نرخ بیکاری و پویایی وام ها در یک اقتصاد باز کوچک به شدت وامدار

The paper analyzes the dynamic effects of a total factor productivity shock and an interest rate risk premium shock in a highly indebted open economy. In contrast to the standard open economy framework, search unemployment and wage bargaining are introduced. We find that a negative total factor productivity shock primarily has effects on the economy's production side and on welfare, but not on its stock of foreign debt and the country specific risk premium, and large part of the adjustment happens in the short-run. In contrast, a pure increase in the country specific risk premium causes substantial dynamics and a considerable reduction in foreign debt, allowing higher consumption in the long run and creating an intertemporal welfare gain, even though unemployment increases strongly in the short-run. A 50% haircut of foreign debt significantly reduces the initial response of the unemployment rate. In case of a temporary productivity shock, sticky wages imply smaller employment, but generate higher welfare than flexible wages.

The 2007–2009 global financial crisis has provoked a severe contraction of economic activity as credit supply fell (“credit crunch”) and international trade declined. Peaking in September 2008, the ability of the financial system to allocate loanable funds has been persistently constrained and total factor productivity (TFP) has fallen (see IMF (2009, ch. 4)). Several recent studies provide support for this view (see, e.g., Estevão and Severo (2010), Haugh et al. (2009), Meza and Quintin (2005), and Cole et al. (2005)).1 On the international financial market, countries which already had a high foreign debt to GDP ratio and disadvantageous macroeconomic prospects in terms of growth, unemployment, or structural labor market weaknesses, where charged with high risk premia. e.g., the interest rate spread between Greece and Germany was raised from close to zero in 2006 to roughly 4 percentage points in January 2010. Many of these highly indebted countries also suffer from persistent and higher unemployment. In the troubled countries of the Euro-zone – Portugal, Ireland, Greece, and Spain – the harmonized OECD unemployment rates increased from 8.1% to 11.1%, 4.6%–13.7%, 8.3%–12.9%, and 8.3%–20.5% between 2007 and the third quarter of 2010, respectively. In consideration of these observations, the focus of this paper is the explanation of the unemployment dynamics in highly indebted open economies in the aftermath of negative TFP shocks and increases in the interest rate risk premium. In order to understand the behavior of unemployment in these countries, we need to study the flows in and out of employment. In this vain, Rogerson and Shimer (2010) decompose the fluctuations in total hours worked into changes in employment and changes in hours worked per worker for a large set of OECD countries. They find that “movements in and out of the labor force are relatively unimportant at business cycle frequencies in the United States”. While the empirical evidence for European countries is mixed, these authors show that this effect is even less relevant for Ireland and, in particular, the Southern European countries like Greece, Spain, and Portugal that we have in mind for this study (compare Fig. 3 in Rogerson and Shimer (2010)). From this observation, they conclude that “changes in unemployment over the business cycle capture a great deal of the change in total hours worked over the business cycle, and so to a first approximation, understanding cyclical fluctuations in total hours amounts to understanding the movement of workers between employment and unemployment”. We consider the search model of Pissarides (2000) as a convenient framework to analyze these flows. In order to analyze the dynamics of unemployment, we therefore augment and modify the standard representative agent model of a one-sector, two-good open economy (see, e.g., Turnovsky (2000, ch. 11)) by introducing search unemployment a la Mortensen and Pissarides2 and wage bargaining in a similar way as in the closed economy models of Shi and Wen (1997, 1999) and Heer (2003). Unemployment results from time-consuming and costly matching of vacancies with agents who search for a job. In addition, we also discuss the effects of sticky wages on unemployment dynamics and welfare. Our model follows Schubert (2011) and differs from Shi (2001) and the closed economy versions of Shi and Wen (1997, 1999) and Heer (2003) in several important aspects. First, the representative agent's utility function is assumed to be non-separable with respect to consumption and leisure, allowing for richer consumption dynamics. Second, we introduce investment adjustment costs, giving rise to a Tobin q theory of investment. This enriches the dynamics and allows us to investigate the time profile of stock prices (the price of capital). Third, we depart from the assumption that the production function is Cobb-Douglas and use the more general constant elasticity of substitution (CES) specification. Fourth, we endogenize the interest rate by imposing a country specific risk premium which depends on the country's ability to service its foreign debt, proxied by the debt-GDP ratio. Fifth, we introduce sticky wages into the model. We find that a pure total factor productivity shock has a modest short-run effect on unemployment and leads to a decumulation of capital and debt. The debt dynamics, albeit small in magnitude, induce a capital flow reversal. The welfare loss of the shock is considerable. In contrast, a pure interest risk premium shock leads to a large increase in unemployment. The capital stock, output, and labor evolve in a non-monotonic way, and during transition the economy drastically reduces its debt. The overall welfare effect of an increase in the risk premium is positive. This implies that from a long-run point of view, the increase in a country's risk premium is welfare improving. If the two shocks occur together, the responses of capital, output, unemployment, and the interest rate reinforce themselves, whereas the consumption adjustment is dampened, and the welfare loss is reduced. If the shock is combined with a 50% debt cancellation, the welfare loss is less than half as large because of the lower debt service. In case of a transitory TFP shock combined with a risk premium shock, there is a welfare gain. If, in addition, real wages are sticky, unemployment is much more persistent. The paper is structured as follows. The model is introduced in Section 2 and calibrated in Section 3. The steady-state effects of the shocks are presented in Section 4. We separately study the dynamic effects of (i) a negative total factor productivity (TFP) shock and (ii) an exogenous increase in the country's interest rate risk premium in Sections 5 and 6, respectively. In Section 7, we consider a combination of both shocks and study how economic activity is reduced. Section 8 presents our results for a 50% haircut of foreign debt. Finally, we analyze the effects of a transitory TFP shock in presence of labor market frictions in the form of sticky wages in Section 9. Section 10 concludes.3

