Index

AABM (Aghion-Angeletos- Banerjee-Manova) 14,23, 24, 25 n., 31, 32-41,43, 44, 45

ABM (Aghion-Barro-Marinescu) 42, 45, 47, 48

ABRR (Aghion-Bacchetta-Ranciere- Rogoff) 42,43,

44, 45

AER paper (Ramey & Ramey) 19 Africa 62, 84 n.

aggregate output 51, 82, 89 dynamics easy to compute 101 effects of budgetary or monetary policies on 124 fluctuations 50 n., 83,126 reducing 121 stabilized 85

aggregate savings 60, 70 invested in high-yield production 63, 66 investment demand higher than/less than 54, 56 aggregate volatility 14,33,49 Aghion, Ph. 126,127,129 Aghion, Ph. 1,2,16 n., 68, 69 n., 77, 82 n., 83, 87, 88, 91 n., 92 n., 95, 96, 97, 98 n., 102,108 n., 116 n., 117 n., 121 n., 122, 125 n.

see also AABM; ABM; ABRR AK approach 10-13, 42 n., 53, 54, 55

Amazon 129

ANBERD database 32

Angeletos, G. M., see AABM annual growth 19-22 appreciation 104,118

excessive 42

future, expected 121

nominal 103

real 113

arbitrage 92, 98

Argentina 90

Asia 50,62,84n., 94n., 122

East and South-east 92

assets:

bank 32,36

foreign currency 104,110 n.

Bacchetta, Ph., see ABRR

Baig, T. 117 n.

balance sheets 110,111,116

Banerjee, A. 6, 7

see also AABM

bankruptcy 42, 116

cleaning-up after 88

high risk of 64

banks 6, 36,122,125 n.

bailed out by government 97

crises 90

insolvent 88,116

see also central banks

Barro, R. J. 48

see also ABM; Barro-Lee

Barro-Lee dataset 32

Bean, C. R. 14

Beaudry, P. 13 n.

Bensaid, B. 113 n.

Bernanke, B., see BG

BG (Bernanke-Gertler) model 51,

52, 63 n.

BISbanks 93

black market 32

Blanchard, O. J. 98 n., 126

Bohn, H. 92 n.

bonds 64, 67

foreign currency 98, 115

risk premium on 109 booms 29, 55-6, 57, 58, 72, 87, 88 n. approach that gives central role to technical progress 126 economy reenters 60 end of 64, 81

low long-term investment in 18 new 76

oscillation between slumps and 59

transition to recession 64

see also lending booms borrowing capacity 4, 63, 71, 72, 76 increased 63, 66

limited 55, 88

low 26

net 57

borrowing constraints 52

Brazil 90,116

Bruchez, P.-A.

Bruno, M. 19

budget constraint 15,115

budget deficit 116

budget surpluses 92 budgetary policies 47, 48 countercyclical 52, 67

buildup phase 79-80

Burstein, A. 93

business cycles:

dynamism, instability and recurrence of 1

forces that cause 1-2 persistent 51

Calvo, G. A. 92n., 113

capital 49, 53, 80, 83 current level of 69

foreign 76 knowledge-adjusted holdings of 15

marginal product of 5, 6 net flow 77

restrictions on cross-country movements 89 n.

returns to 7 short-run 24, 41 see also organizational capital; also under following headings prefixed 'capital'

capital account 77

liberalization 83

capital accumulation 42

growth driven by 52 risk-adjusted returns on 10 capital controls 104 capital investment:

rate of return on 54

share of 26

short-run 15

capital markets:

closed 76

international 69, 83

perfect 16, 69

world 52

capital mobility:

full 97

perfect 98, 104 cash flow 51

debt-obligations ratio to 64 domestic, small 85

impact of shocks on investment 6

increased volatility in 82

shocks to 76

strong 6

central banks 32, 97

consumers, foreign investors and 98

equilibrium of balance sheet 111 international reserves 110,115 CES production technology 68 Chamon, M. 97

Chang, R. 92 n. cheaters 9

closed economy 52, 64, 82, 86

help to stabilize 83 Cobb-Douglas function 15,28 collateral 51, 97 commercial paper 64 commodity-price shocks 23, 36-7, 41

export-weighted 32

lagged 24 competitiveness 99 n., 106 n.,

114 n., 121

change in 96

gain in 83 consumption 53, 54, 70, 98 n.

