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Working papers from the Federal
Reserve Bank of Dallas are preliminary drafts circulated
for professional comment.
2008
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2006 Working Papers
0606
Argentina's
Unimpressive Recovery: Insights from a Real Business
Cycle Approach 
Carlos E. J. M. Zarazaga
Abstract:
Argentina’s GDP increased 30% between 2002 and
2005, prompting optimistic assessments that the country
had finally left behind its secular stagnation. However,
this strong performance followed a sharp decline in
economic activity and therefore could be the manifestation
of a bounce-back effect with no lasting impact on Argentina’s
mediocre long-run growth rates. The paper examines this
conjecture with the quantitative discipline imposed
by a Real Business-Cycle methodology and concludes that
the 2002-05 expansion was not only a rebound, but also
considerably weaker than the model predicts, a finding
not consistent with upbeat views about the country’s
long-run prospects.
0605
The
Role of Total Factor Productivity in "Phoenix Miracles":
Insights from an Emerging Market Crisis
(revised March 2007)
Carlos E. J. M. Zarazaga
Abstract:
Key macroeconomic variables such as GDP and investment
typically display a V-shaped pattern during major emerging
market crises. A notable exception to that pattern is
intermediated credit, which follows an L-shaped trajectory
instead: it declines at first in lockstep with economic
activity, but later on it fails to recover while output
does. From the vantage point of "credit crunch" theories
of crises, it is as if output almost literally "rises
from its ashes," prompting the metaphoric characterization
of emerging markets post-collapse recoveries as Phoenix
Miracles.
This paper reorganizes the evidence
for a particular emerging market crisis, the one that
Argentina experienced in 2000-01, under the guide of
the neoclassical growth model. Under that lens, there
is nothing special about the V-shaped trajectory that
GDP, investment, and labor input followed during the
crisis and its aftermath. That is exactly the pattern,
and in the same orders of magnitude, that a neoclassical
growth model with TFP taken as exogenous would predict.
Furthermore, from the vantage point of that model, there
is no Phoenix Miracle: the post-collapse recovery of
TFP and GDP was about as strong as the model would have
predicted.
0604
Expectations
and Exchange Rate Dynamics: A State-Dependent Pricing
Approach
Anthony E. Landry
Abstract:
We introduce elements of state-dependent pricing and
strategic complementarity into an otherwise standard
New Open Economy Macroeconomics (NOEM) model. Relative
to previous NOEM works, there are new implications for
the dynamics of real and nominal economic activity:
complementarity in the timing of price adjustment alters
an open economy's response to monetary disturbances.
Using a two-country Producer-Currency-Pricing environment,
our framework replicates key international features
following a domestic monetary expansion: (i) a delayed
surge in inflation across countries, (ii) a delayed
overshooting of exchange rates, (iii) a J-curve dynamic
in the domestic trade balance, and (iv) a high international
output correlation relative to consumption correlation.
Overall, the model is consistent with many empirical
aspects of international economic fluctuations, while
stressing pricing behavior and exchange rate effects
highlighted in traditional Keynesian works.
0603
An Economic
Interpretation of Suicide Cycles in Japan
Jahyeong Koo and W. Michael Cox
Abstract:
Suicide rates in Japan have increased dramatically in
recent years, making. Japan's male rate the highest
among developed economies. This study revises the standard
economic model of suicide to accommodate Japan's experience,
focusing on the change in human capital for the unemployed.
We then use the new model and de-trended data to empirically
investigate the relationship between the suicide cycle
and the unemployment cycle. Unlike previous aggregate
time series studies, we find that the relationship between
the suicide rate and the unemployment rate is significantly
and robustly positive for both males and females even
after controlling for several social variables.
0602
The
Welfare Effects of Pay-as-You-Go Retirement Programs:
The Role of Tax and Benefit Timing
Alan D.Viard
Abstract:
It is well known that pay-as-you-go retirement programs
reduce steady-state welfare and the capital stock in
dynamically efficient OLG economies. The common two-period
OLG model obscures, however, the dependence of these
effects on the ages at which taxes are paid and benefits
are received. Program changes that shift taxes to older
workers or benefits to younger retirees have effects
similar to reductions in program size, yielding steady-state
welfare gains and increases in capital accumulation
while imposing transition costs on current generations.
This analysis has policy implications for both tax and
benefit timing.
0601
Employer
Matching and 401(k) Participation: Evidence from the
Health and Retirement Study
Gary V. Engelhardt and Anil Kumar
Abstract:
Employer matching of employee 401(k) contributions can
provide a powerful incentive to save for retirement
and is a key component in pension-plan design in the
United States. Using detailed administrative contribution,
earnings, and pension-plan data from the Health and
Retirement Study, this analysis formulates a life-cycle-consistent
discrete choice regression model of 401(k) participation
and estimates the determinants of participation accounting
for non-linearities in the household budget set induced
by matching. The estimates indicate that an increase
in the match rate by 25 cents per dollar of employee
contribution raises 401(k) participation by 3.75 to
6 percentage points, and the estimated elasticity of
participation with respect to matching ranges from 0.02-0.07.
The estimated elasticity of intertemporal substitution
is 0.74-0.83. Overall, the analysis reveals that matching
is a rather poor instrument with which to raise retirement
saving.
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