Long-Run Growth Expectations and 'Global Imbalances'

48 Pages Posted: 8 Jun 2016

See all articles by Mathias Hoffmann

Mathias Hoffmann

Deutsche Bundesbank

Michael U. Krause

University of Cologne

Thomas Laubach

Goethe University Frankfurt

Date Written: 2011

Abstract

This paper examines to what extent the build-up of 'global imbalances' since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents' perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data.

Keywords: open economy DSGE models, trend growth, Kalman filter, real-time data, news and business cycles, current account

JEL Classification: F32, E32, D83

Suggested Citation

Hoffmann, Mathias and Krause, Michael U. and Laubach, Thomas, Long-Run Growth Expectations and 'Global Imbalances' (2011). Bundesbank Series 1 Discussion Paper No. 2011,01. Available at SSRN: https://ssrn.com/abstract=2785395

Mathias Hoffmann (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael U. Krause

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Thomas Laubach

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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