153 results on '"Sergio Rebelo"'
Search Results
2. A World Equilibrium Model of the Oil Market
- Author
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Gideon Bornstein, Per Krusell, and Sergio Rebelo
- Subjects
Economics and Econometrics - Abstract
We use new, comprehensive micro data on oil fields to build and estimate a structural model of the oil industry embedded in a general equilibrium model of the world economy. In the model, firms that belong to Organization of the Petroleum Exporting Countries (OPEC) act as a cartel. The remaining firms are a competitive fringe. We use the model to study the macroeconomic impact of the advent of fracking. Fracking weakens the OPEC cartel, leading to a large long-run decline in oil prices. Fracking also reduces the volatility of oil prices in the long run because fracking firms can respond more quickly to changes in oil demand.
- Published
- 2022
- Full Text
- View/download PDF
3. State-Dependent Effects of Monetary Policy: The Refinancing Channel
- Author
-
Martin Eichenbaum, Sergio Rebelo, and Arlene Wong
- Subjects
Economics and Econometrics - Abstract
This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize. (JEL D15, E21, E43, E52, G21, G51, R31)
- Published
- 2022
- Full Text
- View/download PDF
4. Inequality in Life and Death
- Author
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Mathias Trabandt, Martin Eichenbaum, and Sergio Rebelo
- Subjects
Inequality ,business.industry ,media_common.quotation_subject ,Risk of infection ,Epidemic ,Recession ,General Business, Management and Accounting ,E1 ,Economic inequality ,I1 ,H0 ,Health care ,Economics ,Demographic economics ,Quality (business) ,business ,Construct (philosophy) ,General Economics, Econometrics and Finance ,Capital market ,media_common ,Research Article - Abstract
We argue that the COVID epidemic disproportionately affected the economic well-being and health of poor people. To disentangle the forces that generated this outcome, we construct a model that is consistent with the heterogeneous impact of the COVID recession on low- and high-income people. According to our model, two-thirds of the inequality in COVID deaths reflect preexisting inequality in comorbidity rates and access to quality health care. The remaining third stems from the fact that low-income people work in occupations where the risk of infection is high. Our model also implies that the rise in income inequality generated by the COVID epidemic reflects the nature of the goods that low-income people produce. Finally, we assess the health–income trade-offs associated with fiscal transfers to the poor and mandatory containment policies.
- Published
- 2021
5. The Macroeconomics of Epidemics
- Author
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Martin S Eichenbaum, Sergio Rebelo, and Mathias Trabandt
- Subjects
Economics and Econometrics ,Accounting ,0502 economics and business ,05 social sciences ,050207 economics ,Finance ,050205 econometrics - Abstract
We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people cut back on consumption and work to reduce the chances of being infected. These decisions reduce the severity of the epidemic but exacerbate the size of the associated recession. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the United States.
- Published
- 2021
- Full Text
- View/download PDF
6. What is the optimal immigration policy? Migration, jobs, and welfare
- Author
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Sergio Rebelo, Pedro Teles, and João Guerreiro
- Subjects
Economics and Econometrics ,Labour economics ,Government ,media_common.quotation_subject ,05 social sciences ,Native population ,Immigration ,Welfare state ,Redistribution (cultural anthropology) ,Public good ,Optimal taxation ,Immigration policy ,0502 economics and business ,Redistribution ,Economics ,050207 economics ,Welfare ,Finance ,050205 econometrics ,media_common - Abstract
We study the immigration policy that maximizes the welfare of the native population in an economy where the government designs an optimal redistributive welfare system and supplies public goods. We show that when the government can design different tax systems for immigrants and natives, free immigration is optimal. It is also optimal to use the tax system to encourage the immigration of high-skill workers and discourage that of low-skill workers. When immigrants and natives must be treated alike, banning low-skill immigration and allowing free immigration for high-skill workers is optimal. However, there might be no high-skill immigration when heavy taxes are levied on all high-skill workers, both natives and immigrants.
