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of Economic Research
Volume Title: NBER International Seminar on Macroeconomics 2012
Volume Author/Editor: Francesco Giavazzi and Kenneth D. West,
organizers
Volume Publisher: University of Chicago Press
Volume ISBN: 978-0-226-05313-4 cloth; 978-0-226-05327-1 paper;
0-226-05327-X paper
Volume URL: http://www.nber.org/books/giav12-1
Conference Date: June 15-16, 2012
Publication Date: August 2013
Chapter Title: Introduction to "NBER International Seminar on
Macroeconomics 2012"
Chapter Author(s): Francesco Giavazzi, Kenneth D. West
Chapter URL: http://www.nber.org/chapters/c12767
Chapter pages in book: (p. 1 - 4)
Introduction
Francesco Giavazzi, Bocconi University and NBER
Kenneth D. West, University of Wisconsin and NBER
Introduction
The International Seminar on Macroeconomics (ISOM) meets every
June in a different European city, bringing together American and European economists to study a variety of topics within “macroeconomics”
defined very broadly. The tradition started in 1978. During the first half
of its life it was popularly known as the “Gordon–deMenil seminar.”
Jeffrey Frankel is now overall codirector of ISOM, with Francesco Giavazzi as his European counterpart. Since 2004, NBER has been the sole
sponsor of ISOM, and the proceedings are published by the University
of Chicago Press as the NBER International Seminar on Macroeconomics.
We continue to work with a local host in a different European country
each summer, and to divide the authors and discussants approximately
equally between Americans and Europeans.
This volume contains a selection of the papers originally presented
at the 35th International Seminar on Macroeconomics, which took place
in Oslo, Norway, on June 15–16, 2012. The meeting was hosted by the
University of Oslo and partly financed by the Norwegian Research
Council, the Central Bank of Norway, and Handelsbanken. We are
grateful to Knut Mork, Amund Holmsen, and Steinar Holden for their
help in making the seminar possible. The 2012 program was organized
by Francesco Giavazzi and Kenneth D. West. The papers have gone
through a refereeing process, done mainly by the ISOM board. NBER
ISOM 2012 is the ninth annual installment, appearing as a companion
volume to the NBER Macroeconomics Annual.
© 2013 by the National Bureau of Economic Research. All rights reserved.
978-0-226-05327-1/2013/2012-0001$10.00
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2
Giavazzi and West
Overview of the Volume
The eight papers published in the thirty-fifth volume of ISOM, as usual,
cover quite a range of topics. The eight chapters fall into four categories,
each with two papers. The chapters are listed here in roughly the order
the papers were presented at the conference. Part I deals with exchange
rates, part II with global business cycles, part III with financial crisis,
and part IV with unemployment and the Great Recession.
Part I: Exchange Rates
The first section is on exchange rates. The two papers consider two
quite different issues. In “Capital Account Policies and the Real Exchange Rate,” Olivier Jeanne develops and calibrates a real model to
analyze the use of capital account policies to peg the real exchange rate.
Jeanne shows that when the government restricts private capital flows,
reserve accumulation can keep the real exchange rate undervalued.
Jeanne finds that the empirical implications of the model are broadly
consistent with Chinese data from the last decade.
In “Taylor Rule Exchange Rate Forecasting during the Financial Crisis,” Tanya Molodtsova and David H. Papell assess various models for
forecasting the euro / US dollar exchange rate during the recent financial crisis. They find that models that assume that interest rates are set
by Taylor rules generate better forecasts than do other exchange rate
models, such as those that rely on purchasing power parity. However,
overall, the forecasting performance that results from Taylor rules is not
consistently better than is a random walk forecast.
Part II: Global Business Cycles
The two papers in this section also consider quite different issues. In
“Global House Price Fluctuations: Synchronization and Determinants,”
Hideaki Hirata, M. Ayhan Kose, Christopher Otrok, and Marco E. Terrones use panel data from Organization for Economic Cooperation and
Development (OECD) countries to characterize and explain movements
in house prices. They find that house prices are less synchronized across
countries than is GDP. Consistent with this finding, identified global
shocks are not found to have uniformly large effects on house prices.