maximized 55 net end-of-period return after 71 optimal 12 short-run 10-11

Utilityfor 49

Cooper, R. 92 n.

cost minimization 127

Countercyclicality 17,18, 26,27,31, 40, 41, 45-8, 67,114 n.

budgetary policies 52

properly designed transfer policies 66 crashes 126 credit:

access to 31, 91

long-term 64

pecuniary externalities and 49-67

ratio to GDP 19,78-9 short-term 64 subsidized 6 supply affected by nominal interest rate 95

see also private credit; also under following headings prefixed ‘credit'

credit constraints 7,18,22,23,33, 43, 54, 60

absence of 28, 31,40, 55, 69 alternative measures of 32 binding 69, 73, 74, 99,118,119, 120

combination of shocks and 3

currency crises and 91 current or lagged 24 firms do not face 62 interaction of endogenous changes in market prices and 52

relaxed 118

role to play in volatility 51 tightness of 25-6,31,41 transmission channel of 32 credit crunch 87 credit markets 43

absence of 25

basic assumptions about 97 completely absent 119 imperfect 2, 23, 24, 69, 81, 97,129 modeled 120 n.

modeling 5-9, 118

perfect 23, 25, 104

role for policies affecting 88 slight tightening of 108 creditworthiness 72, 88 credit-multiplier 61, 69, 88, 118, 122-3

decline in 116

depends on real interest rates 95 currency crises:

self-fulfilling 4 third-generation approach to 90-123

see also appreciation; depreciation current account 80

debt 7, 8

currency composition of 100 inherited 95

long-term, high levels of 64 nonsubsidized 6

output and 99-101 private 114-16 public 67, 94, 95,114-16 ratio of obligations to cash flow 64

short-term 51, 80

see also default; foreign currency debt; repayment debt burden:

dollar-denominated 95 n. increased 60, 101 default 8, 64,123

banks bailed out by government in case of 97

costly 100

likelihood increases 80 probability of 77

demand 14,76,103,106

aggregate 105 excess 74, 83 investment 54, 55, 56, 58, 59, 72 speculative 89

demographics 32, 33 depreciation 11,44, 83, 91, 92-3, 99,

104,121 dollar-denominated debts and

95 n.

expectation of 112 n.

depreciation (cont.)

future, inflation high relative to 118 n.

increase in debt burden induced by 101

increased likelihood of 113 large 94 n., 97,106 unanticipated 115 unexpected 106 devaluation 113

large 93 smaller 94 n.

developing countries 2, 90 development banks 32 deviations 96

Diamond, D. 88 n. difference equations 71, 76 discount factor 11 discount window 121 n., 125 n. distribution costs 94 distribution function 25 dividend payments 87 dollarization 113, 114 domestic savings 77

aggregate 70

less than investment capacity of domestic entrepreneurs 85

low level of 82, 83 downturns 87 Drazen, A. 117 n. Duflo, E. 6, 7 dynamic equations 56-8, 70-1, 72, 73, 74, 76

earnings 53

parametric and nonparametric relationships between capital and 5

retained 28, 61, 98 Eichengreen, B. 90,114 n. emerging market economies 97

crises in 52, 90 destabilizing 87 ex ante policy implications for 88

stabilization policies for 89 employment 5, 50 endogeneity problem 36 endogenous growth theory 41-2 endogenous volatility 52

Engel, C.

bad 93,105,108,111 currency crisis 116 expected profit 43 fully dynamic general model 63 n.

general 51

good 93,105,111 margins 128 monetary 98, 110 partial 51 price 74 stable 105,106 sunspot 96 n., 108 n. symmetric 53 unique 106 see also multiple equilibria

ERM (European Monetary System) crisis (1992) 92, 94n.

Euler equations 12

Euro (currency) 45 European Union 48 exchange rate 101

black market premium 32 current 103 expected 96 extrinsic uncertainty 97 flexible 110 floating 97,113,115 fluctuations 32 optimal 113 perceived risk, substantial increase in 109 productivity growth and choice of regime 42-5 regimes 110-14 relationship between real interest rate and 118

shadow 111 n.

shift generated by tightening 95 variations not affect investment capacity 119

see also fixed exchange rate; nominal exchange rate; real exchange rate exogenous shocks 31

aggregate, persistence and volatility of 14

sensitivity of growth to 36

expectations 12,14,105 n., 106,110,

114

change in 93

currency devaluation 113 pure shift in 96

expected growth 29, 44 higher 18 rate must decrease 29 volatility reduces/increases 13

expected income 8 export prices 32

factor price 76 factors of production 68

Falcetti, E. 92 n.

