short selling and the price discovery process we show that stock prices are more accurate when short sellers are more active first in a large panel of nyse listed stocks intraday informational efficiency of prices improves with greater shorting flow second at monthly and annual horizons more shorting flow accelerates the incorporation of public information into prices third greater shorting flow reduces post earnings announcement drift for negative earnings surprises fourth short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values these results are robust to various econometric specifications and their magnitude is economically meaningful the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

rethinking the development agenda this paper calls for a development agenda based on five major premises 1 a more balanced form of globalisation based on a genuine respect for diversity 2 a broad view of macroeconomic stability which provides an adequate role for counter cyclical policies 3 the need to complement macroeconomic stability with active productive development policies 4 strong social policies and the mainstreaming of social objectives into economic policies to guarantee adequate linkages between economic and social development and 5 the recognition that development involves broader human development goals copyright 2002 oxford university press

var estimation and forecasting when data are subject to revision we show that howrey s method for producing economic forecasts when data are subject to revision is easily generalized to handle the case where data are produced by a sophisticated statistical agency the proposed approach assumes that government estimates are efficient with a finite lag it takes no stand on whether earlier revisions are the result of news or of reductions in noise we present asymptotic performance results in the scalar case and illustrate the technique using several simple models of economic activity in each case it outperforms both conventional var analysis and the original howrey method it produces gdp forecasts that are competitive with those of professional forecasters special cases and extensions of the analysis are discussed in a series of appendices that are available online

diffusion of technical change and the decomposition of output into trend and cycle in this paper we argue that modelling the trend component in real gnp as a random walk is inconsistent with its interpretation as productivity growth as an alternative we specify the trend as an arima whose impulse response function follows an s shaped pattern reflecting the process of diffusion of technical change such an arima is employed to build and estimate an ucarima using usa postwar quarterly data we find that our model although more parsimonious fits the data equally well than the standard random walk plus ar 2 cycle moreover our model has a very low cycle trend variance ratio

building new roads really does create extra traffic a response to prakash et al a recent article by prakash et al applied economics 33 1579 85 2001 asserted that induced travel effects do not occur this paper is criticized on several grounds it disregards much of the recent work in this area that has empirically estimated induced travel relationships the models specified are inappropriate for properly addressing this question both in their use of road expenditure data based on a misunderstanding of how this may relate to traffic growth and specification of a model that does not account for other variables that generally have a large effect on traffic growth notably population and income growth the evidence in the literature is summarized and an analysis of uk road expenditure data shows that expenditure is not a good measure of actual road capacity that is built

international coordination in the design of macroeconomic policy rules abstract the paper examines international issues that arise in the design and evaluation of macroeconomic policy rules it begins with a theoretical investigation of the effects of fiscal and monetary policy in a two country rational expectations model with staggered wage and price setting and with perfect capital mobility the results indicate that with the appropriate choice of policies and with flexible exchange rates demand shocks need not give rise to international externalities or coordination issues price shocks however do create an externality and this is the focus of the empirical part of the paper using a simple seven country model consisting of canada france germany italy japan the united kingdom and the united states optimal cooperative and non cooperative nash policy rules to minimize the variance of output and inflation in each country are calculated the cooperative policies are computed using standard dynamic stochastic programming techniques and the non cooperative policies are computed using an algorithm developed by finn kydland the central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non cooperative policy rules

a comparison of autoregressive univariate forecasting procedures for macroeconomic time series the actual performance of several automated univariate autoregressive forecasting procedures applied to 150 macroeconomic time series are compared the procedures are the random walk model as a basis for comparison long autoregressions with three alternative rules for lag length selection and a long autoregression estimated by minimizing the sum of absolute deviations the sensitivity of each procedure to preliminary transformations data periodicity forecast horizon loss function employed in parameter estimation and seasonal adjustment procedures is examined the more important conclusions are that akaike s lag length selection criterion works well in a wide variety of situations the modeling of long memory components becomes important for forecast horizons of three or more periods and linear combinations of forecasts do not improve forecast quality appreciably

small and medium sized manufacturing enterprises in latin america and the caribbean under the new economic model abstract this paper describes the performance of small and medium sized manufacturing enterprises smes in 10 latin american countries under the new economic model nem based on an original databank the authors analyze sme performance in relation to production employment and productivity and in comparison to larger enterprises the paper shows that smes have not been marginal players under the nem they did not experience a generalized drop in production and employment and in some countries even increased their productivity relative to that of larger firms macroeconomic conditions have been the main determinants of sme performance trade liberalization had a strong impact on sectoral restructuring within sme production but did not affect negatively smes as a whole

