Povoledo, Laura (2013): Modelling the sectoral allocation of labour in open economy models.
This is the latest version of this item.
Preview |
PDF
MPRA_paper_48894.pdf Download (468kB) | Preview |
Abstract
Indivisible labour is not the only type of nonconvexity affecting labour supply decisions. Another type of nonconvexity arises in economies with sectors whenever individuals can work in only one sector at a time. I introduce this restriction into an open economy model with a tradeable and a nontradeable sector, and I use lotteries to convexify the consumption possibilities set. This approach implies that the aggregate elasticity of labour supply becomes infinite. I compare the performance of the model with an analogous model in which the labour supply elasticity is finite. I find that the infinite labour supply elasticity helps explain the persistence of net exports. However, all the other consequences of the labour supply elasticity for the model-implied second-order moments depend on whether the pricing assumption is Producer Currency Pricing (PCP) or Local Currency Pricing (LCP).
Item Type: | MPRA Paper |
---|---|
Original Title: | Modelling the sectoral allocation of labour in open economy models |
Language: | English |
Keywords: | Tradeable and nontradeable sectors; International business cycles; Labour supply elasticity. |
Subjects: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics |
Item ID: | 48894 |
Depositing User: | Laura Povoledo |
Date Deposited: | 06 Aug 2013 16:50 |
Last Modified: | 03 Oct 2019 04:43 |
References: | Basu, Parantap, and Robert Kollmann (2013). "Productive Government Purchases and The Real Exchange Rate." The Manchester School, vol. 81, pages 461-469. Benigno, Gianluca, and Christoph Thoenissen (2003). "Equilibrium Exchange Rates and Supply-Side Performance." Economic Journal, vol. 113(486), pages C103-C124. Benigno, Pierpaolo (2009). "Price Stability with Imperfect Financial Integration." Journal of Money, Credit and Banking, vol. 41(s1), pages 121-149. Betts, Caroline, and Michael B. Devereux (2000). "Exchange Rate Dynamics in a Model of Pricing-to-Market." Journal of International Economics, vol. 50(1), pages 215-244. Betts, Caroline, and Michael B. Devereux (1996). "The Exchange Rate in a Model of Pricing-to-Market." European Economic Review, vol. 40(3-5), pages 1007-1021. Burnside, Craig, and Martin Eichenbaum (1996). "Factor-Hoarding and the Propagation of Business-Cycle Shocks." American Economic Review, vol. 86(5), pages 1154-74. Chari, V. V., Patrick J. Kehoe and Ellen R. McGrattan (2002). "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?" Review of Economic Studies, vol. 69(3), pages 533-63. Chari, V. V., Patrick J. Kehoe and Ellen R. McGrattan (2000). "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?" Econometrica, vol. 68(5), pages 1151-1180. Chetty, Raj, Adam Guren, Day Manoli and Andrea Weber (2011). "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins." American Economic Review, vol. 101(3), pages 471-75. Christiano, Lawrence J., Mathias Trabandt and Karl Walentin (2010). "DSGE Models for Monetary Policy Analysis." In Benjamin M. Friedman and Michael Woodford. Handbook of Monetary Economics, edition 1, vol. 3, ch. 7. Elsevier, pages 285-367. Cooke, Dudley (2010). "Opennes and Inflation." Journal of Money, Credit, and Banking, vol. 42(2-3), pages 267-287. Corsetti, Giancarlo, Luca Dedola and Sylvain Leduc (2008). "High Exchange-Rate Volatility and Low Pass-Through." Journal of Monetary Economics, vol. 55(6), pages 1113-1128. Corsetti, Giancarlo, Philippe Martin, and Paolo Pesenti (2007). "Productivity, Terms of Trade and the `Home Market Effect'." Journal of International Economics, vol. 73(1), pages 99-127. Corsetti, Giancarlo, and Paolo Pesenti (2005). "International Dimensions of Optimal Monetary Policy." Journal of Monetary Economics, vol. 52(2), pages 281-305. Corsetti, Giancarlo, and Paolo Pesenti (2001). "Welfare and Macroeconomic Interdependence." The Quarterly Journal of Economics, vol. 116(2), pages 421-445. Devereux, Michael B., and Viktoria Hnatkovska (2012). "The Extensive Margin, Sectoral Shares, and International Business Cycles." Canadian Journal of Economics, vol. 45(2), pages 509-534. Galí, Jordi, and Tommaso Monacelli (2005). "Monetary Policy and Exchange Rate Volatility in a Small Open Economy." Review of Economic Studies, vol. 72(3), pages 707-734. Greenwood, Jeremy, Zvi Hercowitz and Gregory