time varying smooth transition autoregressive models nonlinear regime switching behavior and structural change are often perceived as competing alternatives to linearity in this article we study the so called time varying smooth transition autoregressive tv star model which can be used both for describing simultaneous nonlinearity and structural change and for distinguishing between these features two modeling strategies for empirical specification of tv star models are developed monte carlo simulations show that neither of the two strategies dominates the other a specific to general to specific procedure is best suited for obtaining a first impression of the importance of nonlinearity and or structural change for a particular time series a specific to general procedure is most useful in careful specification of a model with nonlinear and or time varying properties an empirical application to a large dataset of u s macroeconomic time series illustrates the relative merits of both modeling strategies

income dispersion and counter cyclical markups recent advances in measuring cyclical changes in the income distribution raise new questions how might these distributional changes affect the business cycle itself we show how counter cyclical income dispersion can generate counter cyclical markups in the goods market without any preference shocks or price setting frictions in recessions idiosyncratic labor productivity shocks raise income dispersion lower the price elasticity of demand and increase imperfectly competitive firms optimal markups the calibrated model explains not only many cyclical features of markups but also cyclical and long run patterns of standard business cycle aggregates

what accounts for the changes in u s fiscal policy transmission using vector autoregressions on u s time series for 1957 79 and 1983 2004 we find government spending shocks to have stronger effects on output consumption and wages in the earlier period we try to account for this observation within a dsge model featuring price rigidities and limited asset market participation specifically we estimate the structural parameters of the model for both periods by matching impulse responses model based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the volcker greenspan period

the impact of fiscal policy on profits i introduction a large number of policy making decisions rely on the key issue of the impact of fiscal policy on the economy therefore it is not surprising that the effect of fiscal policy on macroeconomic aggregates has been extensively studied in the empirical literature 1 several authors starting with blanchard and perotti 2002 have attempted to estimate the effect of government spending shocks on output and other variables in the context of structural var models see perotti 2008 for a survey this interest has been renewed since the 2008 2009 recession given the unprecedented size of fiscal packages worldwide barro and redlick 2009 hall 2009 an important part of this literature focuses on the theoretical and empirical investigation of the fiscal policy transmission channels theories of fiscal policy transmission differ in their implications regarding the response of different macroeconomic variables to government spending shocks for example the neoclassical model predicts a negative impact of government spending on real wages and consumption while this prediction is challenged by new keynesian models to that end an important branch of empirical literature on fiscal multipliers has investigated the transmission channels of fiscal policy by looking mainly at the response of private consumption and real wages 2 this paper deals with an important but relatively under investigated channel of fiscal policy transmission which is the effect of fiscal policy on profits as pointed out by hall 2009 the impact of fiscal shocks on the markup of price over marginal cost is important for understanding the functioning of the fiscal multiplier in the purely neoclassical general equilibrium model a rise in government spending produces a negative wealth effect the labor supply curve shifts outward and real wages and consumption fall this implies that the output multiplier will be well below unity a keynesian type fiscal multiplier implying a large positive output effect and positive responses of private consumption and real wages to increased government spending relies on a negative response of the markup of price over marginal cost to an increase in economic activity the intuition is that a decrease in the price marginal cost markup in response to higher government spending allows a rise in wages or at least a smaller reduction in wages compared with the case when the markup is constant a rise in wages would then imply that households will substitute away from leisure and into consumption therefore if the markup is countercyclical conditional on government spending shocks sizeable output multipliers of fiscal spending are consistent with existing empirical evidence that fiscal shocks are not related to strong decreases in real wages or consumption blanchard and perotti 2002 fatas and mihov 2001 gall david lopez salid and valles 2007 perotti 2005 2008 in general a new keynesian model with sticky prices implies a countercyclical markup ratio as input prices rise in a boom while output prices stay constant however for understanding the fiscal policy transmission the key factor is markup and not price stickiness itself as a countercyclical markup could also be implied by models with flexible prices when the desired markup changes in response to a shock 3 a model which assigns a central role to markups for fiscal policy transmission has been presented by ravn schmitt grohe and uribe 2007 assuming that demand has a price inelastic component that is a function of deep habits a government spending shock that leads to a positive output response increases the share of the price elastic component of demand causing a rise in the overall demand elasticity and a corresponding decline in the optimal markup 4 thus for a sufficient decline in the markup the resulting rise in wages induces households to substitute away from leisure and into consumption thereby more than offsetting the negative wealth effect of government spending predicted by the neoclassical model