- Published
- 2020
7. Should robots be taxed?
- Author
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Pedro Teles, Sergio Rebelo, João Guerreiro, and Veritati - Repositório Institucional da Universidade Católica Portuguesa
- Subjects
Economics and Econometrics ,Labour economics ,050204 development studies ,ComputingMilieux_LEGALASPECTSOFCOMPUTING ,Automation ,Economic inequality ,0502 economics and business ,Economics ,050207 economics ,050205 econometrics ,ComputingMilieux_THECOMPUTINGPROFESSION ,Tax deduction ,business.industry ,05 social sciences ,Tax basis ,Quantitative model ,Technical progress ,ComputingMilieux_GENERAL ,Optimal taxation ,Inequality ,8. Economic growth ,Robot ,Optimal tax ,business ,Robots - Abstract
We use a model of automation to show that with the current U.S. tax system, a fall in automation costs could lead to a massive rise in income inequality. This inequality can be reduced by raising marginal income tax rates and taxing robots. But this solution involves a substantial efficiency loss for the reduced level of inequality. A Mirrleesian optimal income tax can reduce inequality at a smaller efficiency cost, but is difficult to implement. An alternative approach is to amend the current tax system to include a lump-sum rebate. In our model, with the rebate in place, it is optimal to tax robots only when there is partial automation. The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
- Published
- 2022
8. Inequality in Life and Death
- Author
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Martin Eichenbaum, Sergio Rebelo, and Mathias Trabandt
- Published
- 2021
- Full Text
- View/download PDF
9. The macroeconomics of testing and quarantining
- Author
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Martin S. Eichenbaum, Sergio Rebelo, and Mathias Trabandt
- Subjects
Economics and Econometrics ,Control and Optimization ,Applied Mathematics - Published
- 2022
- Full Text
- View/download PDF
10. Expectations, Infections, and Economic Activity
- Author
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Mathias Trabandt, Miguel Godinho de Matos, Sergio Rebelo, Francisco Lima, and Martin Eichenbaum
- Subjects
Natural experiment ,Coronavirus disease 2019 (COVID-19) ,Canonical model ,Economics ,Demographic economics ,Differential (mechanical device) ,Risk taking ,Individual level ,Small probability - Abstract
We study how people react to small probability events with large negative consequences using the outbreak of the COVID-19 epidemic as a natural experiment. Our analysis is based on a unique administrative data set with anonymized monthly expenditures at the individual level. We find that older consumers reduced their spending by more than younger consumers in a way that mirrors the age dependency in COVID-19 case-fatality rates. This differential expenditure reduction is much more prominent for high-contact goods than for low-contact goods and more pronounced in periods with high COVID-19 cases. Our results are consistent with the hypothesis that people react to the risk of contracting COVID-19 in a way that is consistent with a canonical model of risk taking.
- Published
- 2020
- Full Text
- View/download PDF
11. Epidemics in the New Keynesian Model
- Author
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Sergio Rebelo, Mathias Trabandt, and Martin Eichenbaum
- Subjects
Consumption (economics) ,Macroeconomic model ,Monopolistic competition ,2019-20 coronavirus outbreak ,Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) ,Keynesian economics ,media_common.quotation_subject ,New Keynesian economics ,Economics ,Investment (macroeconomics) ,Recession ,media_common - Abstract
We analyze the effects of an epidemic in three standard macroeconomic models. We find that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Introducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely flexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.
- Published
- 2020
- Full Text
- View/download PDF
12. The Macroeconomics of Testing and Quarantining
- Author
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Mathias Trabandt, Martin Eichenbaum, and Sergio Rebelo
- Subjects
Macroeconomics ,medicine.medical_specialty ,2019-20 coronavirus outbreak ,Coronavirus disease 2019 (COVID-19) ,Social benefits ,Disease ,Health outcomes ,law.invention ,law ,Epidemiology ,Quarantine ,Economics ,medicine ,Artificial induction of immunity - Abstract
From the Abstract: Epidemiology models used in macroeconomics generally assume that people know their current health status In this paper, we consider a more realistic environment in which people are uncertain about their health status We use our model to study the impact of testing with and without quarantining infected people We find that testing without quarantines can worsen the economic and health repercussions of an epidemic In contrast, a policy that uses tests to quarantine infected people has very large social benefits Critically, this policy ameliorates the sharp tradeoff between declines in economic activity and health outcomes that is associated with broad-based containment policies like lockdowns This amelioration is particularly dramatic when people who recover from an infection acquire only temporary immunity to the virus COVID-19 (Disease);Macroeconomics;Health--Testing;Quarantine
- Published
- 2020
- Full Text
- View/download PDF
13. The Macroeconomics of Epidemics
- Author
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Sergio Rebelo, Mathias Trabandt, and Martin Eichenbaum
- Subjects
Consumption (economics) ,2019-20 coronavirus outbreak ,050208 finance ,Coronavirus disease 2019 (COVID-19) ,media_common.quotation_subject ,Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) ,05 social sciences ,Competitive equilibrium ,Recession ,0502 economics and business ,Development economics ,Economics ,050207 economics ,media_common - Abstract
We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.
- Published
- 2020
- Full Text
- View/download PDF
14. Nonlinear Effects of Taxation on Growth
- Author
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Nir Jaimovich, Sergio Rebelo, and University of Zurich
- Subjects
Economics and Econometrics ,05 social sciences ,2002 Economics and Econometrics ,Measure (mathematics) ,Uncorrelated ,330 Economics ,Nonlinear system ,Incentive ,10007 Department of Economics ,0502 economics and business ,Econometrics ,Economics ,050207 economics ,health care economics and organizations ,050205 econometrics - Abstract
We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest severely hurt their growth performance. In our model, the effects of taxation on growth are highly nonlinear. Low tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.