Fazzari, S. M. 6

FDI (foreign direct investment) 66, 82, 84-7, 88, 89,125

financial accelerator 51

financial crises 87, 89 financial development 61, 69,123 effects of volatility on growth 23-48

levels of 9,19, 62, 76, 84, 89,120 financial intermediaries 31, 32 financial liberalization 88

and instability 81-7

Finland 50, 94 n. first-generation models 94,110,

111,112,116 first-order conditions 12, 25, 99 fiscal deficits 94, 116 fiscal deterrents 89 fiscal imbalances 116 fiscal policy:

conservative 94 countercyclical 48, 67 effects of shocks induced by 109 exogenous change in 116 n.

Fischer, Stanley 95 n. fixed costs 50 n.

fixed exchange rate 92, 110, 113 currency attack on 116 government forced to abandon 111

maintaining 111 n., 114 fixed interest rate 83, 88, 97

international market-clearing 69 Flood, R.

109,114,115,119 actual, determination of 122 increase in burden 118 public 116

foreign exchange 92, 93, 94 increase in premium 109 risk premium 104, 109 n.

free-entry condition 86

Friedman, B. 65

Furman, J. 92 n., 95 n.

Gali, J. 14

Garber and Svensson 94 n.

Gavin, M. 19

GDP (gross domestic product) 31, 32, 50, 86

bank credit and 19

credit ratio to 78-9

developing country emerging market 90

endogenous movements in 19 investment and 22, 24, 32, 36, 41, 77

lower than pre-crisis trend 91 nominal 78

potential 47 preexisting trend in 90 private credit ratio to 77 very large part is effectively nontraded 94

Gertler, M., see BG

Ghana 5 n.

Ghosh, A. 42

GMM panel data system estimator 45

GNP (gross national product) 86 Goldfajn, I. 117 n.

Goldstein, M. 5

Gourinchas, P.-O., see GVL government expenditure 48,114 Griffith-Jones, S. 90 growth strategy 127,128

Gupta, P. 117 n.

GVL (Gourinchas-Valdes- Landeretche) 4, 78, 80, 90

Hall, R. E. 13-14, 50 n. Hammour, M. 14 Harrod-Domar rate 55, 66 Hausmann, R. 19, 97,114 n. Hodrick-Prescott filter 79 Holmstrom, B. R. 217 Howitt, P. 1,2,16 n. human capital 14, 33

IMF (International Monetary Fund)

32, 95 n. imperfect competition 20 n. import prices 32 incomplete markets 26, 28 India 6-7

Indonesia 90 inflation 19

expected reduction in 104 future 116,118 n.

innovation 16

completed 28 equilibrium 18 expected knowledge-adjusted

value of 17

investing in 43 instability 76

financial liberalization and 81-7 high 84 n.

interaction terms 45, 47 insignificant 40

Inter-American Development

Bank 19

interest rate 7, 42, 52, 82, 97,

117,121 current 53 domestic 85 equating marginal product to

market 6 equilibrium 54, 55, 56, 57, 66 exogenous changes 51 high 57, 95 n.

increases negatively affect output 118

international 74

procyclical 64, 65 raised on foreign borrowing 109 rise in 60

world 88

see also fixed interest rate; nominal interest rate; real interest rate

international market 74 international market-clearing 69 international reserves 110,111,113, 115

intertemporal utility maximization 91 n., 98 n.

Invernizzi, S. 76 n. investment:

access to opportunities 66 always constrained by wealth constraints 70

domestic 85

follows credit expansion 81 fundamental state variable that determines 97 growth-enhancing 18, 41 high-yield production activity 55, 56

impact of cash flow shocks on 6 improved capacity 51 innovative 42, 53

limit on 7

low levels of 76

not enough 76 productive 5, 53 productivity-enhancing 10,13,

23, 42, 124

R&D 15

ratio to GDP 36

risk arguably affects 36 short-run 13, 15, 24, 32 see also FDI; long-term investment

IP (interest parity) condition 97, 98, 103,109,110,113,118,123

IPLM (Interest-Parity-LM) curve 102-3,104,105,106-8,109, 111,112 n., 116,117,121

IS (Investment-Savings) curve 105 IT sector 50 n.