structural change test in duration of bull and bear markets abstract we propose a recursive test to analyze structural changes in duration of bull and bear markets using the dow jones industrial average index we detected a single structural break in the bull market duration in april 1942

pricing in a customer market in standard pricing models movements in demand are partially offset by price responses in a customer market however price markups may decrease with high demand thus price may magnify rather than stabilize demand movements i consider a monopolist selling a good of which first time consumers are uncertain repeat customers know that the product works the monopolist trades the objectives of exploiting past customers and attracting new ones in a period with many new potential customers the monopolist gives more weight to attracting and lowers its markup last i examine some evidence on whether expansions are periods with disproportionately many new customers

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

a theory of sticky rents search and bargaining with incomplete information abstract this paper offers the first theoretical explanation of housing rent stickiness and differential stickiness by housing structure type key features of rental markets worldwide previous theoretical work on the subject is sparse and explains why some landlords charge below market rents not stickiness apart from its interest for understanding housing markets and overall inflation rent stickiness is intriguing because it shows that stickiness can emerge in markets where the typical menu cost logic does not apply and where market participants typically engage in repeated bargaining over contracts our model involves search and bargaining with incomplete information in a two period game and generates stickiness in a novel manner the key decision is the landlord s choice of whether to renegotiate or not crucially landlords do not know tenant perceptions of unit quality the key force generating stickiness is that offering the identical contract preempts tenant search thus limiting tenants outside options and resolves uncertainty early risk aversion reinforces this mechanism and yields differential stickiness by landlord type renegotiation risk for large landlords disappears because the different outcomes rent increase rent decrease and vacancy average out landlords who manage only one unit loathe vacancy and are highly motivated to avoid renegotiation

is the consumer sector competitive in the u k a test using household level demand elasticities and firm level price equations this article tests the hypothesis of perfect competition in the consumer nondurables sector of the u k economy first it uses household level data to estimate time varying price elasticities of demand for disaggregated commodity groups u s product prices are used as instruments for u k prices in the demand equation then it matches the product definitions to the standard industry classification and uses firm level data combined with the estimated elasticities to estimate a price model of firms operating in different industries household characteristics are used as instruments for the demand effects in the firms supply equation the results reject perfect competition and appear to be consistent with the argument that less competition increases profits through collusion

federal timber restrictions interregional spillovers and the impact on us softwood markets abstract an econometric model of the us softwood lumber and timber markets is estimated and used to simulate the price trade and welfare effects of reductions in federal timber sales in the western us commencing in the late 1980s results indicate that the timber sale reductions increased lumber prices by roughly 15 percent in the mid 1990s lumber consumers were the unambiguous losers from the policy while lumber and timber producers were net welfare gainers as the quantity induced losses to western lumber producers were more than offset by price increases and quantity gains to southern us and canadian lumber producers and timber producers in all regions

immigration and prices this paper examines the behavior of prices following the unexpected arrival of a large number of immigrants from the former soviet union fsu to israel during 1990 i use store level price data on 915 consumer price index products to show that the increase in aggregate demand prompted by the arrival of the fsu immigration significantly reduced prices during 1990 when one controls for native population size and city and month effects a one percentage point increase in the ratio of immigrants to natives in a city decreases prices by 0 5 percentage point on average it is argued that this negative immigration effect is consistent with fsu immigrants the new consumers having higher price elasticities and lower search costs than the native population thus immigration can have a moderating effect on inflation through its direct effect on product markets and not only by increasing the supply of labor