In this paper we have analyzed the impacts of TFP and risk premium shocks on the economic performance of a highly indebted open economy. The analysis is based on the well-known semi-small open economy model of the Turnovsky (2000, ch. 11) type, where an upward sloping supply curve of debt is added. The key feature of the economy is that the labor market is non-Walrasian and suffers from frictions. Unemployment emerges as matching of job vacancies with searching agents is time-consuming and costly. Because of the model's complex dynamic structure, we resorted to numerical simulations, enabling us to analyze the short-run dynamics and the steady-state adjustments. We also have introduced sticky wages à la Blanchard and Galí (2010). We calibrated the model to replicate some structural key characteristics of highly indebted advanced economies like Greece, Ireland, or Portugal, which in the aftermath of the global financial crisis run into severe troubles both in terms of economic performance and in terms of their ability to borrow on the international financial market. We find that a pure total factor productivity (TFP) shock has mainly supply side effects and barely affects the economy's foreign debt and the interest rate risk premium. Much of the adjustment to the shock occurs on impact, and the welfare loss of a permanent 3% decline in TFP is considerable (4.5%). In contrast, a pure risk premium shock causes considerable dynamic adjustments, during which the economy substantially reduces its debt. On impact, the shock causes unemployment to increase sharply, raising the unemployment rate from 8.17% to 11% and leading to a large instantaneous welfare loss (8.3%). However, the shock is associated with an intertemporal welfare gain (+1.28%), as lower debt service allows higher consumption and leisure and less production. If both shocks jointly hit the economy, the dynamics closely follow that in case of a pure risk premium shock. The short-run unemployment rate is pushed up to 11.71%, and the instantaneous welfare loss is huge (12.3%), whereas the intertemporal welfare loss (3.33%) is considerably dampened. If we compare these results to the empirical observations on Portugal, Ireland, Greece, and Spain mentioned in the Introduction, we recognize that the two shocks are potentially able to explain a large part of the behavior of the unemployment rates in these countries. While in our model the unemployment rate increases by 34%, it increased by 37%–198% in these countries during 2007–2010. Of course, we acknowledge that other factors in these countries contributed to the high increases in the unemployment rates that we do not model here, for example the sectoral shocks in the real estate sector in Spain and the financial sector in Ireland. If the productivity shock is only temporary, the positive effects of the risk premium shock prevail in the long run, and welfare increases by 1.63%. If wages are sticky, the welfare gain is even larger (2.05%). We can thus conclude that to the extent that highly indebted countries like Greece and others are mainly hit by an interest rate shock, despite the fact that the short-run effects of that shock are painful, they will eventually be able to gain in the long run.