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

measuring the business cycle effects of permanent and transitory shocks in cointegrated time series abstract this paper proposes a statistical framework to evaluate the contribution of permanent and transitory shocks to the cyclical fluctuations of cointegrated variables an empirical application with us macroeconomic data reveals that transitory shocks are responsible for most of the variability at the business cycle frequencies

does real u k gdp have a unit root evidence from a multi century perspective we employ linear and nonlinear unit root tests to examine the stationarity of five multi century historical u k series of real output compiled by the bank of england three series span 1270 to 201

party polarization and the business cycle in the united states a large literature has studied the trend of greaterpolarization between democrats and republicans in congress this paper empirically examines the extent to which inflationand unemployment explain cyclical movements ofpolarization over time an informal application of thestandard downsian spatial competition model of partiesgenerates the following relationships ceteris paribus 1 inflation should be associated with policy convergence 2 unemployment should be associated with polarization 3 theeffect of unemployment on polarization should be larger inmagnitude than the effect of inflation on convergence and 4 the effect of unemployment on polarization should be strongerin the house than in the senate we estimate the relationshipbetween vote records and business cycle conditions over the1947 1999 period using a gls model with varying lags ourresults are broadly consistent with these business cyclehypotheses of polarization though greater support is found inhouse data than in senate data

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

detrending and business cycle facts a user s guide this note argues that it is hardly the case that the profession is fully aware that the application of di erent filters to the data leads to di erent outcomes and that we have enough evidence to claim that these di erences are unimportant to evaluate the fit models to the data 1998 elsevier science b v all rights reserved jel classification b41 e32

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

the non linear dynamics of output and unemployment in the u s this paper studies the joint dynamics of u s output and unemployment rate in a nonlinear var model the nonlinearity is introduced through a feedback variable that endogenously augments the output lags of the var in recessionary phases sufficient conditions for the ergodicity of the model potentially applying to a larger class of threshold models are provided the linear specification is severely rejected in favor of our threshold var however in the estimation the feedback is found to be statistically significant only on unemployment while it transmits to output through its cross correlation this feedback effect from recessions generates important asymmetries in the propagation of shocks a possible key to interpret the divergence in the measures of persistence existing in the literature the regime dependent persistence also explains the finding that the feedback from recession exerts a positive effect on the long run growth rate of the economy an empirical validation for the schumpeterian macroeconomic theories

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

permanent vs transitory components and economic fundamentals any non stationary series can be decomposed into permanent or trend and transitory or cycle components typically some atheoretic pre filtering procedure is applied to extract the permanent component this paper argues that analysis of the fundamental underlying stationary economic processes should instead be central to this process we present a new derivation of multivariate beveridge nelson permanent and transitory components whereby the latter can be derived explicitly as a weighting of observable stationary processes this allows far clearer economic interpretations different assumptions on the fundamental stationary processes result in distinctly different results but this reflects deep economic uncertainty we illustrate with an example using garratt et al s 2003a small vecm model of the uk economy

global factors and trend inflation abstract we develop an empirical model to study the influence of global factors in driving trend inflation and the inflation gap we apply our model to 7 developed economies and 21 emerging market economies our results suggest that while global factors can have a sizeable influence on the inflation gap they play only a marginal role in driving trend inflation much of the influence of global factors in the inflation gap may be reflecting commodity price shocks finally we find the effect of global factors to be greater in our sample of emerging market economies relative to the developed economies there is some evidence which suggest propagation mechanisms which may reflect institutional structures or policy choices can explain the greater role for global factors in driving trend inflation in emerging market economies

sticky prices fair wages and the co movements of unemployment and labor productivity growth abstract this paper studies the co movements of unemployment and labor productivity growth for the u s economy measures of co movements in the frequency domain indicate that co movements between variables differ strongly according to the frequency first long term and business cycle co movements are larger than short term co movements second co movements are negative in the short and long run but positive over the business cycle a new keynesian model that combines nominal rigidity on the goods market sticky prices and real rigidity on the labor market fair wages is shown to be quantitatively consistent with the observed co movements both in the long term and over the business cycle however the model fails to explain the short term co movements

the multivariate beveridge nelson decomposition with i 1 and i 2 series the consumption euler equation implies that the output growth rate and the real interest rate are of the same order of integration i e if the real interest rate is i 1 then so is the output growth rate and hence log output is i 2 to estimate the natural rates and gaps of macroeconomic variables jointly this paper develops the multivariate beveridge nelson decomposition when some series are i 1 and others are i 2 the paper applies the method to japanese data during 1980q1 2013q3 to estimate the natural rates and gaps of output inflation interest and unemployment jointly