the timing and magnitude of retail store markdowns evidence from weekends and holidays we examine daily prices of eight goods at seventeen retail stores collected in ann arbor michigan over a four month period from november 1 to february 28 we focus on weekly and seasonal price patterns and on the frequency of price markdowns or sales there were frequent markdowns in the intensive shopping period prior to christmas and a tendency for such sales to occur on weekends we interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high we complement the imperfect information based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

forecasting uk commercial real estate cycle phases with leading indicators a probit approach this paper examines the significance of widely used leading indicators of the uk economy for predicting the cyclical pattern of commercial real estate performance the analysis uses monthly capital value data for uk industrials offices and retail from the investment property databank ipd prospective economic indicators are drawn from three sources namely the series used by the us conference board to construct their uk leading indicator and the series deployed by two private organisations lombard street research and ntc research to predict uk economic activity we first identify turning points in the capital value series adopting techniques employed in the classical business cycle literature probit models are then estimated using the leading economic indicators as independent variables and forecast the probability of different phases of capital values that is periods of declining and rising capital values the forecast performance of the models is tested and found to be satisfactory the predicta

common factors in latin america s business cycles this paper constructs new business cycle indices for argentina brazil chile and mexico based on common dynamic factors extracted from a comprehensive set of sectoral output external trade fiscal and financial variables the analysis spans the 135 years since the insertion of these economies into the global economy in the 1870s the constructed indices are used to derive a business cycle chronology for these countries and characterize a set of new stylized facts in particular we show that all four countries have historically displayed a striking combination of high business cycle volatility and persistence relative to benchmark countries and that such volatility has been time varying with important differences across policy regimes we also uncover a sizeable common factor across the four economies which has greatly limited scope for regional risk sharing

money is an experience good competition and trust in the private provision of money the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money is studied with commitment trust is automatically achieved and competition ensures efficiency without commitment competition plays no role trust does play a role but requires a bound on efficiency stationary inflation must be non negative and therefore the friedman rule cannot be achieved the quality of money can be observed only after its purchasing capacity is realized in this sense money is an experience good

on the counter cyclicality of prices and markups in a cournot model of entry abstract we prove in a cournot model that the price and markup are counter cyclical due to changes in the extent of competition if the income effect is decreasing in the price as occurs when preferences are homothetic or demand is isoelastic

price dispersion over the business cycle evidence from the airline industry this study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry performing a fixed effects panel analysis on seventeen years of data covering two business cycles we find that price dispersion is highly pro cyclical this effect is especially pronounced for legacy carriers relative to low cost carriers we show that our empirical result is consistent with firms implementing second degree price discrimination tactics

a supply chain under limited time promotion the effect of customer sensitivity abstract we consider a two echelon supply chain with a supplier and a retailer facing stochastic customer demands the supplier is a leader who determines a wholesale price in response the retailer orders products and sets a price which affects customer demands the goal of both players is to maximize their profits we find the stackelberg equilibrium and show that it is unique not only when the supply chain is in a steady state but also when it is in a transient state induced by a supplier s promotion there is a maximum length to the promotion however beyond which the equilibrium ceases to exist moreover if customer sensitivity increases then the wholesale equilibrium price decreases product orders increase and product prices drop this effect well observed in real life does not however necessarily imply that the promotion is always beneficial conditions for the profitability of a limited time promotion are shown and analyzed numerically we discuss both open loop and feedback policies and derive the conditions necessary for them to remain optimal under stochastic demand fluctuations

do european business cycles look like one abstract this paper provides a comprehensive framework to analyze business cycle features other than synchronization we use stationary bootstrap and model based clustering methods to analyze similarities and differences among the european cycles we find evidence that the length deep and shape of cycles differ across european countries and that these differences are not decreasing over time finally even though we find some correlation between business cycle synchronization and characteristics there is important information in the characteristics that is not captured by the synchronization measures