- Published
- 2017
- Full Text
- View/download PDF
15. Managing Foreign Exchange Risk: Acquiring Nusantara Communications Inc
- Author
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Sergio Rebelo
- Subjects
education.field_of_study ,Population ,Telecommunications service ,language.human_language ,Indonesian ,Product (business) ,Order (exchange) ,Value (economics) ,Mergers and acquisitions ,language ,Economics ,Marketing ,education ,Foreign exchange risk - Abstract
California telecommunications company Wireworld is considering an acquisition of Nusantara Communications, a subsidiary of Indonesian conglomerate Bakrie & Brothers. Nusantara had invested $50 million in developing the advanced rural telephone system, which had the potential to provide much-needed telecommunications services to the mostly rural Indonesian population. If if were exported, the worldwide market for this product in the next five years was projected to be in the billions. Should Wireworld acquire this small company halfway around the world? Was it prepared to enter the Indonesian marketplace and beyond?Students will examine a variety of data, including financial projections, in order to decide whether acquiring Nusantara will add value to Wireworld.
- Published
- 2017
- Full Text
- View/download PDF
16. What is the Optimal Immigration Policy? Migration, Jobs and Welfare
- Author
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Joao Guerreiro, Sergio Rebelo, and Pedro Teles
- Published
- 2019
- Full Text
- View/download PDF
17. Trading down and the business cycle
- Author
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Nir Jaimovich, Arlene Wong, Sergio Rebelo, University of Zurich, and Rebelo, Sergio
- Subjects
business cycle ,quality choice ,recessions ,Economics and Econometrics ,media_common.quotation_subject ,Labor demand ,2002 Economics and Econometrics ,Monetary economics ,Recession ,Great recession ,E1 ,E3 ,Goods and services ,E2 ,10007 Department of Economics ,jel:E1 ,jel:E2 ,Economics ,Business cycle ,jel:E3 ,Production (economics) ,jel:E4 ,Quality (business) ,E4 ,media_common ,Recessions ,330 Economics ,business cycles ,2003 Finance ,Finance - Abstract
We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.
- Published
- 2019
18. Valuation Risk and Asset Pricing
- Author
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Rui Albuquerque, Martin Eichenbaum, Sergio Rebelo, and Victor Xi Luo
- Subjects
Economics and Econometrics ,050208 finance ,Financial economics ,Equity premium puzzle ,Consumption-based capital asset pricing model ,05 social sciences ,Risk-free interest rate ,Security market line ,Investment theory ,Accounting ,0502 economics and business ,Arbitrage pricing theory ,Economics ,Capital asset pricing model ,050207 economics ,Rational pricing ,Finance - Abstract
Standard representative-agent models have di¢culty in accounting for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing underlies virtually all modern asset-pricing puzzles. The correlation puzzle arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.
- Published
- 2016
- Full Text
- View/download PDF
19. State Dependent Effects of Monetary Policy: the Refinancing Channel
- Author
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Martin Eichenbaum, Sergio Rebelo, and Arlene Wong
- Subjects
Consumption (economics) ,business.industry ,media_common.quotation_subject ,Monetary policy ,Distribution (economics) ,Monetary economics ,Interest rate ,State dependent ,Long period ,Economics ,State dependence ,business ,media_common ,Communication channel - Abstract
This paper studies how the impact of monetary policy depends on the dis- tribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize.
- Published
- 2018
- Full Text
- View/download PDF
20. Rare Disasters, Financial Development, and Sovereign Debt
- Author
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Jinqiang Yang, Neng Wang, and Sergio Rebelo
- Subjects
Rare disasters ,Economics ,Monetary economics ,Financial development ,International capital market ,Sovereign debt ,Emerging markets ,Developed country ,Debt intolerance - Abstract
We study the implications of the interaction between rare disasters and financial development for sovereign debt markets. In our model, countries vary in their financial development, by which we mean the extent to which shocks can be hedged in international capital markets. The model predicts that low levels of financial development generate a key feature of sovereign debt in emerging economies known as "debt intolerance": high credit spreads associated with lower debt-to-output ratios than those of developed countries.