W. Huffman (1988). "Investment, Capacity Utilization, and the Real Business Cycle." American Economic Review, vol. 78(3), pages 402-17. Hansen, Gary D. (1985). "Indivisible Labor and the Business Cycle." Journal of Monetary Economics, vol. 16(3), pages 309-327. Hodrick, Robert J., and Edward C Prescott (1997). "Postwar U.S. Business Cycles: An Empirical Investigation." Journal of Money, Credit and Banking, vol. 29(1), pages 1-16. Janko, Zuzana (2011). "A dynamic small open economy model with involuntary unemployment." Canadian Journal of Economics, vol. 44, pages 1350--1368. Kollmann, Robert (2010). "Government Purchases and the Real Exchange Rate." Open Economies Review, vol. 21(1), pages 49-64. Kollmann, Robert (2001). "The Exchange Rate in a Dynamic-Optimizing Business Cycle Model with Nominal Rigidities: A Quantitative Investigation." Journal of International Economics, vol. 55(2), pages 243-262. Ljungqvist, Lars, and Thomas J. Sargent (2011). "A Labor Supply Elasticity Accord?" American Economic Review, 101(3), pages 487--91. Ljungqvist, Lars, and Thomas J. Sargent (2005). "Lotteries for Consumers versus Lotteries for Firms." In Kehoe, Timothy J.; Srinivasan, T. N.; and Whalley, John. Frontiers in Applied General Equilibrium Modeling. Cambridge University Press, pages 119-126. Morshed, A. K. Mahbub, and Stephen J. Turnovsky (2011). "Real Exchange Rate Dynamics: The Role of Elastic Labor Supply." Journal of International Money and Finance, vol. 30(7), pages 1303-1322. Mulligan, Casey B. (2001). "Aggregate Implications of Indivisible Labor." The B.E. Journal of Macroeconomics, Advances in Macroeconomics, 1(1), pages --. Obstfeld, Maurice, and Kenneth Rogoff (2007). "The Unsustainable U.S. Current Account Position Revisited." NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376, National Bureau of Economic Research. Obstfeld, Maurice, and Kenneth Rogoff (2005). "Global Current Account Imbalances and Exchange Rate Adjustments." Brookings Papers on Economic Activity, vol. 36(1), pages 67-146. Obstfeld, Maurice, and Kenneth Rogoff (2001). "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?" NBER Chapters, in: NBER Macroeconomics Annual 2000, vol. 15, pages 339-412, National Bureau of Economic Research. Obstfeld, Maurice, and Kenneth Rogoff (2000). "New Directions for Stochastic Open Economy Models." Journal of International Economics, vol. 50(1), pages 117-153. Obstfeld, Maurice, and Kenneth Rogoff (1995). "Exchange Rate Dynamics Redux." Journal of Political Economy, vol. 103(3), pages 624-60. Povoledo, Laura (2013). "A Note on The Volatility Of The Tradeable And Nontradeable Sectors." Macroeconomic Dynamics, vol. 17(5), pages 1158 - 1168. Prescott, Edward C. (2004). "The Transformation of Macroeconomic Policy and Research." Nobel Prize in Economics documents 2004-7, Nobel Prize Committee. [http://www.nobelprize.org/nobel_prizes/economics/laureates/2004/prescott-lecture.pdf] Raffo, Andrea (2008). "Net exports, consumption volatility and international business cycle models." Journal of International Economics, vol. 75(1), pages 14-29. Rogerson, Richard (1988a). "Indivisible Labor, Lotteries and Equilibrium." Journal of Monetary Economics, vol. 21(1), pages 3-16. Rogerson, Richard (1988b). "Recursive Competitive Equilibrium in Multi-sector Economies." International Economic Review, vol. 29(3), pages 419-30. Rogerson, Richard, and Johanna Wallenius (2009). "Micro and Macro Elasticities in a Life Cycle Model with Taxes." Journal of Economic Theory, vol. 144(6), pages 2277-2292. Sutherland, Alan (2005). "Incomplete Pass-Through and the Welfare Effects of Exchange Rate Variability." Journal of International Economics, vol. 65(2), pages 375-399. Uhlig, Harald. (1999). "A Toolkit for Analizing Nonlinear Dynamic Stochastic Models Easily." In Computational Methods for the Study of Dynamic Economies, edited by Ramon Marimon and Andrew Scott, pp. 30-61. Oxford: Oxford University Press. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/48894 |
Available Versions of this Item
-
Modelling the sectoral allocation of labour in open economy models. (deposited 30 Jul 2012 20:23)
- Modelling the sectoral allocation of labour in open economy models. (deposited 09 Jul 2013 19:20)
-
Modelling the sectoral allocation of labour in open economy models. (deposited 31 Jul 2012 14:19)
- Modelling the sectoral allocation of labour in open economy models. (deposited 06 Aug 2013 16:50) [Currently Displayed]