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

retailer price distributions and promotional activities abstract an interesting feature of the data is that the price distribution in the absence of promotional activities first order stochastically dominates that under display or feature advertising the theoretical model we introduce can yield an equilibrium that is consistent with the above observations

supply side investments an international analysis of the return and risk relationship in the travel leisure sector abstract this study investigates supply side investments in the tourism sector analysing the return and risk relationship of investments in tourism across several countries the performance of tourism sector companies listed on the stock exchange for the top one dozen countries according to the world economic forum wef tourism rankings is investigated by region across these countries and within each country by comparison to other sectors several metrics are used to compare the risk adjusted returns over a 15 year period ending march 2007 and sub periods to check the persistence of performance over time the results present a strikingly different ranking than those of the wef the implications for the flow of investment funds are of importance in a global capital market money will flow to those investments with the highest expected returns for a given risk level and this has consequential impacts for economic growth and employment in the tourism sector

customer markets credit market imperfections and real price rigidity according to standard theory an increase in demand should raise prices of goods given factor prices empirically however prices appear to be unaffected by short run variations in demand this paper suggests an explanation of this observation if customers react slowly to price changes and credit markets are imperfect prices may be unchanged or even fall when demand increases the reason is that when demand is high profits are high and firms can compete more intensely for customers without increasing their borrowing copyright 1991 by the london school of economics and political science

time varying competition normative models typically suggest that prices rise in periods of high demand and cost however in many markets prices fall when demand or costs rise this inconsistency occurs because the normative models assume that competitive intensity does not change with demand and cost conditions over time we therefore introduce the notion of time varying competition by suggesting that it is important not only to account for the direct effect of demand and cost on prices e g higher demand means higher prices but also the indirect effect of demand and cost changes on competition e g higher demand could cause more competition and hence lower prices we develop a general unified framework to empirically model the direct and indirect effects of demand and cost shifts on pricing in differentiated product markets our approach allows us to measure the indirect effect of multiple demand and cost drivers on competitive intensity and test predictions from alternative theories of repeated games the empirical application is to the u s photographic film industry where there are two main players kodak and fuji we find that the indirect effects are highly significant and comparable in magnitude to the direct effects competitive intensity is greater in periods of high demand and lower cost and is moderated by whether demand or costs are expected to grow or decline interestingly we find asymmetries in the competitive responses of kodak and fuji while kodak is sensitive to demand factors fuji is sensitive to costs our results suggest that market characteristics such as observability of competitor prices can be an important determinant of how competitive intensity is affected by demand and cost conditions

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

price and investment dynamics theory and plant level data we construct a model of a firm competing for market share in a customer market and making investments in physical capital the firm is financially constrained and there are implementation lags in investment our model predicts that product prices should depend on costs and competitors prices but respond weakly to demand shocks also prices should be strongly related to investment we estimate price and investment equations on panel data for swedish manufacturing plants and find results that are qualitatively in line with these predictions though the relation between investment and prices is stronger than predicted by our model

inflation dynamics during the financial crisis using confidential product level price data underlying the u s producer price index ppi this paper analyzes the effect of changes in firms financial conditions on their price setting behavior during the great recession that surrounds the financial crisis the evidence indicates that during the height of the crisis in late 2008 firms with weak balance sheets increased prices significantly relative to industry averages whereas firms with strong balance sheets lowered prices a response consistent with an adverse demand shock these stark differences in price setting behavior are consistent with the notion that financial frictions may significantly influence the response of aggregate inflation to macroeconomic shocks we explore the implications of these empirical findings within a general equilibrium framework that allows for customer markets and departures from the frictionless financial markets in the model firms have an incentive to set a low price to invest in market share though when financial distortions are severe firms forgo these investment opportunities and maintain high prices in an effort to preserve their balance sheet capacity consistent with our empirical findings the model with financial distortions relative to the baseline model without such distortions implies a substantial attenuation of price dynamics in response to contractionary demand shocks

the demand for youth explaining age differences in the volatility of hours over the business cycle young workers experience much greater volatility of hours worked than prime aged workers this can arise from age differences in labor supply or labor demand characteristics to distinguish between these we document that for young workers both the cyclical volatilities of hours and wages are greater than those of the prime aged we argue that a general class of models featuring only age specific labor supply differences cannot reconcile these facts we then show that a simple model featuring labor demand differences can

