scholarly journals Macroeconomic effects of unemployment benefits in small open economies: a stock–flow consistent approach

2018 ◽  
Vol 15 (3) ◽  
pp. 335-363
Author(s):  
Byrialsen Mikael Randrup ◽  
Hamid Raza
Keyword(s):  
Open Economy ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
Unemployment Benefits ◽  
Trade Off ◽  
Unemployment Compensation ◽  
Key Variables ◽  
Macroeconomic Effects ◽  
Stock Flow ◽  
Compensation Rate

This paper attempts to analyse the macroeconomic effects of unemployment benefits in a small open economy. We adopt a stock–flow consistent (SFC) approach with an emphasis on the dynamics of the labour market. We numerically solve the model using a combination of estimation and calibration to generate statistics for our key variables, reflecting features of the Danish economy. We then analyse the effects of a fall in the unemployment compensation rate on the economy. The results indicate that a fall in the compensation rate at a macro level leads to a trade-off between a fall in aggregate demand and a rise in net exports. Due to this trade-off, the net effect of a fall in the compensation rate on the aggregate unemployment rate tends to be weak. Our analyses in this paper raise several questions on the existing views regarding unemployment benefits adopted by a large strand of the economic literature.

After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade

2020 ◽  
Vol 2 (4) ◽  
pp. 509-526 ◽  
Author(s):  
Felipe Benguria ◽  
Alan M. Taylor
Keyword(s):  
Open Economy ◽  
Financial Crises ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
Supply Side ◽  
Supply Shocks ◽  
Crisis Events ◽  
Empirical Tests ◽  
Negative Shock ◽  
Research And Policy

Are financial crises a negative shock to aggregate demand or supply? This is a fundamental question for research and policy making. Arguments for stimulus usually presume demand-side shortfalls; arguments for tax cuts or structural reform look to the supply side. Resolving the question requires models with both mechanisms, and empirical tests to tell them apart. We develop a small open economy model, where a country is subject to deleveraging shocks that impose binding credit constraints on households and/or firms. These financial crisis events leave distinct statistical signatures in the time series record that divide sharply between each type of shock. Empirical analysis reveals a clear picture: after financial crises the dominant pattern is that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. History shows financial crises are predominantly a negative shock to demand. (JEL F14, F31, F41, G01, N10, N20, N70)

scholarly journals Globalization, Endogenous Oil Price Shocks and Chinese Economic Activity

2017 ◽  
Vol 22 (2) ◽  
pp. 39-64
Author(s):  
Gulzar Khan ◽  
Adiqa Kiani ◽  
Ather Maqsood Ahmed
Keyword(s):  
Open Economy ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
Oil Prices ◽  
Chinese Economy ◽  
Oil Price ◽  
Economic Conditions ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Macroeconomic Activity

Using a structural vector autoregressive model, this study investigates the extent to which international oil price shocks have influenced the Chinese economy over the period 1991–2014. Given China’s intensified macroeconomic activity and its increasing demand for energy resources, we also examine the endogenous response of international oil prices to economic conditions in the country. To that end, we derive and empirically estimate a small open-economy New Keynesian model for China and the rest of the world. Our results show that the Chinese economy is relatively more sensitive to global economic conditions than to domestic policy actions. Global productivity shocks appear to be the most important variable causing Chinese macroeconomic activity through trade, where oil prices impact aggregate demand negatively.

scholarly journals COVID-19 and Emerging Markets

2020 ◽  
Vol 20 (133) ◽  
Author(s):  
Cem Cakmakli ◽  
Selva Demiralp ◽  
Sebnem Kalemli-Ozcan ◽  
Sevcan Yesiltas ◽  
Muhammed Yildirim
Keyword(s):  
Open Economy ◽  
Credit Card ◽  
Small Open Economy ◽  
Input Output ◽  
Economic Costs ◽  
Infection Rates ◽  
Demand Shock ◽  
Supply Shocks ◽  
Initial Shock ◽  
Macroeconomic Effects

We quantify the macroeconomic effects of COVID-19 for a small open economy by calibrating a SIR-multi-sector-macro model. We measure sectoral supply shocks utilizing teleworking and physical job proximity, and demand shocks with credit card purchases. Both shocks are also affected from changing infection rates under different lockdown scenarios. Being an open economy amplifies the economic costs through two main channels. First, the demand shock has domestic and external components. Second, the initial shock is magnified due to domestic and international input-output linkages.

scholarly journals Post-2008 Brazilian fiscal policy: an interpretation through the analysis of fiscal multipliers

2017 ◽  
Vol 47 (1) ◽  
pp. 93-124
Author(s):  
Celso José Costa Junior ◽  
Alejandro C. García Cintado ◽  
Armando Vaz Sampaio
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Investment ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
New Keynesian ◽  
Fiscal Policies ◽  
Fiscal Multipliers ◽  
Brazilian Government ◽  
The Government

Abstract The global crisis that erupted in 2007 led many countries to embark on countercyclical fiscal policies as a way to cushion the blow of a depressed aggregate demand. Advocates of discretionary measures emphasize that fiscal policy can indeed stimulate the economy. The main goal of this work is to assess whether the fiscal policies pursued by the Brazilian government in the aftermath of the 2008 crisis, succeeded in bringing the economy back on track in a sustainable fashion. To this end, the fiscal multipliers of five different shocks are studied in a small open-economy New Keynesian framework. Our results point to the government spending and public investment as the most effective fiscal tools for combating the crisis. However, the highest fiscal multiplier turned out to be the one associated with excise tax reductions.

scholarly journals ANATOMIZING INCOMPLETE-MARKETS SMALL OPEN ECONOMIES: POLICY TRADE-OFFS AND EQUILIBRIUM DETERMINACY

2015 ◽  
Vol 20 (4) ◽  
pp. 1022-1050 ◽  
Author(s):  
Jaime Alonso-Carrera ◽  
Timothy Kam
Keyword(s):  
Exchange Rate ◽  
Incomplete Markets ◽  
Open Economy ◽  
Rational Expectations ◽  
Small Open Economy ◽  
Complete Markets ◽  
Structural Shocks ◽  
Trade Off ◽  
Trade Offs ◽  
Equilibrium Market

We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-markets equilibrium. Market incompleteness exacerbates the domestic-inflation and output-gap monetary-policy trade-off in two ways: its steepness and its resulting endogenous cost-push to the trade-off. The latter depends on an equilibrium combination of structural shocks and on agents' beliefs of future events. Thus, in comparison to its complete-markets and closed-economy limits, standard Taylor-type rules are less capable of inducing determinate rational expectations equilibrium in our environment. Despite the larger policy trade-off under incomplete markets, simple policies that also respond to exchange-rate growth are able to manage expectations that drive the endogenous cost-push term. However, policies that respond directly to expectations may turn out to exacerbate the cost-push trade-off further, and thus, to be more likely to fuel self-fulfilling multiple or unstable equilibria.

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