Memory, multiple equilibria and emerging market crises

We present a new Generalized Markov Equilibrium (GME) approach to studying sudden stops and financial crises in emerging countries in the canonical small open economy model with equilib-rium price-dependent collateral constraints. Our approach to characterizing and computing stochastic equilibrium d...

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Autores principales:	Pierri, Damián, Reffett, Kevin
Formato:	Artículo publishedVersion
Lenguaje:	Inglés
Publicado:	Instituto Interdisciplinario de Economía Política (IIEP UBA-CONICET) 2022
Materias:	Crisis financieras Economía pequeña y abierta Ergodicidad Equilibrios recursivos Financial Crises Sudden Stops Small Open Economies Ergodicity Recursive Equilibrium
Acceso en línea:	https://ojs.economicas.uba.ar/DT-IIEP/article/view/2473 https://repositoriouba.sisbi.uba.ar/gsdl/cgi-bin/library.cgi?a=d&c=dociiep&d=2473_oai
Aporte de:	Repositorio Digital de la Universidad de Buenos Aires (UBA) de Universidad de Buenos Aires

id	I28-R145-2473_oai
record_format	dspace
institution	Universidad de Buenos Aires
institution_str	I-28
repository_str	R-145
collection	Repositorio Digital de la Universidad de Buenos Aires (UBA)
language	Inglés
orig_language_str_mv	eng
topic	Crisis financieras Economía pequeña y abierta Ergodicidad Equilibrios recursivos Financial Crises Sudden Stops Small Open Economies Ergodicity Recursive Equilibrium
spellingShingle	Crisis financieras Economía pequeña y abierta Ergodicidad Equilibrios recursivos Financial Crises Sudden Stops Small Open Economies Ergodicity Recursive Equilibrium Pierri, Damián Reffett, Kevin Memory, multiple equilibria and emerging market crises
topic_facet	Crisis financieras Economía pequeña y abierta Ergodicidad Equilibrios recursivos Financial Crises Sudden Stops Small Open Economies Ergodicity Recursive Equilibrium
description	We present a new Generalized Markov Equilibrium (GME) approach to studying sudden stops and financial crises in emerging countries in the canonical small open economy model with equilib-rium price-dependent collateral constraints. Our approach to characterizing and computing stochastic equilibrium dynamics is global, encompasses recursive equilibrium as a special case, yet allows for a much more flexible approach to modeling memory in such models that are known to have multiple equilibrium. We prove the existence of ergodic GME selections from the set of sequential competitive equilibrium, and show that at the same time ergodic GME selectors can replicate all the observed phases of the macro crises associated with a sudden stop (boom, collapse, spiralized recession, recov-ery) while still being able to capture the long-run stylized behavior of the data. We also compute stochastic equilibrium dynamics associated with stationary and nonstationary GME selections, and we find that: a) the ergodic GME selectors generate stochastic dynamics that are less financially constrained with respect to stationary non-ergodic paths; and, b) non-stationary GME selections ex-hibit a great range of fluctuations in macroeconomic aggregates compared to the stationary selections. From a theoretical perspective, we prove the existence of both sequential competitive equilibrium and (minimal state space) recursive equilibrium, as well as provide a complete theory of robust recursive equilibrium comparative statics in deep parameters. Consistent with recent results in the literature, relative to the set of recursive equilibrium, we find 2 stationary equilibrium: one with high/over borrowing, the other with low/under borrowing. These equilibrium are extremal and “self-fulfilling” under rational expectations. The selection among these equilibria depend on observable variables and not on sunspots.
format	Artículo publishedVersion
author	Pierri, Damián Reffett, Kevin
author_facet	Pierri, Damián Reffett, Kevin
author_sort	Pierri, Damián
title	Memory, multiple equilibria and emerging market crises
title_short	Memory, multiple equilibria and emerging market crises
title_full	Memory, multiple equilibria and emerging market crises
title_fullStr	Memory, multiple equilibria and emerging market crises
title_full_unstemmed	Memory, multiple equilibria and emerging market crises
title_sort	memory, multiple equilibria and emerging market crises
publisher	Instituto Interdisciplinario de Economía Política (IIEP UBA-CONICET)
publishDate	2022
url	https://ojs.economicas.uba.ar/DT-IIEP/article/view/2473 https://repositoriouba.sisbi.uba.ar/gsdl/cgi-bin/library.cgi?a=d&c=dociiep&d=2473_oai
