Federal Reserve Bank of San Francisco, Working Paper Series, May 1, 2006
The rising current account deficit in the USA has attracted considerable attention in recent year... more The rising current account deficit in the USA has attracted considerable attention in recent years. We use the "business cycle accounting" methodology to identify the principal distortions that have affected the external accounts of the US. In particular, we measure distortions in the optimality conditions of a simple two-country general equilibrium model using data from the US and the other G7 countries. We then feed these measured distortions into the model individually and use the simulated counterfactual paths of the current account to determine the contribution of each of these "wedges" to the overall external imbalance of the USA. We find that no single wedge in isolation can account closely for the observed current account. However, a combination of productivity differences and deviations from risk-sharing between the US and the rest of the G7 does the best job in accounting for most of the measured movement of the US current account.
In this paper we study the economic evolution between 1960 and 1995 of two states in India-Mahara... more In this paper we study the economic evolution between 1960 and 1995 of two states in India-Maharashtra and West Bengal. During this period West Bengal, which was one of the two richest states in India in 1960, has gone from a relative per capita income of about 100 percent of Maharashtra, to a relative income of around 60 percent. Our diagnostic analysis reveals that a large part of the blame for West Bengal's development woes can be attributed to: (a) low aggregate productivity (b) poorly functioning labor markets and sectoral misallocations. We find that sectoral productivity and labor market allocation wedges were strongly correlated with political developments in West Bengal, namely the increasing vote share of the leftist parties.
In this paper we study the economic evolution between 1960 and 1995 of two states in India-Mahara... more In this paper we study the economic evolution between 1960 and 1995 of two states in India-Maharashtra and West Bengal. During this period West Bengal, which was one of the two richest states in India in 1960, has gone from a relative per capita income of about 100 percent of Maharashtra, to a relative income of around 60 percent. Our diagnostic analysis reveals that a large part of the blame for West Bengal's development woes can be attributed to: (a) low aggregate productivity (b) poorly functioning labor markets and sectoral misallocations. We find that sectoral productivity and labor market allocation wedges were strongly correlated with political developments in West Bengal, namely the increasing vote share of the leftist parties.
Bank, the U. of Houston, and the IMF for detailed comments and discussions. We also thank the edi... more Bank, the U. of Houston, and the IMF for detailed comments and discussions. We also thank the editor and two anonymous referees for very helpful comments. Robin Burgess kindly provided the data in Besley and Burgess (2004).
Can large macroeconomic changes also alter the historical economic mobility patterns of various s... more Can large macroeconomic changes also alter the historical economic mobility patterns of various social groups? We examine this question by contrasting the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We …nd that this period has been characterized by a signi…cant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we …nd that the improvements in education account for a major part of the wage and consumption convergence.
for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the ... more for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the UCLA Academic Senate for research support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Amongst the various inequities typically associated with the caste system in India, probably one ... more Amongst the various inequities typically associated with the caste system in India, probably one of the most debilitating is the perception that one is doomed by birth, i.e., social and economic mobility across generations is di¢ cult. We study the extent and evolution of this lack of mobility by contrasting the intergenerational mobility rates of the historically disadvantaged scheduled castes and tribes (SC/ST) in India with the rest of the workforce in terms of their education attainment, occupation choices and wages. Using household survey data from successive rounds of the National Sample Survey between 1983 and 2005, we …nd that inter-generational education and income mobility rates of SC/STs have converged to non-SC/ST levels during this period. Moreover, SC/STs have been switching occupations relative to their parents at increasing rates, matching the corresponding switch rates of non-SC/STs in the process. We conclude that the last twenty years of major structural changes in India have also coincided with a breaking down of caste-based historical barriers to socioeconomic mobility.