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

short run models and long run forecasts a note on the permanence of output fluctuations suppose that real gnp falls 1 percent lower than one would have expected from its past history how much should one change one s forecast of gnp for ten or twenty quarters ahead that is the question which has recently been addressed by campbell and mankiw 1987 and clark 1987 both of these papers estimate a parsimonious representation of the time series and then compute the implied long run response of gnp to an innovation while clark estimates that the long run impact of an innovation is less than two thirds of the initial impact campbell and mankiw present evidence that shocks persist and even grow over time the goal of this paper is to develop tests of the goodness of fit of specific time series models which are powerful against alternatives that imply different long run impulse responses with postwar quarterly data these tests favor models in which innovations are largely temporary over models in which innovations persist

spectral and persistence properties of cyclical growth abstract this article investigates the cyclical properties of an endogenous growth model an explicit solution is derived which permits the full characterization of the cyclical as well as the long run properties of the model using spectral autocorrelation and impulse response functions we show that introducing endogenous growth overcomes some of the main shortcomings of rbc models in particular the model can generate positive autocorrelation of output growth when endogenous growth dominates the dynamics moreover the model exhibits the hump shaped pattern of impulse response functions of the trend reverting component of output

persistence seasonality and trend in the uk egg production this paper discusses the time series properties of uk egg production in order to provide an empirical analysis of the possible long run impact of the shock on the industry following the recent incidence of salmonella poisoning our analysis shows that although the short run properties of the uk egg production are consistent with the presence of persistent shocks a shock duration is unlikely to have large long run efefcts this result is remarkably robust to the choice of the persistence measure obtained

output and unemployment dynamics in the united states 1950 1985 for us data over 1950 1985 the stochastic components of gnp growth and the unemployment rate appear to be stationary and there is substantial feedback between these variables the unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the business cycle a bivariate var model is used to describe output unemployment dynamics to estimate the degree of persistence of output innovations and to decompose output into trend and cycle the bivariate results are interpreted using a restricted var and it is shown that a closely related cyclical measure can be obtained directly from the okun s law equation

a measure of the u s output gap abstract an autoregressive distributed lag regression of the unemployment rate on output growth is structurally stable over the 1890 1986 period inverting this equation yields a measure of the output gap which is not subject to the spurious detrending problem

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

computation of the beveridge nelson decomposition in the case of cointegrated systems with i 0 variables abstract this paper shows how the result of arino and newbold economics letters 61 1998 37 for the multivariate bn decomposition in the cointegrated case can be extended when i 0 variables are considered in the vec model an application of the extended procedure to the spanish peseta french franc real exchange rate is also provided

comparisons of business cycles in the ec idiosyncracies and regularities annual data since 1960 and the real business cycle model as a guidance the evidence suggests that there are remarkable similarities between the business cycle pattern of these countries despite significant differences in the patterns of fiscal and monetary policies and the terms of trade we take this evidence to suggest that the type of shocks and the propagation mechanism is fairly similar across the ec countries hence the process of european integration under a set of uniform institutions and policies should not be a problem as far as the business cycle is concerned

estimating and accounting for the output gap with large bayesian vector autoregressions we consider how to estimate the trend and cycle of a time series such as real gross domestic product given a large information set our approach makes use of the beveridge nelson decomposition based on a vector autoregression but with two practical considerations first we show how to determine which conditioning variables span the relevant information by directly accounting for the beveridge nelson trend and cycle in terms of contributions from different forecast errors second we employ bayesian shrinkage to avoid overfitting in finite samples when estimating models that are large enough to include many possible sources of information an empirical application with up to 138 variables covering various aspects of the us economy reveals that the unemployment rate inflation and to a lesser extent housing starts aggregate consumption stock prices real money balances and the federal funds rate contain relevant information beyond that in output growth for estimating the output gap with estimates largely robust to substituting some of these variables or incorporating additional variables