Jeanne, O. 92 n., 97,102 n., 113 n., 117n.

Kaldor, Nicholas 2 n. Keynesians 1, 2 n.

Kindleberger, C. 126

King, R. G. 42 n.

Kiyotaki, N., see KM

KM (Kiyotaki and Moore) 51, 52 knowledge 14,15, 44 accumulating over time 16

Korea 90

Kray, A. 117 n.

Krugman, P. R. 92 n., 98 n., 103 n., 110,112 n.

Kuttner, K. 65

Kydland, F. 1,49

labor market:

demand side 49

expansionary effects on 67 supply side 49 labor supply:

aggregate 53

elasticity of 49, 50

Lagrange multiplier 17 Lahiri, A. 117 n.

Lamont, O. 6

Landerretche, O., see GVL

Latin America 19, 50, 62, 92 least developed economies 4

Lee, J. W., see Barro-Lee leisure 13

relative attractiveness of work relative to 50

utility for 49

lending booms 77, 78, 80, 92,124 collapse 90

observed facts about 52

Leontief technology 68, 71, 73, 74, 82, 85

less financially-developed economies 48, 94

Levine, R. 31-2,32-3

liabilities:

claims to 93 interest-bearing 32 liquid 36 limit cycles 73-7 limited liability 97 linear consumption rule 12 liquidity 3, 16, 17 knowledge-adjusted 15 need for 23, 24, 28, 42

shortage of 104 standard effect 99 liquidity cost 43 liquidity shocks 23, 26, 28 ability to overcome 29 uniform 29

LM curve 98, 99, 103 loans 70

foreign, less elastic supply of 88 high levels of availability 41 value to private sector 31

Long, G. B. 1,49, 50 n. long-term investment 3, 13, 15, 23,

42, 124 cyclicality of 40 growth-enhancing 28, 41 innovative 24 more profitable to invest in 18 pay out in the form of future revenues 17

probability that it is successful 16

realization of liquidity cost on 24

Maastricht Treaty (Stability and Growth Pact) 125

McKenzie, D. 5 macroeconomic indicators 79 macroeconomic volatility 65 effects of FDI on 85 n. increased, effect of 29 literature on explaining 50-1 persistent 49 savings rate affected by degree of 10

macropolicy of growth 41-8 Malaysia 90

Malkiel, B. G. 129 Manova, K., see AABM margin strategy 127, 128 marginal product 5, 6, 7 Marinescu, I., see ABM Marion, N. 94 n. market failure 2 market interest rate 5, 6, 7 market thinness 104, 109 n. market value 6 Marx, Karl 1 Marxists 2

maximization:

intertemporal 11-12, 91 n., 98 n. profit 127

sales 126,127

Medio, A. 76 n.

menu costs 50 n.

Mexico 5, 90, 94 n., 116 middle-income countries 62

Mishkin, F. S. 92n., 122 Missale, A. 92 n.

monetary adjustment 97-8 monetary compression 104 monetary policy 51, 99,101,117-21 conservative 94

effects of shocks induced by 109 nominal interest rate maintained

constant by 102

role for 88

tight 95,102 n., 104,118,121 n. money demand function 98-9 money growth 116 money markets 99 money supply 110,121

central bank affects 97 endogenous 111 nominal 99

monitoring 88,123

Moore, J., see KM moral hazard 87, 122 multiple equilibria 95, 96,106,108,

109,113,115 expectational 102,126 negative shock may lead to 121 short-run 93

neoclassical model 2, 5, 53 net present value 62 new markets 126

‘New Open Economy

Macroeconomics' 96 n. noise term 33

nominal exchange rate 91, 95, 96,

97,98,104 n., 111 current 105

nominal interest rate 98,101,102,

103

effect of lowering 121 high 113 n.