- Published
- 2018
- Full Text
- View/download PDF
21. Markups Across Space and Time
- Author
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Arlene Wong, Sergio Rebelo, and Eric T. Anderson
- Subjects
Spacetime ,Uniform pricing ,ComputingMethodologies_DOCUMENTANDTEXTPROCESSING ,Economics ,Econometrics ,Statistical dispersion ,Product (category theory) ,Retail sector - Abstract
In this paper, we provide direct evidence on the behavior of markups in the retail sector across space and time. Markups are measured using gross margins. We consider three levels of aggregation: the retail sector as a whole, the firm level, and the product level. We find that: (1) markups are relatively stable over time and mildly procyclical; (2) there is large regional dispersion in markups; (3) there is positive cross- sectional correlation between local income and local markups; and (4) differences in markups across regions are explained by differences in assortment, not by deviations from uniform pricing. We propose an endogenous assortment model consistent with these facts.
- Published
- 2018
- Full Text
- View/download PDF
22. Understanding the Volatility of the Canadian Exchange Rate
- Author
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Benjamin K. Johannsen, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Exchange rate ,Cost–benefit analysis ,Inflation targeting ,Monetary policy ,Economics ,Liberian dollar ,Monetary economics ,Volatility (finance) - Abstract
In this Commentary, we document the nature of the Bank of Canada’s current monetary policy regime by focusing on the following questions: what are the historical determinants of the Canadian–US dollar nominal exchange rate, and can they be used in real-time forecasting applications? We find that the current real exchange rate is more useful than commodity prices for forecasting changes in the nominal exchange rate. In fact, short-run forecasts based on the real exchange rate are as good as random-walk forecasts according to which the future exchange rate is expected to be the same as today’s. Strikingly, medium- and long-run forecasts based on the real exchange rate are superior to random-walk forecasts. We argue that these findings reflect the fact Bank of Canada and the U.S. Federal Reserve System follow similar inflation-targeting regimes and neither actively manages exchange rates. A fundamental question is whether Canadian policymakers are satisfied with the current inflation targeting regime. A cost of the current regime is that it allows for very volatile nominal and real exchange rates. A benefit is that consumers and firms can avoid many of the changes in prices and wages that would be required if the nominal exchange rate did not adjust in a flexible manner. In this Commentary, we take no stand on the merits of the current regime. Instead, we highlight the tradeoffs that policymakers face. Evaluating the costs and benefits of those tradeoffs should play an important role in the process leading to the Bank of Canada’s next five-year agreement with the government.
- Published
- 2018
- Full Text
- View/download PDF
23. Long-run bulls and bears
- Author
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Rui Albuquerque, Dimitris Papanikolaou, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Economics and Econometrics ,Stock market returns ,ComputerApplications_MISCELLANEOUS ,Econometrics ,Economics ,Capital asset pricing model ,Stock market ,Finance ,Stock (geology) ,Connection (mathematics) - Abstract
A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation between stock returns and fundamentals across bull and bear episodes. This correlation is much higher than the analogous time-series correlations. We show that several asset pricing models cannot simultaneously account for the low time-series and high episode correlations.
- Published
- 2015
- Full Text
- View/download PDF
24. A World Equilibrium Model of the Oil Market
- Author
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Per Krusell, Gideon Bornstein, and Sergio Rebelo
- Subjects
World economy ,Oil market ,Petroleum industry ,General equilibrium theory ,business.industry ,Oil demand ,Cartel ,Economics ,Monetary economics ,Volatility (finance) ,business - Abstract
We use new, comprehensive micro data on oil fields to build and estimate a structural model of the oil industry embedded in a general equilibrium model of the world economy. In the model, firms that belong to OPEC act as a cartel. The remaining firms are a competitive fringe. We use the model to study the macroeconomic impact of the advent of fracking. Fracking weakens the OPEC cartel, leading to a large long-run decline in oil prices. Fracking also reduces the volatility of oil prices in the long run because fracking firms can respond more quickly to changes in oil demand.
- Published
- 2017
- Full Text
- View/download PDF
25. Monetary Policy and the Predictability of Nominal Exchange Rates
- Author
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Martin Eichenbaum, Benjamin Johannsen, and Sergio Rebelo
- Published
- 2017
- Full Text
- View/download PDF
26. Assessment of Microsoft Kinect in the Monitoring and Rehabilitation of Stroke Patients
- Author
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Sergio Rebelo, Paulo Martins, Joao Abreu, Arsénio Reis, Vitor Filipe, João Barroso, Hugo Paredes, and EuricoVasco Amorim
- Subjects
medicine.medical_specialty ,Rehabilitation ,Stroke patient ,business.industry ,medicine.medical_treatment ,020206 networking & telecommunications ,02 engineering and technology ,medicine.disease ,Motion capture ,03 medical and health sciences ,0302 clinical medicine ,Physical medicine and rehabilitation ,Joint angle ,Telerehabilitation ,0202 electrical engineering, electronic engineering, information engineering ,medicine ,business ,Stroke ,030217 neurology & neurosurgery - Abstract
Telerehabilitation is an alternative way for physical therapy of stroke patients. The monitoring and correction of exercises can be done through the analysis of body movements recorded by an optical motion capture system. This paper presents a first study to assess the use of Microsoft Kinect in the monitoring and rehabilitation of patients who have suffered a stroke. A comparative study was carried out to assess the accuracy of joint angle measurement with the Microsoft Kinect (for Windows and for Xbox One) and Optitrack™. The results obtained in the first experiment showed a good agreement in the measurements between the three systems, in almost all movements. These results suggest that Microsoft Kinect, a low cost and markerless motion capture system, can be considered as an alternative to complex and high cost motion capture devices for the monitoring and rehabilitation of stroke patients.