In “Banks, Sovereign Debt, and the International Transmission of
Business Cycles,” Luca Guerrieri, Matteo Iacoviello, and Raoul Minetti
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Introduction
3
develop and calibrate a model to consider cross-country transmission
to a “core” country following sovereign default in a “periphery” country. They calibrate the model to Europe. They find that the spillover
effects from default in the periphery can substantially reduce economic
activity in the core.
Part III: Financial Crises
The next section addresses two issues that have been central to the financial crisis: its impact on trade flows and the desirability and effects
of official bailouts. The sharp collapse in world trade during the 2008
crisis highlighted the relevance of finance for trade, as the stress in the
financial sector led to a contraction in credits on which exporters rely
while goods are in transit. Nicolas Berman, José de Sousa, Philippe
Martin, and Thierry Mayer in “Time to Ship during Financial Crises”
test this dimension by using the fact that finance should matter more
for shipments that take more time to reach their destination. They find
that a banking crisis in the destination country lowers trade by more for
exports from more distant countries. A banking crisis in the exporting
country also reduces trade. The authors also show that the impact of a
banking crisis gets larger as the crisis persists.
In “Sovereign Bailouts and Senior Loans,” Christophe Chamley and
Brian Pinto provide a set of approaches through which to understand
official assistance to countries in debt crises, emphasizing in particular
the role of seniority in such lending agreements. In addition, the paper
examines the consequences of forgiving debt preemptively, rather than
“gambling for redemption.” These are highly relevant issues in the current debate on resolution strategies for the euro zone. For instance, as
noted by Gisle Natvik in his comments to the paper, only days before the
ISOM 2012 conference was held, the seniority issue hit news headlines
worldwide in response to the European rescue package for Spain. The following market comment is representative: “Spanish bond prices fell Monday afternoon following European Commission clarifications about the
seniority of ESM loans, which rank above all creditors, except the IMF.”
Part IV: Unemployment and the Great Recession
Finally, the two papers in the last section study the unemployment experience during the Great Recession, its propagation, and why the labor
market recovery has been so sluggish.
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4
Giavazzi and West
Alessandra Fogli, Enoch Hill, and Fabrizio Perri in “The Geography of
the Great Recession” explore a new way to think about the amplification
and propagation of business cycles founded on the geography of economic activity. They do so by presenting empirical evidence about the
geography of recessions and by exploring the implications of a new
model of economic activity based on local interactions. The authors find
that the role of neighboring counties differs and depends on the magnitude of the aggregate shock that hits the economy. If the economy is hit
by a small aggregate shock, then local transmission serve as means to
mute the effect of the shock and entail less aggregate unemployment.
On the other hand, if the economy is hit by a large aggregate shock,
then neighbors have the opposite effect and amplify the effects of an
aggregate shock. Thus the paper reminds us that geography matters,
also for aggregate macro phenomena, and that stabilization policy can
benefit from insights of spatial dynamics.
With a slow labor market recovery in the aftermath of the crisis, the
relationship between unemployment and vacancies, the Beveridge
curve, has been the subject of considerable attention by both policymakers and academics. Of particular interest is the extent to which
changes in matching efficiency can account for the persistence of unemployment despite improvements in vacancy posting.
Efforts to answer this question, or more generally to understand the
behavior of unemployment since the Great Recession, have underscored the need to expand the set of labor market variables analyzed in
dynamic stochastic general equilibrium (DSGE) models. Luca Sala, Ulf
Söderström, and Antonella Trigari, in “Structural and Cyclical Forces
in the Labor Market during the Great Recession: Cross-Country Evidence,” estimate an empirical model in this vein for Germany, Sweden,
the United Kingdom, and the United States. They provide an account
through the lens of their model of the shocks that explain economic activity both prior to and since the Great Recession, as well as differences
in labor market outcomes across countries.
Endnote
Kenneth West thanks the National Science Foundation for financial support. For acknowledgments, sources of research support, and disclosure of the authors’ material financial relationships, if any, please see http: // www.nber.org / chapters / c12767.ack.
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