Resource allocation under production uncertainty: Closed economy vs. open economy

This paper estimates a structural New Keynesian model to test whether globalization has changed the behavior of U.S. macroeconomic variables. Several key coefficients in the model–such as the slopes of the Phillips and IS curves, the sensitivities of domestic inflation and output to “global” output, and so forth–are allowed in the estimation to depend on the extent of globalization (modeled as the changing degree of openness to trade of the economy), and, therefore, they become time-varying. The empirical results indicate that globalization can explain only a small part of the reduction in the slope of the Phillips curve. The sensitivity of U.S. inflation to global measures of output may have increased over the sample, but it remains very small. The changes in the IS curve caused by globalization are similarly modest. Globalization does not seem to have led to an attenuation in the effects of monetary policy shocks. The nested closed-economy specification still appears to provide a substantially better fit of U.S. data than various open-economy specifications with time-varying degrees of openness. Some time variation in the model coefficients over the postwar sample exists, particularly in the volatilities of the shocks, but it is unlikely to be related to globalization.

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Fiscal Stimulus in a Monetary Union: Evidence from US Regions

The American Economic Review ◽

10.1257/aer.104.3.753 ◽

2014 ◽

Vol 104 (3) ◽

pp. 753-792 ◽

Cited By ~ 201

Author(s):

Emi Nakamura ◽

Jón Steinsson

Keyword(s):

Monetary Union ◽

Open Economy ◽

Government Spending ◽

Tax Policy ◽

Regional Variation ◽

Historical Data ◽

Closed Economy ◽

Fiscal Stimulus ◽

Highly Sensitive ◽

Military Procurement

We use rich historical data on military procurement to estimate the effects of government spending. We exploit regional variation in military buildups to estimate an “open economy relative multiplier” of approximately 1.5. We develop a framework for interpreting this estimate and relating it to estimates of the standard closed economy aggregate multiplier. The latter is highly sensitive to how strongly aggregate monetary and tax policy “leans against the wind.” Our open economy relative multiplier “differences out” these effects because monetary and tax policies are uniform across the nation. Our evidence indicates that demand shocks can have large effects on output. (JEL E12, E32, E62, F33, H56, H57, R12)

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Fairness, Search Frictions, and Offshoring

The B E Journal of Economic Analysis & Policy ◽

10.1515/bejeap-2012-0056 ◽

2013 ◽

Vol 13 (1) ◽

pp. 137-172 ◽

Cited By ~ 2

Author(s):

Devashish Mitra ◽

Priya Ranjan

Keyword(s):

Wage Inequality ◽

Open Economy ◽

Closed Economy ◽

Skilled Workers ◽

Unemployment Rates ◽

Unskilled Workers ◽

Fairness Concerns ◽

The Cost ◽

The Impact

Abstract: Fairness considerations are introduced into the determination of wages in a two factor Pissarides-style model of search unemployment to study its implications for the unemployment rates of unskilled and skilled workers in both the closed economy case and when the economy can offshore some inputs. Both fairness concerns and offshoring of jobs done by unskilled workers create the overhiring effect for skilled workers. An increase in the concern for fairness in the closed economy increases the cost of hiring unskilled workers and increases the unemployment rates of both types of workers; however, wage inequality decreases. In the open economy case, an increase in the concern for fairness leads to greater offshoring which prevents skilled unemployment from increasing, but the unemployment of unskilled workers increases. A reduction in the cost of offshoring also increases offshoring and increases the unemployment of unskilled workers, but has a positive effect on skilled workers. Due to the presence of an overhiring effect in the hiring of skilled workers for both offshoring and non-offshoring firms, skilled workers experience higher wages and lower unemployment. The opposite movements in skilled and unskilled unemployment render the net effect ambiguous. Even though wage inequality increases, the impact on the wages of unskilled workers is ambiguous.