- Published
- 2017
- Full Text
- View/download PDF
27. How Frequent Are Small Price Changes?
- Author
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Martin Eichenbaum, Nir Jaimovich, Josephine Smith, and Sergio Rebelo
- Subjects
Inflation ,Wholesale price index ,Macroeconomics ,jel:C82 ,media_common.quotation_subject ,Producer Price Index (India) ,Nominal rigidity ,Hedonic index ,Price elasticity of supply ,jel:L81 ,jel:E31 ,Litmus ,jel:L11 ,Econometrics ,Economics ,jel:E3 ,Price level ,jel:E4 ,General Economics, Econometrics and Finance ,media_common - Abstract
Recent empirical work suggests that small price changes are relatively common. This evidence has been used to criticize classic menu-cost models. In this paper, we use scanner data from a national supermarket chain and micro data from the Consumer Price Index to reassess the importance of small price changes. We argue that the vast majority of these changes are due to measurement error. We conclude that the evidence on the prevalence of small price changes is much too weak to be used as a litmus test of nominal rigidity models. (JEL C82, E31, L11, L81)
- Published
- 2014
- Full Text
- View/download PDF
28. currency crises models
- Author
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Craig Burnside, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Purchasing power parity ,Exchange rate ,Currency ,Monetary policy ,Economics ,Devaluation ,Financial system ,Monetary economics ,Exchange-rate regime ,Foreign exchange risk ,Currency crisis - Abstract
There have been many currency crises during the post-war era (see Kaminsky and Reinhart, 1999). A currency crisis is an episode in which the exchange rate depreciates substantially during a short period of time. There is an extensive literature on the causes and consequences of a currency crisis in a country with a fixed or heavily managed exchange rate. The models in this literature are often categorized as first-, second- or third-generation.
- Published
- 2016
- Full Text
- View/download PDF
29. What explains the lagged-investment effect?
- Author
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Janice C. Eberly, Nicolas Vincent, and Sergio Rebelo
- Subjects
Economics and Econometrics ,Econometrics ,Economics ,Investment (macroeconomics) ,Finance - Abstract
The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano et al. (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat.
- Published
- 2012
- Full Text
- View/download PDF
30. Reference Prices, Costs, and Nominal Rigidities
- Author
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Sergio Rebelo, Nir Jaimovich, and Martin Eichenbaum
- Subjects
Economics and Econometrics ,Labour economics ,Average duration ,Inertial frame of reference ,Economics ,Econometrics ,State dependence - Abstract
We assess the importance of nominal rigidities using a new weekly scanner dataset. We find that nominal rigidities take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly once every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in prices. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis. (JEL L11, L25, L81).
- Published
- 2011
31. Carry Trade: The Gains of Diversification
- Author
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Craig Burnside, Martin Eichenbaum, and Sergio Rebelo
- Subjects
Interest rate parity ,Financial economics ,Currency ,Sharpe ratio ,Diversification (finance) ,Economics ,Monetary economics ,Speculation ,General Economics, Econometrics and Finance - Abstract
Market participants routinely take advantage of the failure of uncovered interest rate parity to speculate in currency markets. Perhaps the most widely used currency speculation strategy is the carry trade. In this article we take the perspective of an individual currency trader and document the gains to diversifying the carry trade across different currencies. We show that these gains are large. Diversification boosts the typical Sharpe ratio by over 50%.
- Published
- 2008
- Full Text
- View/download PDF
32. When is it Optimal to Abandon a Fixed Exchange Rate? -super-1
- Author
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Sergio Rebelo and Carlos A. Végh
- Abstract
The influential Krugman-Flood-Garber (KFG) model of balance of payment crises assumes that a fixed exchange rate is abandoned if and only if international reserves reach a critical threshold value. From a positive standpoint, the KFG rule is at odds with many episodes in which the central bank has plenty of international reserves at the time of abandonment. We study the optimal exit policy and show that from a normative standpoint, the KFG rule is generally suboptimal. We consider a model in which the fixed exchange rate regime has become unsustainable due to an unexpected increase in government spending. We show that when there are no exit costs, it is optimal to abandon immediately. When there are exit costs, the optimal abandonment time is a decreasing function of the size of the fiscal shock. For large fiscal shocks, immediate abandonment is optimal. Our model is consistent with evidence suggesting that many countries exit fixed exchange rate regimes with still plenty of international reserves in the central bank's vault. Copyright 2008, Wiley-Blackwell.