macroeconomic shocks and stock market returns the case of korea abstractthis study examines the effects of macroeconomic shocks on key macro variables including stock market returns in korea using the structural vector autoregression svar model we suggest a three variable svar model incorporating inflation output growth and stock returns we adopt a nonzero z ratio restriction for the long run identifying assumption to allow for economically meaningful relationships among variables while our results support the negative positive relation of demand supply shocks to stock returns we also find that demand shocks influence stock market variance more significantly than supply shocks do the sub period analysis finds that global market fluctuations during the global financial crisis have relatively little effect on korean stock market performance we also examine a generalized five variable model that includes the foreign exchange rate and interest rate confirming the results from the three variable case

measuring international business cycles by saving for a rainy day macroeconomics inevitably begins with a trend cycle decomposition of a nation s output we propose a decomposition in which consumption is the trend component and savings is the cycle component using data from the g 7 plus australia we show that this decomposition identifies international business cycles that are i more volatile ii of longer mean duration and iii less correlated across countries than the cycle component from the hodrick prescott filter we argue that this difference stems from the fact that our method imposes a basic theoretical restriction arising from the permanent income hypothesis similar to the restriction used in cochrane s 1994 decomposition resume mesurer les cycles d affaires internationaux par l epargne les travaux en macroeconomie commencent inevitablement par une decomposition du profil de la production nationale en tendance et cycles les auteurs proposent une decomposition ou la composante consommation est la tendance et l epargne est la composante cyclique utilisant les donnees du g 7 et de l australie on montre que cette decomposition identifie les cycles d affaires internationaux qui sont i plus volatiles ii d une duree moyenne plus longue et iii moins co relies entre pays que la composante cyclique a la hodrick prescott les auteurs suggerent que la difference provient du fait que leur methode impose une restriction theorique de base emergent de l hypothese du revenu permanent semblable a la restriction utilisee dans la decomposition a la cochrane 1994

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

real business cycle models and the forecastable movements in output hours and consumption the authors study the movements in output consumption and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real business cycle models they show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model the authors also find that forecastable changes in the three series are strongly positively correlated with each other on the other hand for parameters whose implications are plausible in other respects the model implies that output consumption and hours should not all be expected to move in the same direction copyright 1996 by american economic association

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

does gnp have a unit root a re evaluation abstract stock and watson 1986 test the hypothesis that real per capita gnp has a unit root by using a test statistic due to phillips 1985 which incorporates a non parametric correction for the serial correlation induced by system and error dynamics the version of this test that is used by stock and watson does not accomodate the presence of a drift and to compensate they detrend the series by extracting a 1 5 annual trend growth we use a version of this class of non parametric tests developed by phillips and perron 1986 which allows for an estimated drift and reassess the stock and watson findings

on persistence of shocks to economic variables a common misconception abstract empirical results on u s gnp have provided estimates of the beveridge and nelson s persistence measure almost always greater than unity when using arima models and always smaller than unity when using ucarima models this paper shows that a measure of persistence less than unity is a mathematical consequence of the definition of ucarima models and not an independent estimation result therefore arima and ucarima estimates of persistence cannot be compared on the same ground

time series decomposition and measurement of business cycles trends and growth cycles abstract a study of business cycles does not require trend estimation and elimination but a study of growth cycles does major cyclical slowdowns and speedups deserve to be analyzed but the needed time series decomposition presents difficult problems mainly because trends and cycles influence each other we compare cyclical movements in levels deviations from trend and smoothed growth rates for both the quarterly real gdp and the monthly u s coincident index using the phase average trend pat then we compare alternative trend estimates deterministic and stochastic linear and nonlinear and the corresponding series of deviations from these trends we discuss how the resulting estimates differ for u s growth cycles in the post world war ii period the results of pat show great similarity to the results obtained with the hodrick prescott local linear trend band pass filtering methods