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

does detrending matter for the determination of the reference cycle and the selection of turning points we examine the sensitivity of turning points classification to detrending and compare the implied cycles to those derived by nber or doc researchers two dating rules are considered turning point dates are broadly insensitive to detrending with one dating rule but not the other and many procedures generate false alarms and miss several common turning points with the latter one amplitude and duration properties are also sensitive detrending and dating rules the hodrick and prescott and a frequency domain filters are best in mimicing nber and doc cycles regardless of the dating rule used

retail price fixity as a facilitating mechanism previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior we develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion a non cooperative equilibrium in fixed retail prices is supported through credible threats to revert to nash pricing if cheating is suspected we test the implications of this model using a two stage ordered probit approach in weekly supermarket pricing data the results show that price fixity does support collusive equilibria among retailers but other factors may also explain retail price behavior

business cycles for g7 and european countries this article proposes classical business cycle turning points for the g7 and a number of european countries based on industrial production this enables the authors to examine the international nature of cyclical movements free from arbitrary assumptions about the trend in particular they show that cyclical assymetry is common with slopes during declines being generally larger in magnitude than during expansions a binary measure of association for expansion and contradiction regimes indicates a core group of european countries related to each other and apparently linked to the united states and japan through germany copyright 1997 by university of chicago press

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

measuring the chinese business cycle this article documents the business cycle characteristics of the chinese economy by adopting both nonparametric and parametric methodologies the two approaches are applied to relevant macroeconomics indicators gross domestic product gdp and industrial production ip indices aiming to investigate the growth cycle deviation cycle we provide a clear chronology of the chinese growth cycle one significant characteristic of the chinese growth cycle is the relatively direct influence of government policies however recently these policy effects have become less significant when compared to global economic influences our study provides an enhanced understanding of the properties of business cycle dating algorithms and as such contributes to future chinese business cycle research

aggregation and irrelevance in multi sector models abstract this paper studies the ability of input output relationships to generate fluctuations in aggregate output in several multi sector models including that of long and plosser 1983 in these models the manufacture of each sector s output depends on other sectors for materials these interconnections provide a mechanism for transmission of shocks across sectors and over time we ask how aggregates from these multi sector models behave relative to single sector models we provide conditions under which the second moment properties of aggregates in these models are the same as their single sector counterparts we further demonstrate that a broad class of input output structures generate aggregates with identical second moment properties and that the input output structures in this class provide a poor amplification mechanism for sector shocks

changes in business cycles evidence and explanations this paper shows that the volatility of annual real macroeconomic indicators for the united states and the average severity of recessions have declined only slightly between the pre world war i and post world war ii eras recessions have however become somewhat less frequent and more uniform it argues that the advent of macroeconomic policy after world war ii can account for both the observed continuity and change countercyclical monetary policy and automatic stabilizers have prolonged postwar expansions and prevented severe depressions at the same time policy induced booms and recessions have led to continued volatility of the postwar economy

deep recessions fast recoveries and financial crises evidence from the american record do steep recoveries follow deep recessions does it matter if a credit crunch or banking panic accompanies the recession moreover does it matter if the recession is associated with a housing bust we look at the american historical experience in an attempt to answer these questions the answers depend on the definition of a financial crisis and on how much of the recovery is considered but in general recessions associated with financial crises are generally followed by rapid recoveries we find three exceptions to this pattern the recovery from the great contraction in the 1930s the recovery after the recession of the early 1990s and the present recovery the present recovery is strikingly more tepid than the 1990s one factor we consider that may explain some of the slowness of this recovery is the moribund nature of residential investment a variable that is usually a key predictor of recessions and recoveries

