NBER Working Papers by Gianluca Benigno

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Working Papers

February 2017Revisiting the Commodity Curse: A Financial Perspective
with Enrique Alberola: w23169
We study the response of a three-sector commodity-exporter small open economy to a commodity price boom. When the economy has access to international borrowing and lending, a temporary commodity price boom brings about the standard wealth effect that stimulates demand and has long-run implications on the sectoral allocation of labour. If dynamic productivity gains are concentrated in the traded goods sector, the commodity boom crowds out the traded sector and delays convergence to the world technology frontier. Financial openness by stimulating current demand, amplifies the crowding out effect and may even lead to a growth trap, in which no resources are allocated to the traded sector. From a normative point of view, our analysis suggests that capital account management policies could be w...
May 2016Optimal Capital Controls and Real Exchange Rate Policies: A Pecuniary Externality Perspective
with Huigang Chen, Christopher Otrok, Alessandro Rebucci, Eric R. Young: w22224
A new theoretical literature studies the use of capital controls to prevent financial crises in models in which pecuniary externalities justify government intervention. Within the same theoretical framework, we show that when ex-post policies such as defending the exchange rate can contain or resolve financial crises, there is no need to intervene ex-ante with capital controls. On the other hand, if crises management policies entail some efficiency costs, then crises prevention policies become part of the optimal policy mix. In the standard model economy used in the literature with costly crisis management policies, the optimal policy mix combines capital controls in tranquil times with support for the real exchange rate to limit its depreciation during crises times. The optimal policy mix...

Published: Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric R. Young, 2016. "Optimal Capital Controls and Real Exchange Rate Policies: A Pecuniary Externality Perspective," Journal of Monetary Economics, .

June 2011Risk, Monetary Policy and the Exchange Rate
with Pierpaolo Benigno, Salvatore Nisticò: w17133
In this research, we provide new empirical evidence on the importance of time-varying uncertainty for the exchange rate and the excess return in currency markets. Following an increase in monetary policy uncertainty, the dollar exchange rate appreciates in the medium run, while an increase in the volatility of productivity leads to a dollar depreciation. We propose a general-equilibrium theory of exchange rate determination based on the interaction between monetary policy and time-varying uncertainty aimed at understanding these regularities. In the model, the behaviour of the exchange rate following nominal and real volatility shocks is consistent with the empirical evidence. Furthermore we show that risk factors and interest-rate smoothing are important in accounting for the negative coe...


December 2010Second-Order Approximation of Dynamic Models with Time-Varying Risk
with Pierpaolo Benigno, Salvatore Nisticò: w16633
This paper provides first and second-order approximation methods for the solution of non-linear dynamic stochastic models in which the exogenous state variables follow conditionally-linear stochastic processes displaying time-varying risk. The first-order approximation is consistent with a conditionally-linear model in which risk is still time-varying but has no distinct role -- separated from the primitive stochastic disturbances -- in influencing the endogenous variables. The second-order approximation of the solution, instead, is sufficient to get this role. Moreover, risk premia, evaluated using only a first-order approximation of the solution, will be also time varying.

Published: Benigno, Gianluca & Benigno, Pierpaolo & Nisticò, Salvatore, 2013. "Second-order approximation of dynamic models with time-varying risk," Journal of Economic Dynamics and Control, Elsevier, vol. 37(7), pages 1231-1247. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

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