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The Monetary and Fiscal History of Brazil, 1960-2016
Kehoe, Patrick J.; Ayres, Joao Luiz; Guillen, Diogo; Garcia, Marcio (2018-12-20)
Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period ...
Staff Report , Paper 575

Report
Evolution of Modern Business Cycle Models: Accounting for the Great Recession
Kehoe, Patrick J.; Pastorino, Elena; Midrigan, Virgiliu (2018-06-14)
Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real ...
Staff Report , Paper 566

Report
Credit Frictions in the Great Recession
Pastorino, Elena; Lopez, Pierlauro; Midrigan, Virgiliu; Kehoe, Patrick J. (2020-12-15)
Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the ...
Staff Report , Paper 617

Working Paper
On the need for fiscal constraints in a monetary union
Chari, V. V.; Kehoe, Patrick J. (1998)
Working Papers , Paper 589

Conference Paper
Optimal fiscal and monetary policy: some recent results
Kehoe, Patrick J.; Chari, V. V.; Christiano, Lawrence J. (1991)
Proceedings

Report
Sophisticated monetary policies
Kehoe, Patrick J.; Chari, V. V.; Atkeson, Andrew (2009)
In standard approaches to monetary policy, interest rate rules often lead to indeterminacy. Sophisticated policies, which depend on the history of private actions and can differ on and off the equilibrium path, can eliminate indeterminacy and uniquely implement any desired competitive equilibrium. Two types of sophisticated policies illustrate our approach. Both use interest rates as the policy instrument along the equilibrium path. But when agents deviate from that path, the regime switches, in one example to money; in the other, to a hybrid rule. Both lead to unique implementation, while ...
Staff Report , Paper 419

Journal Article
A primer on static applied general equilibrium models
Kehoe, Patrick J.; Kehoe, Timothy J. (1994-04)
In this paper, we describe and analyze the basic structure of the applied general equilibrium (AGE) models used to assess the effects of government trade policies. Once we have constructed the basic model, we extend it to cover features such as increasing returns to scale, imperfect competition, and differentiated products, following the AGE modeling trend of the past 10 years. We then compare a static AGE model's predictions with the actual data on how Spain was affected by entering the European Community and find that, when exogenous effects are included, a static AGE model's predictions ...
Quarterly Review , Volume 18 , Issue Spr , Pages 2-16

Report
Appendix for Financial Frictions and Fluctuations in Volatility
Kehoe, Patrick J.; Bai, Yan; Arellano, Cristina (2017-01-24)
This appendix contains five sections. Section 1 provides details for the comparative statics exercise performed in the simple example. Section 2 discusses extending the model to allow firms to default on the wages for managers. Section 3 describes the firm-level and aggregate data. Section 4 contains the details of the computational algorithm. Finally, Section 5 reports the results for our model with a lower labor elasticity.
Staff Report , Paper 538

Report
Comparing alternative representations and alternative methodologies in business cycle accounting
Kehoe, Patrick J.; Chari, V. V.; McGrattan, Ellen R. (2007)
We make three comparisons relevant for the business cycle accounting approach. We show that in theory, representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two representations are the same. In practice, convenience dictates that the underlying probability distributions over the investment wedge are different in the two representations. Even so, the quantitative results under the two representations are essentially identical. We also compare our methodology, ...
Staff Report , Paper 384

Report
Financial frictions and fluctuations in volatility
Kehoe, Patrick J.; Bai, Yan; Arellano, Cristina (2012)
During the recent U.S. financial crisis, the large decline in economic activity and credit was accompanied by a large increase in the dispersion of growth rates across firms. However, even though aggregate labor and output fell sharply during this period, labor productivity did not. These features motivate us to build a model in which increased volatility at the firm level generates a downturn but has little effect on labor productivity. In the model, hiring inputs is risky because financial frictions limit firms' ability to insure against shocks that occur between the time of production and ...
Staff Report , Paper 466

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