Template-type: ReDif-Paper 1.0
Author-Name: Ziesemer, Thomas
Author-workplace-name: RS: GSBE MORSE, Macro, International & Labour Economics, Mt Economic Research Inst on Innov/Techn
Title: Linking the BOPC growth model with foreign debt dynamics to the goods and labour markets
Abstract: We link the BOPC growth model to the goods market, foreign debt dynamics<br/>and Okun's law. A new condition for getting the Thirlwall effect of<br/>world GDP growth on domestic growth is that investment and exports<br/>should react less than savings and imports, all as a share of GDP, to an<br/>increase in the domestic growth rate. If this condition holds, the<br/>Thirlwall effect is present for stable and unstable debt/GDP dynamics<br/>and for positive or negative reactions of the current account to<br/>domestic growth. Okun's law translates the effect on the domestic GDP<br/>growth rate to a change of the unemployment rate. In unstable models,<br/>the change of world GDP growth may turn around the debt/GDP dynamics.<br/>Estimations support the specification of the theoretical model and lead<br/>to simulations of the Thirlwall effect and interest rate shocks on<br/>output growth. In the presence of banks consortia, unstable debt<br/>dynamics are the empirically relevant case for Brazil. A crisis can be<br/>less likely according to a simple model of profit maximizing bank<br/>consortia through a jump into a steady state for the debt/GDP ratio;<br/>unstable, increasing debt/GDP processes cannot be ruled out and may lead<br/>to crises unless the empirics of the stability conditions gets more<br/>favourable and leads the country-bank model into a stable steady state.
Classification-JEL: f43,o11,o41
Series: UNU-MERIT Working Papers
Creation-Date: 20220926
Number: 2022-029
File-URL: https://cris.maastrichtuniversity.nl/ws/files/107435786/wp2022_029.pdf
File-Format: application/pdf
File-Size: 982859
Handle: Repec:unm:unumer:2022029
DOI: