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Timothy J. Kehoe

Macroeconomic Modeling and Estimation:

Modeling Financial Crises

Barcelona Graduate School of Economics

March 2012

 

Notes on capital flows

Notes on real exchange rates

Turkey-Germany real exchange rate data

Notes on sudden stops

Notes on what happened in Mexico in 1994–95

Notes on self-fulfilling crises

Notes on gambling for redemption

1.  Real Exchange Rates and Crises

Questions:

1.         Is the distinction between traded and nontraded goods useful for accounting for real exchange rate fluctuations?

2.         How far can a standard model with traded and nontraded goods go in accounting for the changes in relative prices and quantities observed in developing countries after a sudden stop in capital flows as, for example, in the Mexican Crisis of 1994-95?

Readings:

C. M. Betts and T. J. Kehoe, Real Exchange Rate Movements and the Relative Price of Nontraded Goods,Federal Reserve Bank of Minneapolis Staff Report 415.  

C. M. Betts and T. J. Kehoe, “U.S. Real Exchange Rate Fluctuations and Relative Price Fluctuations,” Journal of Monetary Economics, 53 (2006), 1297-1326.

G. Fernandez de Cordoba and T. J. Kehoe, Capital Flows and Real Exchange Rate Fluctuations Following Spain's Entry into the European Community, Journal of International Economics, 51 (2000), 49-78.

T. J. Kehoe, “What Happened in Mexico in 1994–95?” in P. J. Kehoe and T. J. Kehoe, editors, Modeling North American Economic Integration, Kluwer Academic Publishers, 1995, 131–47.

T. J. Kehoe and K. J. Ruhl, Sudden Stops, Sectoral Reallocations, and the Real Exchange Rate,” Journal of Development Economics, 89 (2009), 235-249.

2.  Self-Fulfilling Crises

Questions:

3.         Can we construct a dynamic stochastic general equilibrium model in which financial crises are driven by self-fulfilling expectations on the part of investors?

4.         What role did the maturity of Mexican government debt play in the 1994–95 financial crisis?

1.         Can we model the current financial crises in Europe as self-fulfilling crises?

Readings:

C. Chamley and B. Pinto (2011), “Why Official Bailouts Tend Not to Work:  An Example Motivated by Greece 2010,”  The Economists’ Voice, 8.

H. L. Cole and T. J. Kehoe (1996), “A Self-Fulfilling Model of Mexico's 1994-95 Debt Crisis,” Journal of International Economics, 41, 309-330.

H. L. Cole and T. J. Kehoe (2000), “Self-Fulfilling Debt Crises,” Review of Economic Studies, 67, 91-116. 

J. C. Conesa and T. J. Kehoe (2011), “Gambling for Redemption and Self-Fulfilling Debt Crises,” Federal Reserve Bank of Minneapolis.


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Last modified: Tuesday 13 March 2012 3:59