We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (S... more We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We find that this period has been characterized by a significant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we find that the improvements in education account for a major part of the wage and consumption convergence. (JEL I24, O15, O17, Z13)
We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (S... more We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We find that this period has been characterized by a significant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we find that the improvements in education account for a major part of the wage and consumption convergence. (JEL I24, O15, O17, Z13)
Over the past 25 years there has been a remarkable economic catch-up by the historically discrimi... more Over the past 25 years there has been a remarkable economic catch-up by the historically discriminated against scheduled castes and tribes (SC/STs) towards non-SC/ST levels in the terms of their education attainment levels, their occupation choices as well as their wage and consumption levels. This period of convergence has coincided with a sharp rise in aggregate economic growth as well as a signi…cant structural transformation of the economy. In this paper we …rst document these aggregate data patterns as well as the evolution of the sectoral caste gaps in education and wages. We then develop a multi-sector model with two types of agents to show that aggregate TFP shocks along with a process of structural transformation can induce a convergence between the two groups without any other concurrent redistributive policy changes as long as there exists an initial a¢ rmative action policy in education and/or jobs for the relatively disadvantaged group. We show some indirect evidence in support of this channel by examining the convergence patterns of Muslims who were not covered by such a¢ rmative action policies.
for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the ... more for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the UCLA Academic Senate for research support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
We present a new data fact: in response to a monetary tightening, the domestic currency tends to ... more We present a new data fact: in response to a monetary tightening, the domestic currency tends to appreciate in developed countries but depreciate in developing countries. A model is developed to rationalize this contrasting pattern. It has three key channels of monetary transmission: a liquidity demand channel, a fiscal channel, and an output channel. The paper shows that a calibrated version of the model can explain the contrast between developed and developing countries. Using counterfactual experiments and empirical evidence, we identify differences in the liquidity demand effect as critical in explaining the contrasting responses generated by the model. (JEL E23, E43, E52, F31, F33, O19)
, and World Bank for helpful comments and Sergio Rodriguez for research assistance. Végh grateful... more , and World Bank for helpful comments and Sergio Rodriguez for research assistance. Végh gratefully acknowledges research support provided by the UCLA Senate. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper was originally prepared for a conference in honor of Guillermo Calvo, held at the Inte... more This paper was originally prepared for a conference in honor of Guillermo Calvo, held at the International Monetary Fund in April 2004. We are grateful to Martin Eichenbaum and conference participants for helpful comments and suggestions. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
The paper studies the issue of optimal exchange rate regimes for developing countries in a flexib... more The paper studies the issue of optimal exchange rate regimes for developing countries in a flexible price environment. The key innovation is that we analyze the implications of segmented asset markets-only a fraction of agents participate in asset market transactions-for the optimal exchange rate regime. We show that even though all shocks in the model are monetary, asset market segmentation implies an inherent welfare bias towards flexible exchange rates. This finding is in stark contrast to the standard Mundellian prescription that if shocks are mostly monetary then fixed exchange rates are optimal. The paper also shows that the optimal policy regime hinges crucially on whether traders or non-traders face most of the monetary shocks.
Three well known facts that characterize exchange rate data are: (a) the high correlation between... more Three well known facts that characterize exchange rate data are: (a) the high correlation between bilateral nominal and real exchange rates; (b) the high degree of persistence in real exchange rate movements; and (c) the high volatility of real exchange rates. This paper attempts a joint, albeit partial, rationalization of these facts in an environment with no staggered contracts and where prices are preset for only one quarter. There are two key innovations in the paper. First, we augment a standard two-country open economy model with learning-by-doing in production at the …rm level. This induces monopolistically competitive …rms to endogeneize the productivity e¤ect of their price setting behavior. Speci…cally, …rms endogenously choose not to adjust prices by the full proportion of a positive monetary shock in order to take advantage of the productivity bene…ts of higher production. Second, we introduce habits in leisure. This makes the labor supply decision dynamic and adds an additional source of propagation. We show that the calibrated model can quantitatively reproduce signi…cant fractions of the aforementioned facts. Moreover, as in the data, the model also produces a positive correlation between the terms of trade and the nominal exchange rate.
We present a new data fact: in response to a monetary tightening, the domestic currency tends to ... more We present a new data fact: in response to a monetary tightening, the domestic currency tends to appreciate in developed countries but depreciate in developing countries. A model is developed to rationalize this contrasting pattern. It has three key channels of monetary transmission: a liquidity demand channel, a fiscal channel, and an output channel. The paper shows that a calibrated version of the model can explain the contrast between developed and developing countries. Using counterfactual experiments and empirical evidence, we identify differences in the liquidity demand effect as critical in explaining the contrasting responses generated by the model. (JEL E23, E43, E52, F31, F33, O19)
Federal Reserve Bank of San Francisco, Working Paper Series, May 1, 2006
The rising current account deficit in the USA has attracted considerable attention in recent year... more The rising current account deficit in the USA has attracted considerable attention in recent years. We use the "business cycle accounting" methodology to identify the principal distortions that have affected the external accounts of the US. In particular, we measure distortions in the optimality conditions of a simple two-country general equilibrium model using data from the US and the other G7 countries. We then feed these measured distortions into the model individually and use the simulated counterfactual paths of the current account to determine the contribution of each of these "wedges" to the overall external imbalance of the USA. We find that no single wedge in isolation can account closely for the observed current account. However, a combination of productivity differences and deviations from risk-sharing between the US and the rest of the G7 does the best job in accounting for most of the measured movement of the US current account.
