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LSM: A DSGE Model for Luxembourg (01/11/2011)

Szabolcs Dek, Lionel Fontagn, Marco Maffezzoli, Massimiliano Marcellino
Economic Modelling, Vol. 28, Issue 6, November 2011, pp. 2862-72

Luxembourg is a small open economy with a set of particular features, including rather limited competition in the domestic goods market, strong union power, and a segmented labour market for resident and non-resident workers. In this paper we develop a medium scale DSGE model that captures these features, calibrate it to mimic the actual behaviour of the key macroeconomic aggregates, and use it to conduct policy experiments aimed at relaxing some of the existing rigidities in the goods and labour market.
JEL Codes: E13; E32;
Keywords: DSGE, Luxembourg, Small open economy; Segmented labor market; Trade union

  • LSM: A DSGE Model for Luxembourg (253 Kb)
  • Last change 15/11/2011

    Specialization Patterns and the Factor Bias of Technology (25/06/2007)

    Alejandro Cunat and Marco Maffezzoli
    The B.E. Journal of Macroeconomics: Vol. 7 : Iss. 1 (Contributions), Article 16

    Development accounting exercises based on an aggregate production function find technology is biased in favor of a country's abundant production factors. We provide an explanation for this finding based on the Heckscher-Ohlin model. Countries trade and specialize in the industries that use intensively the production factors they are abundantly endowed with. For given factor endowment ratios, this implies smaller international differences in factor price ratios than under autarky. Thus, when measuring the factor bias of technology with the same aggregate production function for all countries, they appear to have an abundant-factor bias in their technologies.

     

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    Last change 20/04/2012

    Can Comparative Advantage Explain the Growth of us Trade? (04/2007)

    Alejandro Cunat and Marco Maffezzoli
    The Economic Journal, 117(520), Blackwell, 2007, 583-602

    We present a dynamic comparative advantage model in which moderate reductions in import tariffs can generate sizable increases in trade volumes over time. A fall in tariffs has two effects. First, for given factor endowments, it raises the degree of specialisation, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country's abundant factor, leading to diverging paths of relative factor endowments and a rising degree of specialisation. A simulation exercise shows that a fall in tariffs produces a disproportional increase in the trade share of output as in the data. 

     

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    Last change 16/02/2009

    Convergence Across Italian Regions and the Role of Technological Catch-Up (04/08/2006)

    Marco Maffezzoli
    Topics in Macroeconomics: Vol. 6 : Iss. 1, Article 15

    This paper suggests that the main (and possibly unique) source of beta- and sigma-convergence in GDP per worker (i.e. labor productivity) across Italian regions over the 1980-2004 period is the change in technical and allocative efficiency, i.e. convergence in relative TFP levels. To obtain this result, I construct an approximation of the production frontier at different points in time using Data Envelope Analysis (DEA), and measure efficiency as the output-based distance from the frontier. This method is entirely data-driven, and does not require the specification of any particular functional form for technology. Changes in GDP per worker can be decomposed into changes in relative efficiency, changes due to overall technological progress, and changes due to capital deepening. My results suggest that: (i) differences in relative TFP are quantitatively important; (ii) while technological progress and capital deepening are the main, and equally important, forces behind the rightward shift in the distribution of GDP per worker, convergence in relative TFP is the main determinant of the change in its shape.

     

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    The dataset on regional capital stocks can be downloaded from here. Please cite the source.



    Last change 20/04/2012

    Heckscher-Ohlin business cycles (07/2004)

    Alejandro Cunat and Marco Maffezzoli
    Review of Economic Dynamics 7(3), Elsevier, 2004, 555-85

    This paper introduces HeckscherOhlin trade features into a two-country dynamic stochastic general equilibrium model, and studies the international transmission of productivity shocks through trade in goods. This framework improves upon existing international real business cycle models in that it generates business cycle properties comparable with the empirical evidence regarding the terms of trade and the trade balance. 