customer and supplier driven externalities the purpose of this paper is to provide empirical evidence helpful for distinguishing different types of externalities we pursue this by extending the productionfunction framework of robert e hall 1990 and caballero and lyons 1990 1992 to exploit two key dimensions of the data disaggregate input output relationships and differences between estimates emphasizing time series versus cross sectional aspects of the data we obtain three main results first from the within estimates using annual data which emphasize the time series properties common across sectors we find a strong reduced form relationship between industry productivity and the activity level input growth of customers in sharp contrast supplier activity levels are insignificant the second result derives from between estimates which emphasize the cross sectional dimension of the data here we find the opposite is true there is a strong reduced form relationship between industry productivity and the activity level of suppliers but no relationship with customer activity levels we interpret the first two results as suggesting that over shorter horizons the linkage between an industry and its customers is pivotal in the transmission of external effects while in the long run external effects are mostly related to intermediate goods linkages the third result concerns the transition from short to long run we find that as the number of periods over which the variables are averaged is incrementally increased from one year toward the full sample period 27 years the significance of customers versus suppliers smoothly reverses itself the remainder of the paper is organized in four sections section i presents the core model and the econometric methods for disentangling the external effects section ii describes the data and estimation section iii presents the main results and our conclusions are presented in section iv

common and country specific fluctuations in productivity investment and the current account abstract dynamic factor analysis and kalman filtering are used to construct a measure of common economic activity for the g7 countries we find that the common fluctuations are strongly associated with movements in us investment common fluctuations have substantial impact on fluctuations in both productivity and investment in these countries but very little impact on the current account country specific investment fluctuations have a significant negative impact on the current account while country specific productivity movements have little independent effect these findings are shown to be generally consistent with the predictions of a multi country dynamic model calibrated to the empirical decomposition of productivity shocks

stock market cycles financial liberalization and volatility in this paper we analyze the cycles of the stock markets in four latin american and two asian countries and we compare their characteristics we divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes of the early 1990s we find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries however after financial liberalization latin american stock markets have behaved more similarly to stock markets in developed countries whereas asian countries have become more dissimilar concordance of cycles across markets has increased significantly over time especially for latin american countries after liberalization

customer markets and the welfare effects of monetary policy a customer market model in which firms and customers form long term relations is developed and integrated into the canonical new keynesian framework this leads to two important differences compared to the standard model first the purely forward looking phillips curve is replaced by a hybrid variant where current inflation also depends on past inflation second the welfare cost of inflation is much lower which leads to an optimal monetary policy where relatively more weight is put on output gap stabilization than previously found in the literature

deep habits and exchange rate pass through abstract habit persistence at the level of individual goods varieties can explain incomplete exchange rate pass through to international prices deep habits give rise to a dynamic import demand function that leads to import price markup adjustments independently of nominal pricing frictions augmenting a two country dsge model with deep habits we obtain low exchange rate pass through to import prices even when nominal local currency price rigidities are negligibly low as nominal pricing frictions become more important the presence of deep habits further impedes the pass through of exchange rate fluctuations estimating model variants with limited information as well as full information methods we find that the deep habits model requires much lower degrees of nominal price rigidities to match empirical measures of the pass through of exchange rate fluctuations to us import prices

countercyclical pricing in customer markets i present a dynamic model of price determination in customer markets that are subject to exogenous business cycle fluctuations the business cycle is described in terms of a markov process in which market demand alternates stochastically between fast growth boom and slow growth recession phases in the consumers preferred equilibrium outcome 1 prices are below the monopoly level and 2 prices are countercyclical when demand growth rates are positively correlated through time a firm faces a dynamic trade off when making its current price selection while a higher price may raise a firm s profit in the short term it also may diminish the firm s reputation for low prices leading to lower profits in the future