is cyclical real gnp really more persistent than the trend using an observed components decomposition to estimate permanent and temporary components of us real gnp campbell and mankiw 1987 found that the estimated temporary component displays greater persistence than the estimated permanent component this suggests that attempts to estimate separate permanent and temporary components in real gnp are unlikely to succeed this finding is re examined here using a longer real gnp series and a different decomposition which guarantees that the estimated temporary component will be stationary the resulting estimates of permanent and temporary output suggests that the temporary component displays no persistence and that the permanent component exhibits almost precisely the persistence of a random walk with drift cyclical real gnp is not more persistent than the trend

does building new roads really create extra traffic some new evidence the debate that expenditure on new or existing roads induces more traffic has intensified during the 1990s in most developed countries in this paper the controversy is readdressed from a uk perspective using the method of granger noncausality results indicate that aggregate expenditure on new and existing roads does not induce additional traffic in the granger sense conversely the results found that traffic granger causes road expenditure the importance of these results along with issues concerning the selection and specification of dynamic models are discussed

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

analysis of us real gnp and unemployment interactions abstract instead of the more common unemployment rate the time series data of the level of us unemployment is used together with us real gnp and later also with the us money stock to identify a bivariate and trivariate structural model the model is then used to examine the interaction of the unemployment level with the real gnp in the business cycle frequencies the commonly perceived okun s law is shown to disappear in the trivariate model

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

cyclical output cyclical unemployment and okun s coefficient a new approach estimates of okun s coefficient are obtained using new estimates of cyclical gnp and cyclical unemployment rates for the post war usa empirical estimates of the coefficient are near 0 25 somewhat smaller in magnitude than other recent estimates obtained applying similar econometric techniques to different estimates of cyclical output and unemployment tests fail to reject the hypothesis of parameter stability across an hypothesized break between the third and fourth quarters of 1973 suggesting similar relationships between cyclical output and unemployment both before and after the supply shocks of the 1970s

a systematic framework for analyzing the dynamic effects of permanent and transitory shocks this paper proposes a systematic framework for analyzing the dynamic e ects of permanent and transitory shocks on a system of n economic variables we consider a two step orthogonolization on the residuals of a vecm with r cointegrating vectors the rst step separates the permanent from the transitory shocks and the second step isolates n r mutually uncorrelated permanent shocks and r transitory shocks the decomposition is computationally straightforward and entails only a minor modi cation to the choleski decomposition commonly used in the literature we then show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence in an empirical example the dynamic responses to the identi ed permanent shocks have properties similar to shocks to productivity the real interest rate and money growth even though no economic

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

revisiting the uncertain unit root in gdp and cpi testing for non linear trend reversion we test for the presence of a unit root in u s gdp and cpi allowing for non linear trend reversion under the alternative hypothesis in contrast to most previous results we find evidence in favour of trend stationarity for both variables

information forecasts and measurement of the business cycle the beveridge nelson bn technique provides a forecast based method of decomposing a variable such as output into trend and cycle when the variable is integrated of order one i 1 this paper considers the multivariate generalization of the bn decomposition when the information set includes other i 1 and or stationary variables we show how the relative importance of the cyclical component depends on the size of the information set and is necessarily higher with multivariate bn decompositions the results are illustrated using post wwii united states data an explanation is also provided for the empirical finding of a positive association of the multivariate bn cycle with output growth

latin america s growth and equity frustrations during structural reforms the debt crisis that the latin american economies experienced during the 1980s led to a decline of 0 9 per year of per capita gdp a lost decade in terms of economic growth this experience shocked the region as per capita gdp had increased by 2 7 percent annually from 1950 to 1980 this earlier growth had been based on development patterns characterized by high protection of domestic markets and strong state intervention despite rapid growth and industrialization orthodox analysts considered these policies a source of inefficiencies macroeconomic imbalances and a major cause of the debt crisis with external pressure but also growing internal political support latin america embraced structural economic reform in the late 1980s and early 1990s aimed at reducing state intervention and exploiting the opportunities provided by international markets reforms had thus the dual objective of overcoming the lost decade and the patterns of development that had prevailed prior the debt crisis structural economic reforms varied in intensity across sectors and countries all countries in latin america significantly liberalized international trade external capital flows and the domestic financial sector policy decisions in these areas included reducing tariffs and their dispersion dismantling nontariff barriers eliminating most restrictions on foreign direct investment phasing out many or most foreign exchange regulations granting greater or total autonomy to central banks dismantling regulations regarding interest rates and credit allocation reducing reserve requirements on domestic deposits and privatizing several state banks in the fiscal area reforms strengthened the value added tax reduced income tax rates and strengthened tax administration though with only a limited effect on tax evasion social security systems were overhauled in several countries to allow for

