Globalization and Monetary Policy Institute
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The Globalization and Monetary Policy Institute Working Papers
2010 | 2009 | 2008 | 2007
2010
No. 43
Transitional Dynamics of Output and Factor Income Shares: Lessons from East Germany
Simona E. Cociuba
Abstract: I evaluate the quantitative implications of technology change and government policies for
output and factor income shares during East Germany's transition since 1990. I model an
economy that gains access to a high productivity technology embodied in new plants. As
existing low productivity plants decrease production, the capital income share varies due to
variation in the profit share of these plants. Two policies—transfers and governmentmandated
wage increases—have opposite effects on output growth, but both contribute to
reducing the capital share during the transition. The model's output and capital share line up
with counterparts in East German data.
No. 42
Size and Composition of the Central Bank Balance Sheet: Revisiting Japan's Experience of the Quantitative Easing Policy
Shigenori Shiratsuka
Abstract: This paper re-examines Japan's experience of the quantitative easing policy in light of the policy responses against the current financial and economic crisis. Central banks use various unconventional measures in the range of financial assets being purchased and in the scale of such purchases. As the scope of such unconventional measures expands, it is often emphasized that the U.S. Federal Reserve policy reactions focus more on the asset side of its balance sheet, the so-called credit easing. By contrast, the Bank of Japan's quantitative easing policy from 2001 to 2006 set a target for the current account balances, the liability side of its balance sheet. It is crucial to understand that central banks combine the two elements of their balance sheets, size and composition, to enhance the overall effects of unconventional policy measures, given constraints on policy implementation.
No. 41
Limited Asset Market Participation and the Consumption-Real Exchange Rate Anomaly
Robert Kollmann
Abstract: Under efficient consumption risk sharing, as assumed in standard international business cycle models, a country's aggregate consumption rises relative to foreign consumption, when the country's real exchange rate depreciates. Yet, empirically, relative consumption and the real exchange rate are essentially uncorrelated. I show that this "consumption-real exchange rate anomaly" can be explained by a simple model in which a subset of households trade in complete financial markets, while the remaining households lead hand-to-mouth (HTM) lives. HTM behavior also generates greater volatility of the real exchange rate and of net exports, which likewise brings the model closer to the data.
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