In this paper we study the economic evolution between 1960 and 1995 of two states in India-Mahara... more In this paper we study the economic evolution between 1960 and 1995 of two states in India-Maharashtra and West Bengal. During this period West Bengal, which was one of the two richest states in India in 1960, has gone from a relative per capita income of about 100 percent of Maharashtra, to a relative income of around 60 percent. Our diagnostic analysis reveals that a large part of the blame for West Bengal's development woes can be attributed to: (a) low aggregate productivity (b) poorly functioning labor markets and sectoral misallocations. We find that sectoral productivity and labor market allocation wedges were strongly correlated with political developments in West Bengal, namely the increasing vote share of the leftist parties.
In this paper we study the economic evolution between 1960 and 1995 of two states in India-Mahara... more In this paper we study the economic evolution between 1960 and 1995 of two states in India-Maharashtra and West Bengal. During this period West Bengal, which was one of the two richest states in India in 1960, has gone from a relative per capita income of about 100 percent of Maharashtra, to a relative income of around 60 percent. Our diagnostic analysis reveals that a large part of the blame for West Bengal's development woes can be attributed to: (a) low aggregate productivity (b) poorly functioning labor markets and sectoral misallocations. We find that sectoral productivity and labor market allocation wedges were strongly correlated with political developments in West Bengal, namely the increasing vote share of the leftist parties.
Bank, the U. of Houston, and the IMF for detailed comments and discussions. We also thank the edi... more Bank, the U. of Houston, and the IMF for detailed comments and discussions. We also thank the editor and two anonymous referees for very helpful comments. Robin Burgess kindly provided the data in Besley and Burgess (2004).
Can large macroeconomic changes also alter the historical economic mobility patterns of various s... more Can large macroeconomic changes also alter the historical economic mobility patterns of various social groups? We examine this question by contrasting the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We …nd that this period has been characterized by a signi…cant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we …nd that the improvements in education account for a major part of the wage and consumption convergence.
for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the ... more for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the UCLA Academic Senate for research support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Amongst the various inequities typically associated with the caste system in India, probably one ... more Amongst the various inequities typically associated with the caste system in India, probably one of the most debilitating is the perception that one is doomed by birth, i.e., social and economic mobility across generations is di¢ cult. We study the extent and evolution of this lack of mobility by contrasting the intergenerational mobility rates of the historically disadvantaged scheduled castes and tribes (SC/ST) in India with the rest of the workforce in terms of their education attainment, occupation choices and wages. Using household survey data from successive rounds of the National Sample Survey between 1983 and 2005, we …nd that inter-generational education and income mobility rates of SC/STs have converged to non-SC/ST levels during this period. Moreover, SC/STs have been switching occupations relative to their parents at increasing rates, matching the corresponding switch rates of non-SC/STs in the process. We conclude that the last twenty years of major structural changes in India have also coincided with a breaking down of caste-based historical barriers to socioeconomic mobility.
We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (S... more We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We find that this period has been characterized by a significant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we find that the improvements in education account for a major part of the wage and consumption convergence. (JEL I24, O15, O17, Z13)
We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (S... more We examine the relative fortunes of the historically disadvantaged scheduled castes and tribes (SC/ST) in India in terms of their education attainment, occupation choices, consumption and wages. We study the period 1983-2005 using household survey data from successive rounds of the National Sample Survey. We find that this period has been characterized by a significant convergence of education, occupation distribution, wages and consumption levels of SC/STs toward non-SC/ST levels. Using various decomposition approaches we find that the improvements in education account for a major part of the wage and consumption convergence. (JEL I24, O15, O17, Z13)
Over the past 25 years there has been a remarkable economic catch-up by the historically discrimi... more Over the past 25 years there has been a remarkable economic catch-up by the historically discriminated against scheduled castes and tribes (SC/STs) towards non-SC/ST levels in the terms of their education attainment levels, their occupation choices as well as their wage and consumption levels. This period of convergence has coincided with a sharp rise in aggregate economic growth as well as a signi…cant structural transformation of the economy. In this paper we …rst document these aggregate data patterns as well as the evolution of the sectoral caste gaps in education and wages. We then develop a multi-sector model with two types of agents to show that aggregate TFP shocks along with a process of structural transformation can induce a convergence between the two groups without any other concurrent redistributive policy changes as long as there exists an initial a¢ rmative action policy in education and/or jobs for the relatively disadvantaged group. We show some indirect evidence in support of this channel by examining the convergence patterns of Muslims who were not covered by such a¢ rmative action policies.
