Sergio Rebelo

Jaimovich, Nir and Sergio Rebelo. 2009. Can News about the Future Drive the Business Cycle?. American Economic Review. 9(4): 1097-1118.

We propose a model that generates an economic expansion following good news about future total factor productivity (TFP) or investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-run wealth effect on the labor supply. These preferences nest,as special cases, the two classes of utility functions most widely used in the business cycle literature. Our model generates recessions that resemble those of the post-war U.S. economy without relying on negative productivity shocks. Recessions are caused not by contemporaneous negative shocks but by lackluster news about future TFP or investment-specific technical change.

Burstein, Ariel, Martin S. Eichenbaum and Sergio Rebelo. 2007. Modeling Exchange Rate Pass Through After Large Devaluations. Journal of Monetary Economics. 54(2): 346-368.

Large devaluations are generally associated with large declines in real exchange rates. Burstein, Eichenbaum, and Rebelo (2005) argue that the primary force causing these declines is often the slow adjustment in the price of nontradable goods and services. We develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations. The first force is sticky nontradable goods prices. Instead of simply assuming that nontradable goods prices are sticky, we develop conditions under which this phenomenon can emerge as an equilibrium outcome. The second force is the impact of real shocks that often accompany large devaluations. These real shocks lead to a decline in the price of nontradable goods relative to traded goods. We argue that sticky nontradable goods prices generally play an important role in explaining post-devaluation movements in real exchange rates. However, there are cases in which sticky nontradable goods prices are not sustainable as an equilibrium phenomenon. In these cases real shocks are the primary driver of real exchange rate movements.

Burstein, Ariel, Martin S. Eichenbaum and Sergio Rebelo. 2005. Large Devaluations and the Real Exchange Rate. Journal of Political Economy. 113(3): 742-784.

In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2001), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We assess the robustness of our findings by studying large real-exchange-rate appreciations, medium devaluations, and small exchange-rate movements.

Rebelo, Sergio and Danyang Xie. 1999. On the Optimality of Interest Rate Smoothing. Journal of Monetary Economics. 43(2): 263-282.

This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities.

Rebelo, Sergio. 2008. Managing Foreign Exchange Risk: Acquiring Nusantara Communications Inc. . Case 5-208-252 (KEL373).

California telecommunications company Wireworld is considering an acquisition of Nusantara Communications, a subsidiary of Indonesian conglomerate Bakrie & Brothers. Nusantara had invested $50 million in developing the advanced rural telephone system, which had the potential to provide much-needed telecommunications services to the mostly rural Indonesian population. If if were exported, the worldwide market for this product in the next five years was projected to be in the billions. Should Wireworld acquire this small company halfway around the world? Was it prepared to enter the Indonesian marketplace and beyond?

Jaimovich, Nir and Sergio Rebelo. 2009. Can News about the Future Drive the Business Cycle?. American Economic Review. 9(4): 1097-1118.

We propose a model that generates an economic expansion following good news about future total factor productivity (TFP) or investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-run wealth effect on the labor supply. These preferences nest,as special cases, the two classes of utility functions most widely used in the business cycle literature. Our model generates recessions that resemble those of the post-war U.S. economy without relying on negative productivity shocks. Recessions are caused not by contemporaneous negative shocks but by lackluster news about future TFP or investment-specific technical change.

Burstein, Ariel, Martin S. Eichenbaum and Sergio Rebelo. 2007. Modeling Exchange Rate Pass Through After Large Devaluations. Journal of Monetary Economics. 54(2): 346-368.

Large devaluations are generally associated with large declines in real exchange rates. Burstein, Eichenbaum, and Rebelo (2005) argue that the primary force causing these declines is often the slow adjustment in the price of nontradable goods and services. We develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations. The first force is sticky nontradable goods prices. Instead of simply assuming that nontradable goods prices are sticky, we develop conditions under which this phenomenon can emerge as an equilibrium outcome. The second force is the impact of real shocks that often accompany large devaluations. These real shocks lead to a decline in the price of nontradable goods relative to traded goods. We argue that sticky nontradable goods prices generally play an important role in explaining post-devaluation movements in real exchange rates. However, there are cases in which sticky nontradable goods prices are not sustainable as an equilibrium phenomenon. In these cases real shocks are the primary driver of real exchange rate movements.

Burstein, Ariel, Martin S. Eichenbaum and Sergio Rebelo. 2005. Large Devaluations and the Real Exchange Rate. Journal of Political Economy. 113(3): 742-784.

In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2001), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We assess the robustness of our findings by studying large real-exchange-rate appreciations, medium devaluations, and small exchange-rate movements.

Rebelo, Sergio and Danyang Xie. 1999. On the Optimality of Interest Rate Smoothing. Journal of Monetary Economics. 43(2): 263-282.

This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities.

Rebelo, Sergio. 2008. Managing Foreign Exchange Risk: Acquiring Nusantara Communications Inc. . Case 5-208-252 (KEL373).

California telecommunications company Wireworld is considering an acquisition of Nusantara Communications, a subsidiary of Indonesian conglomerate Bakrie & Brothers. Nusantara had invested $50 million in developing the advanced rural telephone system, which had the potential to provide much-needed telecommunications services to the mostly rural Indonesian population. If if were exported, the worldwide market for this product in the next five years was projected to be in the billions. Should Wireworld acquire this small company halfway around the world? Was it prepared to enter the Indonesian marketplace and beyond?