work_keys_str_mv	AT pierridamian memorymultipleequilibriaandemergingmarketcrises AT reffettkevin memorymultipleequilibriaandemergingmarketcrises AT pierridamian memoriaequilibriosmultiplesycrisisenpaisesemergentes AT reffettkevin memoriaequilibriosmultiplesycrisisenpaisesemergentes
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spelling	I28-R145-2473_oai2026-02-09 Pierri, Damián Reffett, Kevin 2022-11-29 We present a new Generalized Markov Equilibrium (GME) approach to studying sudden stops and financial crises in emerging countries in the canonical small open economy model with equilib-rium price-dependent collateral constraints. Our approach to characterizing and computing stochastic equilibrium dynamics is global, encompasses recursive equilibrium as a special case, yet allows for a much more flexible approach to modeling memory in such models that are known to have multiple equilibrium. We prove the existence of ergodic GME selections from the set of sequential competitive equilibrium, and show that at the same time ergodic GME selectors can replicate all the observed phases of the macro crises associated with a sudden stop (boom, collapse, spiralized recession, recov-ery) while still being able to capture the long-run stylized behavior of the data. We also compute stochastic equilibrium dynamics associated with stationary and nonstationary GME selections, and we find that: a) the ergodic GME selectors generate stochastic dynamics that are less financially constrained with respect to stationary non-ergodic paths; and, b) non-stationary GME selections ex-hibit a great range of fluctuations in macroeconomic aggregates compared to the stationary selections. From a theoretical perspective, we prove the existence of both sequential competitive equilibrium and (minimal state space) recursive equilibrium, as well as provide a complete theory of robust recursive equilibrium comparative statics in deep parameters. Consistent with recent results in the literature, relative to the set of recursive equilibrium, we find 2 stationary equilibrium: one with high/over borrowing, the other with low/under borrowing. These equilibrium are extremal and “self-fulfilling” under rational expectations. The selection among these equilibria depend on observable variables and not on sunspots. Presentamos un nuevo equilibrio generalizado de Markov (GME) para estudiar crisis de balanza de pagos en economías emergentes que sufren fricciones financieras en la forma de restricciones de colateral. Nuestro enfoque permite caracterizar y computar los equilibrios dinámicos y estocásticos en forma global, comprende a otros equilibrios recursivos (como los de espacio de esta mínimo) y representa una forma flexible de modelar “memoria” en estas economías que suelen tener equilibrios múltiples. Probamos la existencia de un GME ergódico cómo una selección del equilibrio secuencial el cual a su vez puede replicar tanto todas las fases de una crisis de balanza de pagos cómo los hechos estilizados de largo plazo. Computamos el equilibrio ergódico, estacionario y no estacionario. Encontramos que el equilibrio ergódico tiene trayectorias del consumo más suaves y que el no estacionario puede replicar un gran rango de crisis de balanza de pagos. Desde una perspectiva teórica, probamos la existencia del equilibrio secuencial y recursivo en espacio de estados mínimos, como así también resultados de estática comparativa robusta. En línea con la literatura, encontramos 2 tipos de equilibrios estacionarios: uno con alto y el otro con bajo endeudamiento. Estos equilibrios son auto-validantes en expectativas racionales y no requieren de manchas solares para su coordinación. application/pdf https://ojs.economicas.uba.ar/DT-IIEP/article/view/2473 eng Instituto Interdisciplinario de Economía Política (IIEP UBA-CONICET) https://ojs.economicas.uba.ar/DT-IIEP/article/view/2473/3208 Documentos de trabajo del Instituto Interdisciplinario de Economía Política; Núm. 62 (2021): Memoria, equilibrios múltiples y crisis en países emergentes; 1-62 Working Papers series at Instituto Interdisciplinario de Economía Política; No. 62 (2021): Memory, multiple equilibria and emerging market crises; 1-62 2451-5728 Crisis financieras Economía pequeña y abierta Ergodicidad Equilibrios recursivos Financial Crises Sudden Stops Small Open Economies Ergodicity Recursive Equilibrium Memory, multiple equilibria and emerging market crises Memoria, equilibrios múltiples y crisis en países emergentes info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion https://repositoriouba.sisbi.uba.ar/gsdl/cgi-bin/library.cgi?a=d&c=dociiep&d=2473_oai

Memory, multiple equilibria and emerging market crises

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