
Real-Wage Dynamics: The Critical Stability Condition 168
Estimating the Wage--Price Spiral for the U.S. Economy 170
Data Description 171
Estimation Results 174
Keynesian Macrodynamics: Empirical Reformulation of a Baseline Model 178
5D Feedback-Guided Stability Analysis 186
Estimating the Model 192
Data Description 195
Estimation of the Unrestricted VAR 196
Estimation of the Structural Model 198
Stability Analysis of the Estimated Model 204
Instability, Global Boundedness and Monetary Policy 213
Conclusions and Outlook 223
References 226
Linking Goods with Labor Markets: Okun's Law and Beyond 230
Introduction 230
Foundations for Regressions with Time-Varying Coefficients 233
The Random Walk Approach 234
Deterministic Spline Functions of the Coefficients 239
A Comparison of the Stochastic and Deterministic Approach 241
Okun's Law and the Natural Rate of Unemployment 246
The Problem of Detrending 247
Deriving the Natural Rate of Unemployment from the Data 255
Okun's Law as a Time-Varying Statistical Regularity 261
Different Specifications of the Relationship 261
Time Variations in the Okun Coefficient 263
Comovements of the Components of Output and Employment 270
A Model of a Simple Recruitment Policy of Firms 276
Gradual Adjustments of Hours and Employment 279
Theoretical Framework 279
Estimation 286
Conclusion 296
References 298
Part II The Open Economy 301
Exchange Rate and Stock Market Dynamics in a Two-Country Model 302
Introduction 302
The Dornbusch Exchange-Rate Dynamics 305
Symmetric Two-Country Exchange Rate Dynamics 307
The Blanchard Stock-Market Dynamics 318
Interacting Blanchard Stock Market and Dornbusch Exchange Rate Dynamics: A Two-Country Framework 320
A Model-Oriented Reformulation of the Taylor Interest Rate Rule 322
Symmetric Countries: Stability Analysis 325
The Average Economy 325
The Difference Economy 326
Summary 327
Dornbusch Inflation Dynamics 327
Outlook: Imperfect Capital Markets 330
References 333
Macroeconomic Imbalances and Inflation Dynamics in a Mundell-Fleming-Tobin Framework 335
Introduction 335
The General Framework 337
Budget Equations and Saving/Financing Decisions 338
Real Disposable Income and Wealth Expressions 339
Temporary Equilibrium: Output, Interest and Exchange Rate Determination 341
Dynamics and the Steady State of the Economy 344
Local Stability Analysis 348
Real Twin Deficit Accumulation and Inflation Dynamics 349
Capital Account and Inflation Dynamics under Interest and Currency Pegs 352
Assumptions 352
The Model 353
Steady State Determination 354
Stability Analysis 355
Twin Deficit or Surplus Accumulation 359
Overshooting Exchange Rates and Inflation Dynamics for Perfectly Flexible Exchange Rate Regimes 359
Equilibrium Conditions 360
Dynamics and Steady State Determination 361
Dornbusch (1976) Exchange Rate Dynamics 363
Capital Account and Budget Deficit Dynamics 366
International Capital Flows in the MFT Model 367
Budget Restrictions 367
Real Disposable Income and Wealth Accounting 369
The Four Laws of Motion of the MFT Open Economy with International Capital Flows 371
International Financial Dynamics: Some Basic Results 377
Inflation Dynamics and International Capital Flows under Interest and Exchange Rate Pegs 377
The Case of Flexible Exchange Rates 381
Conclusions 383
References 385
Currency Crises, Credit Rationing and Monetary Policy in Emerging Markets 386
Introduction 386
The General Framework 387
The Goods Markets 388
The Financial Markets 393
Dynamics under Fixed Prices and Flexible Exchange Rates 395
Local Stability Analysis 395
The Baseline Currency Crisis Scenario 397
Dynamics under Gradually Adjusting Prices in Fixed Currency Regimes 398
Local Stability Analysis 401
Dynamics with a Standard Phillips-Curve 403
Dynamics with a ``Kinked'' Phillips Curve 407
Dynamics under Gradually Adjusting Nominal Exchange Rates and Prices 408
The Case of Total Liability Dollarization =1 410
The Case of Partial Liability Dollarization 0< <
Short Term Policy Responses and Medium Term Consequences: The Rules vs. Discretion Debate 416
Econometric Analysis 419
Concluding Remarks 424
References 426
Keynesian Dynamics and International Linkages in a Two-Country Model 429
Introduction 429
The Baseline Open-Economy Framework 430
The Goods and Labor Markets 431
The Wage-Price Dynamics 432
Monetary Policy 436
The Nominal Exchange Rate Dynamics 437
Local Stability Analysis: The Small-Open Economy Case 440
The Two-Country Framework: Estimation and Evaluation 444
Stylized Facts of Monetary Policy 447
Data Sources and Descriptive Statistics 448
Structural Estimation Results 451
Dynamic Adjustments 455
Eigen-Value-based Stability Analysis 457
Concluding Remarks 461
References 463
Outlook: Supply Constraints in Demand-Driven Macromodels 467
Introduction 467
A Non-Walrasian Model of Monetary Growth 470
From Non-Walrasian to Keynesian Modeling of Monetary Growth 476
Regime Switching in KMG Growth 482
Supply Bottlenecks with Positive Inventories 483
Exhausted Inventories and Excessive Aggregate Demand 497
Numerical Analysis 503
Summary 510
References 512
Mathematical Appendix: Some Useful Theorems 512
References 522