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This dissertation consists of three essays, which study the relation between stock prices and the macroeconomy using vector autoregressions (VARs). The first essay focuses on the link between stock prices and the current account. I find that stock markets provide a channel, in addition to the traditional exchange rate channel, through which external balance for a country with a current account imbalance can be restored. The second essay explores the transmission of U.S. stock price shocks to real activity and prices in G-7 countries. I achieve identification by imposing a small number of sign restrictions on impulse responses, while controlling for monetary policy, business cycle and government spending shocks. The results suggest that stock price movements are important for fluctuations in G-7 real activity and prices, but do not qualify as demand side business cycle shocks. The third essay investigates the impact of monetary and technology shocks on the stock market. I find an important role for technology shocks, but not monetary shocks, in explaining variations in real stock prices. The identification method is flexible enough to study the effects of technology news shocks. The responses are consistent with the idea that news on technology improvements have an immediate impact on stock prices.
We investigate into the role of the trade channel as important determinant of a country's current account position and the degree of business cycle synchronization with the rest of the world by comparing the predictions of two types of DGE models. It is shown that the behavior of a country's external balance and the international transmission of shocks depends amongst other things on two factors: i) the magnitude of trade interdependence, ii) the degree of substitutability between importable and domestically-produced goods. Using time series data on bilateral trade flows, we estimate the magnitude of trade interdependence and the elasticity of substitution between importable and domestic goods for the G7 countries. Given these estimates, idiosyncratic supply shocks potentially induce changes in the current account and foreign output that vary in direction and magnitude across G7 countries. The relationship between the magnitude of foreign trade and the import substitutability with various correlation measures is examined empirically in a cross-sectional dimension. First Draft, July 2001. Final Draft, November 2001. Klassifikation: E32, F41
Discussions of the international dimension of the global economic crisis have frequently focused on the build-up of large current account "imbalances" since the mid-1990s. This paper examines the extent to which the U.S. current account can be understood in a purely real open-economy DSGE model, were agents' perception of long-run growth evolves over time in response to changes in productivity. We first show that long-run growth forecasts based on
ltering actual productivity growth comove strongly with survey measures of expectations. Simulating the model, we
nd that including data on U.S. TFP growth and the world real interest rate can, under standard parametrizations of our model, explain the evolution of the U.S. current account quite closely. With household preference that allow positive labor supply e¤ects after favorable news of future income, we can also generate output movements in line with the data.
This paper examines to what extent the build-up of "global imbalances" since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents’ perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data. JEL Classification: E13, E32, D83, O40
This paper examines to what extent the build-up of 'global imbalances' since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents' perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data.
This paper explores the relationship between equity prices and the current account for 17 industrialized countries in the period 1980-2007. Based on a panel vector autoregression, I compare the effects of equity price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have a limited impact, shocks to equity prices have sizeable effects. The results suggest that equity prices impact on the current account through their effects on real activity and exchange rates. Furthermore, shocks to exchange rates play a key role as well. Keywords: current account fluctuations, equity prices, panel vector autoregression