- Published
- 2008
- Full Text
- View/download PDF
33. Behavioral Theories of the Business Cycle
- Author
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Sergio Rebelo and Nir Jaimovich
- Subjects
business cycle, optimism, overconfidence, volatility ,Optimism ,Financial economics ,media_common.quotation_subject ,Business cycle ,Economics ,jel:E32 ,Monetary economics ,Volatility (finance) ,General Economics, Econometrics and Finance ,Overconfidence effect ,media_common - Abstract
We explore the business cycle implications of expectation shocks and of two well-known psychological biases, optimism and overconfidence. The expectations of optimistic agents are biased toward good outcomes, whereas overconfident agents overestimate the precision of the signals that they receive. Both expectation shocks and overconfidence can increase business-cycle volatility, while preserving the model's properties in terms of comovement and relative volatilities. In contrast, optimism is not a useful source of volatility in our model. (JEL: E3)
- Published
- 2007
- Full Text
- View/download PDF
34. Long-run Bulls and Bears
- Author
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Rui Albuquerque, Martin Eichenbaum, Dimitris Papanikolaou, and Sergio Rebelo
- Published
- 2015
- Full Text
- View/download PDF
35. The importance of nontradable goods’ prices in cyclical real exchange rate fluctuations
- Author
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Ariel Burstein, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Producer price index ,Economics and Econometrics ,Exchange rate ,Political Science and International Relations ,Economics ,Consumer price index ,Monetary economics ,Finance - Abstract
Changes in the price of nontradable goods relative to tradable goods account for roughly 50 percent of the cyclical movements in real exchange rates.
- Published
- 2006
- Full Text
- View/download PDF
36. Business Cycles
- Author
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Sergio Rebelo
- Subjects
jel:E3 ,Business cycles, Growth - Abstract
This paper describes the empirical regularities of growth and business cycles that characterize market economies. Relatively little is know at this point about economic fluctuations in planned economies, partly because the system of national income accounting used by these countries produces information that is not easily comparable with data for market economies. Still, the lessons from market economies are likely to become increasingly relevant as planning economies rely more on market forces.
- Published
- 2005
37. Government guarantees and self-fulfilling speculative attacks
- Author
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Sergio Rebelo, Craig Burnside, and Martin Eichenbaum
- Subjects
Economics and Econometrics ,Bankruptcy ,Currency ,Creditor ,Debt ,media_common.quotation_subject ,Devaluation ,Economics ,Monetary economics ,Foreign exchange risk ,Hedge (finance) ,Bailout ,media_common - Abstract
We develop a model in which government guarantees to banks’ foreign creditors are a root cause of self-fulfilling twin banking-currency crises. Absent guarantees, such crises are not possible. In the presence of guarantees banks borrow foreign currency, lend domestic currency and do not hedge the resulting exchange rate risk. With guarantees, banks will also renege on their foreign debts and declare bankruptcy when a devaluation occurs. We assume that the government is unable or unwilling to fully fund the resulting bailout via an explicit fiscal reform. These features of our model imply that government guarantees lead to self-fulfilling banking-currency crises.
- Published
- 2004
- Full Text
- View/download PDF
38. [Untitled]
- Author
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Robert G. King, Charles I. Plosser, and Sergio Rebelo
- Subjects
Government spending ,education.field_of_study ,Rational expectations ,Computer science ,Economics, Econometrics and Finance (miscellaneous) ,Population ,Notation ,Competitive equilibrium ,Computer Science Applications ,Business cycle ,Linear approximation ,Special case ,education ,Mathematical economics - Abstract
The methods used in our two survey papers on real business cycles (King, Plosser and Rebelo, 1988a,b) are detailed in this document. Our presentation of the basic neoclassical model of growth and business cycles is broken into three parts. First, we describe the model and its steady state, discussing: the structure of the environment including government policy rules; the nature of optimal individual decisions and the dynamic competitive equilibrium; technical restrictions to insure steady state growth; comparable restrictions on preferences and policy rules; stationary levels and ratios in the steady state; and the nature of a transformed economy. Second, we detail methods for studying near steady-state dynamics, considering: the linear approximation approach; the rational expectations solution algorithm; the nature of alternative solutions; and the special case of the fixed labor model. Third, we discuss the computation of simulations, moments and impulse responses. The objective of this appendix is to provide a detailed analysis of a neoclassical economy that is sufficiently flexible to permit: (a) exogenous steady state growth; (b) distorting tax rules of various sorts; and (c) time varying government spending. Although we do not focus on all of these issues in the present discussion, other investigations in progress will utilize this framework. The appendix is divided into three main parts. Part A describes the artificial economy under study and analyses its steady state, Part B develops methods to study approximate dynamics around the steady state, and Part C derives a set of formulas for generating population moments. This technical appendix is designed to serve two functions. First, it develops the theoretical material in Sections 2 and 3 of the main text in more depths. Second, it serves as a detailed guide to PC-MATLAB programs for computing dynamic equilibria, written by King and Rebelo in the Spring of 1987. Notation in programs and the technical appendix has been detailed as closely as feasible.