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Teoria neo-keynesiana e aspettative razionali in economia aperta*

Journal of Public Finance and Public Choice ◽

10.1332/251569298x15668907117110 ◽

1985 ◽

Vol 3 (2) ◽

pp. 109-123

Author(s):

Enrico Colombatto

Keyword(s):

Open Economy ◽

Capital Market ◽

Rational Expectations ◽

The Other ◽

Closed Economy ◽

Classical Economics ◽

Other Hand ◽

Goods Market ◽

The One

Abstract The introductory paragraph is devoted to the outline of the role of the rational expectations (r.e.) element within the Keynesian, the Monetarist and the New-Classical-Economics framework; in all such cases the closed-economy version only is taken into account.The second part of the article, on the other hand, is devoted to the analysis of an open-economy framework, where the consequences of the r.e. hypothesis are analysed in greater depth. In short, two groups of aspects are stressed: on the one hand, considerable attention is given to the importance and the analysis of the velocity of anticipation and of adjustment, both on the goods market and on the capital market; on the other, the dimensions and the frequence of the eventual distortions which arise in the neo-Keynesian and in the Monetarist cases are examined. The results yielded by the analysis carried out within both groups of aspects are then compared with the results obtained from a New-Classical viewpoint. The role of the alternative classes of expectations - apart from the r. e. case - is taken into account as well.

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GLOBALIZATION AND THE INDUSTRIAL REVOLUTION

Macroeconomic Dynamics ◽

10.1017/s1365100514000509 ◽

2015 ◽

Vol 20 (3) ◽

pp. 643-666 ◽

Cited By ~ 2

Author(s):

Pedro Cavalcanti Ferreira ◽

Samuel Pessôa ◽

Marcelo Rodrigues dos Santos

Keyword(s):

Open Economy ◽

Historical Development ◽

Overlapping Generations ◽

Industrial Revolution ◽

Transition Period ◽

Closed Economy ◽

Overlapping Generations Model ◽

Economy Model ◽

Development Path ◽

Key Variables

This paper argues that trade specialization played an indispensable role in supporting the Industrial Revolution. We calibrate a two-good and two-sector overlapping generations model for England's historical development and investigate how much different England's development path would have been if it had not globalized in 1840. The open-economy model is able to match the data closely, but the closed-economy model cannot explain the fall in the value of land relative to wages observed in the nineteenth century. Without globalization, the transition period in the British economy would have been considerably longer than that observed in the data and key variables, such as the share of labor force in agriculture, would have converged to figures very distant from the actual ones.

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Does the Open Economy Assumption Really Mean That Labor Bears the Burden of a Capital Income Tax?

Advances in Economic Analysis & Policy ◽

10.2202/1538-0637.1548 ◽

2006 ◽

Vol 6 (1) ◽

Cited By ~ 21

Author(s):

Jane G Gravelle ◽

Kent A. Smetters

Keyword(s):

Open Economy ◽

Income Tax ◽

Tax Incidence ◽

Closed Economy ◽

Capital Income ◽

Economy Model ◽

Conventional View ◽

Foreign Products ◽

Long Run ◽

Domestic Capital

Abstract The conventional view holds that domestic labor, not domestic capital, bears most of the long-run burden of a corporate income tax in an open economy due to the ability of capital to move across borders. This result assumes that domestic and foreign products (as well as investments) are perfect substitutes. This paper includes imperfect product substitution within a multi-sector open-economy model, and shows that much of the burden may fall on capital. To be sure, if savings falls sufficiently, much of the burden shifts to labor, but this fact also holds in a closed economy. Hence, the debate about tax incidence must focus more on the savings response and less on whether an economy is open or closed.

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Delegating Optimal Monetary Policy Inertia in a Small-Open Economy

The B E Journal of Macroeconomics ◽

10.1515/bejm-2020-0181 ◽

2020 ◽

Vol 0 (0) ◽

Author(s):

Daisuke Ida ◽

Mitsuhiro Okano

Keyword(s):

Monetary Policy ◽

Open Economy ◽

Inflation Targeting ◽

Small Open Economy ◽

Central Banks ◽

New Keynesian ◽

Closed Economy ◽

Optimal Monetary Policy ◽

Nk Model ◽

Exchange Rate Targeting

AbstractThis paper explores the delegation of several targeting regimes in a small open new Keynesian (NK) model and examines how central banks overcome stabilization bias in a small open NK model. Results indicate that both speed limit and real exchange rate targeting can carry the isomorphic properties of optimal monetary policy over to the closed economy. In addition, neither nominal income growth targeting nor CPI inflation targeting replicates a commitment policy. These findings provide new implications for optimal monetary policy in an open economy.

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