     

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    Last change 16/02/2009

    Neoclassical growth and commodity trade (07/2004)

    Alejandro Cunat and Marco Maffezzoli
    Review of Economic Dynamics 7(3), Elsevier, 2004, 707-36.

    We construct a dynamic Heckscher–Ohlin model in which the initial distribution of production factors across economies makes factor price equalization impossible. The model produces dynamics similar to those of the neoclassical growth model. However, free trade prevents identically parameterized economies from achieving identical steady states. Although poor economies grow faster than rich economies during the transition to the steady state, the former do not catch up with the income per capita levels of the latter. A many-country version of the model exemplifies the open-economy neoclassical growth model's ability to produce interesting distribution dynamics of income per capita.

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    Last change 16/02/2009

    Non-walrasian labor markets and real business cycles (10/2001)

    Marco Maffezzoli
    Review of Economic Dynamics 4(4), Academic Press, 2001, 860-892.

    The standard real business cycle literature mainly focuses on Walrasian models designed to fit the U.S. institutional framework. Differences between the United States and Europe, mostly evident in the labor market, suggest that a purely Walrasian model may be inappropriate for the study of European business cycles. I present a stochastic version of the dynamic general equilibrium model of Daveri and Maffezzoli (2000, “A Numerical Approach to Fiscal Policy, Unemployment and Growth in Europe,” Econometrics and Applied Economics Working Paper 2000-4, IEP, Università Bocconi), where unemployment is generated by monopolistic unions, and calibrate it to reproduce several long-run features of the Italian and U.S. economies. This framework is then compared with an indivisible labor model built on Hansen (1985, Journal of Monetary Economics16, 309–328) and Rogerson and Wright (1988, Journal of Monetary Economics22, 501–515). I focus on the impulse response functions, the standard business cycle statistics, and the ability to reproduce the cyclical components of the main macroeconomic variables. The main results are as follows: (i) the impulse response functions of the monopoly union (MU) model show a higher degree of overall persistence; (ii) the business cycle statistics are similar; (iii) the MU model enjoys a statistically significant advantage in reproducing the Italian business cycle, but not that of the United States.

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    Last change 16/02/2009

    Human capital and international real business cycles (01/2000)

    Marco Maffezzoli
    Review of Economic Dynamics 3(1), Academic Press, 2000, 137-65. You can download a Technical App

    Standard international real business cycle models are generally unable to replicate the observed comovements of all the main aggregate variables: in particular, they generate low or negative international comovements in output, investment, and labour. I simulated a two-country, two-sector stochastic endogenous growth model that embodies an externality linking human capital across countries. This model is able to reproduce positive international correlations for all the main variables and is partially able to reproduce their ranking. These results are robust to changes in the entire set of parameters, as shown in a global sensitivity analysis performed by applying Canova's methodology.

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    Last change 16/02/2009

    Ch. 8 - Calibration (2001)

    Carlo A. Favero and Marco Maffezzoli
    in C. A. Favero, Applied Macroeconometrics, Oxford University Press, 2001, 241-77.

    Link to the book

    Last change 16/02/2009

    Importazione di beni intermedi e trasferimento della tecnologia: un approccio di crescita endogena (08/1999)

    Marco Maffezzoli
    Economia Politica, XVI (2), Il Mulino, 1999, 185-210

    This paper studies the relationships between imports of technologically advanced intermediate goods, technology transfers, and economic development in a small open economy, within an endogenous growth framework with R&D. The model describes a small NIC that exports a final consumption good and imports technologically advanced intermediate goods, enjoying international knowledge spillovers directly proportional to the imports/output ratio. Starting from a situation in which the local knowledge stock is lower than the one available abroad, the model initially presents a higher growth rate than the foreign one, featuring a cath-up in the long run: during the transition, resources flow gradually from the R&D sector to the consumption good sector. These features may help explaining the Asian NICs growth experience: in particular, the model's dynamic behaviour of technological progress and sectoral resource allocation may justify their spectacular growth rates and their propensity to invest in the accumulation of technological capabilities.

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    Last change 16/02/2009



    Last updated January 28, 2009