- Published
- 2002
- Full Text
- View/download PDF
39. Valuation Risk and Asset Pricing
- Author
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Victor Xi Luo, Rui Albuquerque, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Demand shock ,Equity premium puzzle ,Consumption-based capital asset pricing model ,Risk premium ,Economics ,Capital asset pricing model ,Monetary economics ,Rational pricing ,Valuation risk ,Liquidity premium - Abstract
Standard representative-agent models fail to account for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset-pricing puzzles, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.
- Published
- 2014
- Full Text
- View/download PDF
40. Long-Run Bulls and Bears
- Author
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Martin Eichenbaum, Dimitris Papanikolaou, Sergio Rebelo, and Rui Albuquerque
- Subjects
Financial economics ,ComputerApplications_MISCELLANEOUS ,Econometrics ,Economics ,Capital asset pricing model ,Stock market ,Stock (geology) - Abstract
A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation between stock returns and fundamentals across bull and bear episodes. This correlation is much higher than the analogous time-series correlations. We show that several asset pricing models cannot simultaneously account for the low time-series and high episode correlations.
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- 2014
- Full Text
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41. Beyond Balanced Growth
- Author
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Sergio Rebelo, Piyabha Kongsamut, and Danyang Xie
- Subjects
Western hemisphere ,Macroeconomics ,Economics and Econometrics ,Informal sector ,Economic sector ,Keynesian economics ,jel:O41 ,Economics ,General Earth and Planetary Sciences ,Growth ,Structural Change ,Foreign exchange ,Real interest rate ,jel:O14 ,Sustainable growth rate ,General Environmental Science ,Simple (philosophy) - Abstract
One of the most striking regularities of the growth process is the massive reallocation of labour from agriculture into industry and services. Balanced growth models are commonly used in macroeconomics because they are consistent with the well-known Kaldor facts about economic growth. Unfortunately, these models are inconsistent with the structural change dynamics that are a central feature of economic development. This paper discusses models with generalized balanced growth paths. These paths retain some of the key features of balanced growth, but are consistent with the observed labour reallocations dynamics. The conventional explanation for the observed patterns of structural change is that the rate of technical progress has been higher in agriculture than in services. We show that this pattern of technical progress is neither necessary nor sufficient to account for the observed dynamics of structural change. The key to producing these reallocation dynamics are differences in the income elasticity of the demand for the goods produced by the different sectors.
- Published
- 2001
- Full Text
- View/download PDF
42. Hedging and financial fragility in fixed exchange rate regimes
- Author
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A. Craig Burnside, Martin Eichenbaum, and Sergio Rebelo
- Subjects
Economics and Econometrics ,media_common.quotation_subject ,Devaluation ,Financial fragility ,Monetary economics ,Exchange rate ,Bankruptcy ,Currency ,Debt ,Economics ,Hedge (finance) ,Foreign exchange risk ,Finance ,media_common - Abstract
Currency crises that coincide with banking crises tend to share at least three elements. First, banks have a currency mismatch between their assets and liabilities. Second, banks do not completely hedge the associated exchange rate risk. Third, there are implicit government guarantees to banks and their foreign creditors. This paper argues that the first two features arise from banks’ optimal response to government guarantees. We show that guarantees completely eliminate banks’ incentives to hedge the risk of a devaluation. Our model also articulates one reason why governments might be tempted to provide guarantees to bank creditors. Guarantees lower the domestic interest rate and lead to a boom in economic activity. But this boom comes at the cost of a more fragile banking system. In the event of a devaluation, banks renege on foreign debts and declare bankruptcy.