testing okun s law theoretical and empirical considerations using fractional integration abstractfull employment remains at the center of any economic policy following okun s conclusion regarding the trade off relation between unemployment and real gross national product growth new s

the differential effects of output shocks on unemployment rates by race and gender 1 introduction the issues of unemployment and output are central to many macroeconomic policy debates a major source of disagreement among policymakers deals with the maximum sustainable level of output growth that is consistent with the absence of inflation when the economy s rate of output growth exceeds the maximum sustainable rate there will be upward pressure on the economy s overall price level traditional macroeconomic theory emphasizes the role that tight labor markets play in this inflationary pressure the commonly held belief is that in a tight labor market firms must bid workers away from other firms if they wish to expand the size of their workforce hence labor costs in the economy will tend to rise since labor is a major input in the production of virtually all goods and services an increase in labor costs without an accompanying increase in productivity will tend to increase the economy s overall price level conversely when the economy contracts labor costs in the economy will tend to fall inducing a downward movement in the economy s overall price level the labor market is therefore linked to changes in economic activity and to changes in the economy s price level a common feature in many macroeconomic models is the connection between departures from the equilibrium rate of unemployment i e the natural or normal rate and the business cycle these macroeconomic models suggest that unanticipated departures from a steady state in the output market should be related to departures of the actual unemployment rate from the normal rate however the economy s aggregate unemployment rate is actually a weighted average of the unemployment rates of various demographic groups the rate of each demographic group is influenced by that group s flows into and out of unemployment since many of the factors that determine these flows have been found to differ by demographic group it is expected that a given aggregate output shock may have differential effects on the unemployment rates of various groups this article focuses on how unanticipated changes in real output affect the unemployment rate of different demographic groups we examine the time series behavior of black male white male black female and white female monthly unemployment rates over the january 1972august 1999 period specifically we estimate a vector autoregression var and then conduct simulations in the form of impulse responses to determine the extent to which each of these unemployment rates is affected by an aggregate output shock i e an unanticipated change in aggregate output we compare and contrast the magnitude and the persistence of these responses across the groups because the traditional impulse response function generated from a var is sensitive to how the researcher chooses to order the variables with different orderings often giving vastly different results we employ the recently developed generalized impulse response function koop pesaran and potter 1996 pesaran and shin 1998 this technique allows researchers to examine impulse responses that are robust to changes in ordering in the following sections we highlight the major literature that this article builds upon and then we discuss the basics behind the nature of the relationship between the unemployment rate and output a discussion of the data the methodology and the results follows the article closes with concluding remarks and policy implications 2 related literature a number of studies have examined racial differences in unemployment rates and in factors that may affect unemployment rates using data on displaced workers fairlie and kletzer 1998 examine racial differences in job displacement over the years 1984 1992 and find that black males experienced greater rates of job displacement and lower rates of reemployment than white males petterson 1998 uses data from the national longitudinal survey of youth for the 19791986 period to examine the reservation wages of black males compared with those of white males and contrary to earlier research argues that these differences do not explain much if any of the racial employment gap

energy and output dynamics in bangladesh the relationship between energy consumption and output is still ambiguous in the existing literature the economy of bangladesh having spectacular output growth and rising energy demand as well as energy efficiency in recent decades can be an ideal case for examining energy output dynamics we find that while fluctuations in energy consumption do not affect output fluctuations movements in output inversely affect movements in energy use the results of granger causality tests in this respect are consistent with those of innovative accounting that includes variance decompositions and impulse responses autoregressive distributed lag models also suggest a role of output in bangladesh s energy use hence the findings of this study have policy implications for other developing nations where measures for energy conservation and efficiency can be relevant in policymaking

exchange rate based stabilisation durables consumption and the stylised facts in this article we show that a model featuring durable consumer goods imperfect substitution between domestic and foreign assets and weak credibility can explain the qualitative and quantitative aspects of the stylised facts associated with exchange rate based stabilisation including the tremendous increase in real interest rates following a temporary reduction in the crawl total consumption spending rises 14 26 the real exchange rate appreciates 20 37 and the current account deficit swells to 10 15 of gross domestic product despite large capital inflows the real interest rate increases from 10 to 20 100