nominal wages 43 rigid 42 nontradable goods 68, 71, 72 nonadjustment of prices 94 nontradable input 74

demand for 72

excess supply of 73 numeraire 69

Obstfeld, M. 92 n., 94 n., 96 n., 98 n., 103 n., 110,115

OECD countries 14, 22, 24,32,

36, 40

private credit levels 33 oil companies 6 openness to trade 32 opportunity cost effect 13, 14, 16-19, 22

organizational capital 13

positive effect of recessions on 18-19

output 47, 55-6, 69, 71, 73-4, 98,

101,111,119

capital share of 53 debt and 99-101

equilibrium 50

expansionary effect on 121 expected 103, 105, 106 fall in 113

fundamental state variable that determines 97

interest rate increases negatively affect 118

labor share of 53

measured, may be low during recession 14

real, contraction of 76

relatively good performance

94 n.

saved 11

zero level of 106 n.

see also aggregate output over-accumulation 2 overshooting 126 overvaluation 113

pecuniary externalities 49-67, 91,

97

perfect certainty 18

Peru 50

Phillips curve 105-6 pineapple 5 n., 6 n.

Plosser, C. I. 1,49, 50 n.

PPP (purchasing power parity) 43, 96,101,103,110,115,123 deviations from 93,104,122 predictions 31, 33, 41, 44, 45 confirmed 47 empirical 64, 77, 78

Prescott, E. 1, 49

price adjustment 95, 106

price effects 54

price rigidity 105,106 prices 101

fixed 96, 104 international 32 preset 96, 104 setting 108 n. sticky 50 n., 114 n., 122 priority sector 6-7 private credit 31-2,33, 36, 77, 79 lagged 40, 41 measured 78

nominal, and nominal GDP 78 private sector 115

currency crisis 92

debt problems 94 deterioration of financial health 114

interaction between public and

116

microeconomic characteristics 125

public sector debt may exacerbate problems of 94 value of loans by financial intermediaries to 31

Weakeningofbalancesheets 116 probability 8, 16, 29

default 77

equilibrium innovation 18 monitoring 123

repayment 123 survival 25

procyclicality 24, 25, 26,31,40, 64, 65

magnified 41 sharp 81 production 13 high-yield 55, 56, 57, 63, 66 short-run 18,28 workers cannot invest directly in 53

production costs 87,127 production functions 69, 82, 97 aggregate 10

productivity 6,11, 43 aggregate 14 big new ideas drive 1 change in 96 enhancing 10 expected 5 future, measured output contribution to 14 knowledge-adjusted 25 larger than world interest rate 69 small fall in 108

temporarily higher 63 productivity growth 23, 33 and choice of exchange rate regime 42-5

and countercyclical budgetary policy 45-8

demand fluctuations on 14 exceptionally high 126 less sensitive to volatility 23 productivity shocks 1, 2, 3,17, 28 aggregate 11, 12 bad 14

cost structure of firms resulting from 51

current realization of 16 exogenous 14, 50, 62 favorable, growth reacts positively to 30 good 18 low 26

multiplicative 11 negative 23, 30, 50, 111 positive 50, 63 reduced sensitivity of growth to 30-1

small 49

profitability 119 profits 71, 98 current 43 distribution of 85, 89 elasticity of 7

profits (cont.)

expected 43

impact on 7, 92

long-term 15-16

positive shock to 51

squeezed 113

property rights protection 33 proportionality coefficient 69 public deficits 112

public sector behavior 114,116

PWT (Penn World Tables) 19,31,32

R&D (research and development) 13,32

countercyclicality 41

growth driven by 2

positive shocks stimulate 40 ratio over total investment 24 role of 40

share becomes procyclical 26

Radelet, S. 92 n., 95 n.

Ramey, G. & V., see RR

Ranciere, R., see ABRR random noise 49 rates of return 5, 54, 67, 85

high-yield production technology 55

Razin, A. 85 n.