- Published
- 2001
- Full Text
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43. Prospective Deficits and the Asian Currency Crisis
- Author
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Craig Burnside, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Financial crises - Asia ,Foreign exchange rates ,Monetary policy ,Money ,Inflation tax ,Economics and Econometrics ,Exchange rate ,Speculative attack ,Economics ,jel:F31 ,Monetary economics ,Seigniorage ,Currency crisis ,Foreign-exchange reserves ,Bailout - Abstract
This paper argues that the recent Southeast Asian currency crisis was caused by large prospective deficits associated with implicit bailout guarantees to failing banking systems. We articulate this view using a simple dynamic general equilibrium model whose key feature is that a speculative attack is inevitable once the present value of future government deficits rises. This is true regardless of the government's foreign reserve position or the initial level of its debt. While the government cannot prevent a speculative attack, it can affect its timing. The longer the delay, the higher inflation will be under flexible exchange rates. We present empirical evidence in support of the three key assumptions in our model: (i) foreign reserves did not play a special role in the timing of the attack, (ii) large losses in the banking sector were associated with large increases in governments' prospective deficits, and (iii) the public knew that banks were in trouble before the currency crisis.
- Published
- 2001
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44. Interest-rate and borrowing defense against speculative attack a comment
- Author
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Sergio Rebelo
- Subjects
Speculative attack ,media_common.quotation_subject ,Economics ,General Social Sciences ,Monetary economics ,Interest rate ,media_common - Published
- 2000
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45. On the dynamics of trade reform
- Author
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Rui Albuquerque and Sergio Rebelo
- Subjects
Industry dynamics ,Economics and Econometrics ,Empirical research ,Hysteresis (economics) ,Income distribution ,media_common.quotation_subject ,Economics ,International economics ,Inertia ,Investment (macroeconomics) ,Finance ,media_common - Abstract
Empirical studies of trade reforms suggest that these reforms have a surprisingly small impact on a country's industrial configuration. This industrial structure inertia is difficult to rationalize in standard trade models. This paper develops a two-sector industry dynamics model in which industrial composition inertia arises naturally. The model is then used to study the consequences of different types of trade reforms (e.g. permanent, temporary, gradual, pre-announced) on investment, employment composition and income distribution.
- Published
- 2000
- Full Text
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46. On the optimality of interest rate smoothing
- Author
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Danyang Xie and Sergio Rebelo
- Subjects
Inflation ,Economics and Econometrics ,Mathematical optimization ,Vasicek model ,Scope (project management) ,Stochastic modelling ,Financial economics ,media_common.quotation_subject ,Monetary policy ,jel:E43 ,jel:E31 ,Competitive equilibrium ,Short-rate model ,Economics ,Finance ,Rendleman–Bartter model ,media_common - Abstract
This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities.
- Published
- 1999
- Full Text
- View/download PDF
47. Non-Linear Effects of Taxation on Growth
- Author
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Nir Jaimovich and Sergio Rebelo
- Subjects
Macroeconomics ,Incentive ,Deferred tax ,Economics ,Monetary economics ,International taxation ,health care economics and organizations ,Uncorrelated ,Non-linear effects - Abstract
We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest, severely hurt their growth performance. In our model, the effects of taxation on growth are highly non-linear. Low or moderate tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.
- Published
- 2013
- Full Text
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48. Sectoral Solow residuals
- Author
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A. Craig Burnside, Sergio Rebelo, and Martin Eichenbaum
- Subjects
Macroeconomics ,Solow residual ,Economics and Econometrics ,Physical capital ,Cost of capital ,Capital deepening ,Capital employed ,Economics ,Capital services ,Capital intensity ,Fixed capital ,Finance - Abstract
This paper presents capital utilization corrected measures of technology shocks for aggregate and disaggregated (two-digit Standard Industrial Classification code) industries. We correct for variations in capital utilization by employing industrial electrical use as a measure of capital services. In contrast, the standard measures of technology shocks used in the Real Business Cycle literature are based on economy wide data and assume that capital services are proportional to the stock of measured capital. To assess the impact of these differences, we contrast selected properties of the competing technology shock measures. We argue that the properties of technology shocks for the manufacturing sector are quite different than those used in the RBC literature. We also find that correcting for capital utilization has important implications for the properties of the Solow residual.
- Published
- 1996
- Full Text
- View/download PDF
49. Business cycles in a small open economy
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Sergio Rebelo, João César das Neves, and Isabel Correia
- Subjects
Macroeconomics ,Economics and Econometrics ,Small open economy ,Business cycle ,Economics ,Balance of trade ,Trade balance ,Open economy ,National Income and Product Accounts ,Volatility (finance) ,Business cycles ,Finance - Abstract
This paper discusses a dynamic model that is consistent with the main empirical regularities of economic fluctuations in open economies. While other models in this class have relied on non-separable preferences or finite horizons to generate a realistic consumption volatility, we show that there is a simple class of time separable preferences that is consistent with the cyclical volatilities of the components of the national income accounts identity as well as with the countercyclical character of the balance of trade.
- Published
- 1995
- Full Text
- View/download PDF
50. Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories
- Author
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Sergio Rebelo and Carlos A. Végh
- Subjects
Economics and Econometrics - Published
- 1995
- Full Text
- View/download PDF
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