for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the ... more for helpful comments and suggestions. The usual disclaimer applies. Végh would like to thank the UCLA Academic Senate for research support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
We present a new data fact: in response to a monetary tightening, the domestic currency tends to ... more We present a new data fact: in response to a monetary tightening, the domestic currency tends to appreciate in developed countries but depreciate in developing countries. A model is developed to rationalize this contrasting pattern. It has three key channels of monetary transmission: a liquidity demand channel, a fiscal channel, and an output channel. The paper shows that a calibrated version of the model can explain the contrast between developed and developing countries. Using counterfactual experiments and empirical evidence, we identify differences in the liquidity demand effect as critical in explaining the contrasting responses generated by the model. (JEL E23, E43, E52, F31, F33, O19)
, and World Bank for helpful comments and Sergio Rodriguez for research assistance. Végh grateful... more , and World Bank for helpful comments and Sergio Rodriguez for research assistance. Végh gratefully acknowledges research support provided by the UCLA Senate. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper was originally prepared for a conference in honor of Guillermo Calvo, held at the Inte... more This paper was originally prepared for a conference in honor of Guillermo Calvo, held at the International Monetary Fund in April 2004. We are grateful to Martin Eichenbaum and conference participants for helpful comments and suggestions. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
The paper studies the issue of optimal exchange rate regimes for developing countries in a flexib... more The paper studies the issue of optimal exchange rate regimes for developing countries in a flexible price environment. The key innovation is that we analyze the implications of segmented asset markets-only a fraction of agents participate in asset market transactions-for the optimal exchange rate regime. We show that even though all shocks in the model are monetary, asset market segmentation implies an inherent welfare bias towards flexible exchange rates. This finding is in stark contrast to the standard Mundellian prescription that if shocks are mostly monetary then fixed exchange rates are optimal. The paper also shows that the optimal policy regime hinges crucially on whether traders or non-traders face most of the monetary shocks.
Three well known facts that characterize exchange rate data are: (a) the high correlation between... more Three well known facts that characterize exchange rate data are: (a) the high correlation between bilateral nominal and real exchange rates; (b) the high degree of persistence in real exchange rate movements; and (c) the high volatility of real exchange rates. This paper attempts a joint, albeit partial, rationalization of these facts in an environment with no staggered contracts and where prices are preset for only one quarter. There are two key innovations in the paper. First, we augment a standard two-country open economy model with learning-by-doing in production at the …rm level. This induces monopolistically competitive …rms to endogeneize the productivity e¤ect of their price setting behavior. Speci…cally, …rms endogenously choose not to adjust prices by the full proportion of a positive monetary shock in order to take advantage of the productivity bene…ts of higher production. Second, we introduce habits in leisure. This makes the labor supply decision dynamic and adds an additional source of propagation. We show that the calibrated model can quantitatively reproduce signi…cant fractions of the aforementioned facts. Moreover, as in the data, the model also produces a positive correlation between the terms of trade and the nominal exchange rate.
We present a new data fact: in response to a monetary tightening, the domestic currency tends to ... more We present a new data fact: in response to a monetary tightening, the domestic currency tends to appreciate in developed countries but depreciate in developing countries. A model is developed to rationalize this contrasting pattern. It has three key channels of monetary transmission: a liquidity demand channel, a fiscal channel, and an output channel. The paper shows that a calibrated version of the model can explain the contrast between developed and developing countries. Using counterfactual experiments and empirical evidence, we identify differences in the liquidity demand effect as critical in explaining the contrasting responses generated by the model. (JEL E23, E43, E52, F31, F33, O19)
Uploads
Papers by Amartya Lahiri