Mario J. Crucini

Understanding European Real Exchange Rates

We study good-by-good deviations from the Law-of-One-Price (LOP) for over 1,800 retail goods and services between all European Union (EU) countries for the years 1975, 1980, 1985, and 1990. We find that for each of these years, after we control for differences in income and value-added tax (VAT) rates, there are roughly as many overpriced goods as there are underpriced goods between any two EU countries. We also find that good-by-good measures of cross-sectional price dispersion are negatively related to the tradeability of the good, and positively related to the share of non-traded inputs required to produce the good. We argue that these observations are consistent with a model in which retail goods are produced by combining a traded input with a non-traded input.

On International and National Dimensions of Risk Sharing

This paper contributes to the empirical literature that tests the implications of risk sharing across regions or countries. Rather than test the null of full insurance, the estimation method produces a parameter that measures the fraction of the annuity value of individual income that individuals of different regions (or nations) pool. Comparing the provinces of Canada, the states of the United States, and the G-7 countries, I find similar degrees of risk sharing within regions of Canada and the U.S. that exceed the risk sharing that occurs across countries. Specifically, more than two-thirds of the fitted annual variation in regional consumption is common to all regions compared to less than one-third in the case of G-7 countries.

Tariffs and aggregate economic activity: Lessons from the Great Depression

Abstract We argue against the prevailing view that the macroeconomic role of tariffs during the Great Depression was small. To understand the economic channels through which tariffs could have large effects we build a multi-sector dynamic equilibrium trade model that captures key features of trade in the 1930s: A substantial share of trade was in material inputs, and the persistence of the tariff increases had the potential for significant effects on capital accumulation. Both of these features are important in generating the conclusion that, even when trade only represents a small share of output, tariffs can have a significant impact on GDP. Simulation of the model suggests that the global escalation of the tariff war precipitated the collapse of world trade, along with declines of several percent in international output and investment.

Commodity Prices and the Terms of Trade

On combining national terms-of-trade data for developing countries with world prices of internationally traded primary commodities, it is found that variation in the world prices of three or fewer key exported commodities account for 50% or more of the annual variation in the terms of trade of a typical developing country. A considerable fraction of the variation is specific to a particular commodity and, given that the overall importance of primary commodities differs across developing countries, it is possible to account for much of the heterogeneity across them. It is concluded that commodity price fluctuations should be central features of two related literatures: studies of business cycle transmission across developing and industrialized nations, and empirical work aimed at constructing perpetual claims on developing country incomes as suggested by Shiller in 1995.

Country Size and Economic Fluctuations

This paper investigates the character of business cycles across large and small economies. Empirically, G-7 countries have less volatile investment, consumption, and trade balance ratios, higher correlations between domestic saving and investment rates, and about the same correlation of the trade-balance ratio and investment ratio as 68 smaller countries. These observations are consistent with a standard one-sector two-country general equilibrium model in which the only source of heterogeneity is country size. Since many developing countries are small, these findings suggest that even absent differences in markets and institutions, economic fluctuations would be more severe in developing countries. Copyright 1997 by Blackwell Publishing Ltd.

The Effects of Publication Lags on Life‐Cycle Research Productivity in Economics

We investigate how increases in publication delays have affected the life cycle of publications of recent Ph.D. graduates in economics. We construct a panel dataset of 14,271 individuals who were awarded Ph.D.s between 1986 and 2000 in U.S. and Canadian economics departments. For this population of scholars, we amass complete records of publications in peer‐reviewed journals listed in the JEL (a total of 368,672 observations). We find evidence of significantly diminished productivity in recent relative to earlier cohorts when productivity of an individual is measured by the number of AER‐equivalent publications. Diminished productivity is less evident when the number of AER‐equivalent pages is used instead. Our findings are consistent with earlier empirical findings of increasing editorial delays, decreasing acceptance rates at journals, and a trend toward longer manuscripts. This decline in productivity is evident in both graduates of top 30 and non‐top 30 ranked economics departments and may have important implications for what should constitute a tenurable record. We also find that the research rankings of top economics departments are a surprisingly poor predictor of the subsequent research rankings of their Ph.D.s graduates.

Trends and Cycles in Small Open Economies: Making The Case For A General Equilibrium Approach

Economic research into the causes of business cycles in small open economies is almost always undertaken using a partial equilibrium model. This approach is characterized by two key assumptions. The first is that the world interest rate is unaffected by economic developments in the small open economy, an exogeneity assumption. The second assumption is that this exogenous interest rate combined with domestic productivity is sufficient to describe equilibrium choices. We demonstrate the failure of the second assumption by contrasting general and partial equilibrium approaches to the study of a cross-section of small open economies. In doing so, we provide a method for modeling small open economies in general equilibrium that is no more technically demanding than the small open economy approach while preserving much of the value of the general equilibrium approach.

Measuring international business cycles by saving for a rainy day

Macroeconomics inevitably begins with a trend-cycle decomposition of a nations output. We propose a decomposition in which consumption is the trend component and savings is the cycle component. Using data from the G-7 plus Australia, we show that this decomposition identifies international business cycles that are: (i) more volatile, (ii) of longer mean duration and (iii) less correlated across countries than the cycle component from the Hodrick-Prescott filter. We argue that this difference stems from the fact that our method imposes a basic theoretical restriction arising from the permanent income hypothesis similar to the restriction used in Cochranes ( ) decomposition.

International Risk Sharing and Commodity Prices - Le Partage International Du Risque Et Les Prix Des Biens

Cole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk‐sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity‐specific shocks, not country‐specific shocks. Using commodity‐level production data at the national level and world commodity prices, we document significant terms of trade variability and positive responses of nation‐specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non‐existent. Cole et Obstfeld (1991) ont developpe un resultat classique montrant que les mouvements d’equilibre dans les termes d’echange pouvaient faire l’economie d’arrangements ex ante pour le partage du risque: une elasticite de substitution unitaire entre biens et specialisations dans la production. Ce texte developpe leur modele pour N pays et M biens (N.> M). Les termes d’echange fournissent l’assurance contre les chocs specifiques a certains biens, mais non contre les chocs en provenance de certains pays. Utilisant des donnees de production au niveau des biens au plan national et des prix des biens au niveau mondial, on observe une variabilite significative des termes d’echange et des reponses positives de la production specifiquement nationale aux ameliorations dans les termes d’echange. Le mecanisme endogene d’assurance via les termes d’echange mis en lumiere par CO est virtuellement non‐existant.

On What States Do Prices Depend? Answers from Ecuador

In this paper, we argue that differences in the cost structure across sectors play an important role in the decision of firms to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut due to the high volatility in wholesale gasoline prices relative to the wages of unskilled labor, even when both retailers face a common menu cost. This modeling approach allows us to account for some of the cross-sectional differences observed in the frequency of price adjustments across goods. We apply this model to Ecuador to take advantage of inflation variations and the rich panel of monthly retail prices.