RBC (real business cycle) models 1, 2,13,14, 49, 62

real exchange rate 69, 77, 80-1, 83 endogenous movements in 52 increased 114 n.

real interest rate 51,123 credit-multiplier depends on 95 depressed 118 n.

lowering 121

relationship between exchange rate and 118

stabilized 82

recessions 13, 50

beginning of 67

bringing on 83

credit indicators and 65

dynamic evolution of wealth during 57

forthcoming, good predictors of 65

limiting the occurrence or length of 66 lowest point of 64 measured output may be low

during 14 potential positive effect on organizational capital 18-19 preventing 114 n.

transition from boom to 64 recovery 67, 88 regressions 23, 32, 41, 47

first-stage 40, 48 two-stage 48 relative price 69, 89

collapse of 76

rents 43 repayment 48, 54, 92, 98,100,123 stalled 8

reservation wage 43 restructuring 88 return on investment 70 realization of 54 risk-adjusted 13 returns to scale 49 revenues 57, 67,114,116 n. end-of-period 55, 71 gross 71 net expected 123 stalling away from the lender 8 reverse causality 32 risk:

aggregate 88 n.

arguably affects savings rates

and investment 36 perceptions 96,109 shifted to lender 100 risk-aversion 11 Rogoff, K. S. 45, 94 n., 96 n.

see also ABRR

Romer, P. M. 1,2,16 n.

RR (G. & V. Ramey) 19, 22,23,31,

32, 36

Sachs, J. 92 n., 95 n. Saint-Paul, G. 14 sales 7 sales strategy 127 savings 42, 58, 98 n.

average growth rate depends positively on 10

constant 53, 68 discouraged 11,13 endogenous 68 equilibrium 10 idle 67

invested in high-yield production 57, 59-60 maximized 55

precautionary 13 risk arguably affects 36 see also aggregate savings;

domestic savings Schneider, M. 97 Schumpeterian approach 2,13-19,

124 second-generation models 94,110,

113,115 seigniorage 116 self-employment 5 sensitivity analysis 32 serial correlation 52 service sector 50 n. shocks:

amplified 51, 58-63 cash flow 6, 76 effect on future growth 24 exchange rate 93 expectational 96 n.

fiscal 114 greater proneness to 2 idiosyncratic 114 n. induced by fiscal and/or monetary policy 109 lagged 40, 41 large 110,111,113,114 n. lower sensitivity of growth to 40 negative 50,108,114,116,121 nominal 43, 51 positive 40, 51, 62 real 51, 93, 111 response to 77 technological, small 50 temporary 62 terms-of-trade 32, 36-7 trade 41, 49, 50, 111 unanticipated 97-8,104 n., 105 n. vulnerability to 42 see also commodity-price shocks;

exogenous

shocks; liquidity shocks; productivity shocks slumps 29, 55-6, 60, 66, 67, 76 direct investments ultimately fall during 87

effect that carries economy from boom to 72

high long-term investment in 18 oscillation between booms and 59

permanent 58-9

recovery from 88

transition from booms to 64 small-scale industry category 7 Solow, R. 10

Soviet Union (former) 50 speculative bubbles 126 spillovers 4 stabilization policies 89 stagnation 48 stalling 8 standard deviation 33, 47 steady-state 75, 83, 98 Stein, J. 126,127,128,129 Stiglitz, J. E. 92 n., 95 n. stock markets 126-9 Stock, J. 64 n. subsidies 7, 67 substitutability: perfect 104 imperfect 110 substitution 12, 85 intertemporal elasticity of 11,13 sunspots 96 n., 108 n., 126 supply 74

excess 73

fixed 68

tax:

cuts 67

endogenous decline in revenue 116 n.

raising during a slump 88 technical progress 126 endogenous 16 technology:

average growth rate of 18 high-yield production 55, 59-60, 63

storing 86

terms of trade 36 changes in 23,32,40 deteriorations in 23

tesobonos 116

Thailand 90

third-generation models 90-123 time-series 36, 40

fluctuations 33

quarterly, information for small and large firms 51

timing of events 70

Tornell, A. 97

tradable goods 96 price of 94 slow adjustment of 94 n.

transaction costs 104,109 n. treasury bills 64 n.

Turkey 90

Udry, C. 5

uncertainty:

extrinsic exchange rate 97 foreign price 115

output 77

productivity shocks create 3 underdeveloped countries 61, 62 unemployment 92, 94 United States 48, 62,125,126

boom and bust 126

Department of Commerce 51 devaluations 94 elasticity of labor supply 50 high-tech sector(s) 128 private credit 33 recent volatility history 124 some facts about volatility 64-5

Valdes, R., see GVL

VAR estimation 14

Vegh, C. 113,117 n. Velasco, A. 92 n.

Watson, M. 64 n.

Woodruff, C. 5

Zeira, J. 126,129