estimating the mark up over marginal cost a panel analysis of japanese firms 1971 1994 abstract in this paper we propose a new method to estimate mark ups over marginal cost at the firm level this method is based on the identity between the short run elasticity of output to inputs the mark up rate and the factor shares we then apply this method to a panel of japanese firms in 21 industries over 24 years we have three main results first there is strong evidence of imperfect competition in this panel in which internationally competitive industries show low mark ups second the mark up rate differs considerably among firms and its distribution is skewed third the mark up rate over marginal cost shows strong procyclicality and its sensitivity is uniform within the industry

measuring uncertainty about long run predictions long run forecasts of economic variables play an important role in policy planning and portfolio decisions we consider forecasts of the long horizon average of a scalar variable typically the growth rate of an economic variable the main contribution is the construction of prediction sets with asymptotic coverage over a wide range of data generating processes allowing for stochastically trending mean growth slow mean reversion and other types of long run dependencies we illustrate the method by computing prediction sets for 10 to 75 year average growth rates of u s real per capita gdp and consumption productivity price level stock prices and population jel classi cation c22 c53 e17

sticky price models and durable goods the inclusion of a durable goods sector in sticky price models has strong and unexpected implications even if most prices are flexible a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky in contrast flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models in a limiting case flexibly priced durables cause monetary policy to have no effect on aggregate output our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity jel e21 e23 e31 e52

advertising and aggregate consumption a bayesian dsge assessment aggregate data reveal that advertising in the u s absorbs approximately 2 of gdp and has a well defined pattern over the business cycle being strongly procyclical and highly volatile because the purpose of brand advertising is to foster sales we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and through this avenue on economic activity this question is addressed by developing a dynamic general equilibrium model in which households preferences for differentiated goods depend on the intensity of brand advertising which is endogenously determined by profit maximizing firms once the model is estimated to match the u s economy it argues that the presence of advertising in the long run raises aggregate consumption and hours worked eventually fostering economic activity we also find that advertising has a relevant impact on fluctuations in consumption investment and markup over the business cycle all of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

identifying a permanent markup shock and its implications for macroeconomic dynamics abstract a permanent price markup shock is justified using an industry based model in which an increase in market concentration raises the desired markup moreover evidence in favor of the non stationarity of the markup is presented which in turn implies that per capita hours are also non stationary structural vector autoregressions are then constructed that can identify shocks to the markup technology and the federal funds rate the results show that 1 inflation responds immediately to shocks to the markup and technology whereas it displays a hump shaped response to a monetary policy shock and that 2 per capita hours decline in response to positive shocks to the markup and technology these empirical findings have important implications for macroeconomic dynamics including the issues on inflation inertia and the technology hours debate the paper also points out that the dynamics of the economy cannot be correctly explained without consideration of the permanent markup shock finally the approach in this paper suggests several ways to identify a wage markup shock using structural vector autoregressions

inventory investment over the business cycle in the eu and the us abstract this paper investigates the business cycle properties of aggregate inventory investment in the countries of the european union eu and the us given the experience of the latest recessions this issue becomes particularly interesting for the study of the propagation mechanism of business cycles the kydland prescott methodology was used to derive and organize the business cycle features the results showed that business cycle fluctuations in the eu are more volatile than those in the us the contribution of the declines of inventory investment in recessions has also been greater in the eu important similarities though were identified as to the extent of the destabilizing effect of inventory investment cycles in the overall economic activity

did leaving the gold standard tame the business cycle evidence from nber reference dates and real gnp most probable break point ushering in an era of longer u s expansions both absolutely and relative to subsequent recessions their analysis is based on cycle durations as defined by national bureau of economic research nber reference dates however much of macroeconomic analysis is based on i growth cycles i e periods when the economy s production is above or below trend rather than absolute increases or decreases in economic activity and ii aggregate time series volatility as the prime indicator of macroeconomic stability in light of this we reevaluate the march 1933 break point first using hp filtered quarterly gross national product gnp our analysis of growth cycle durations still implies a break point near 1933 second we test for structural breaks in the volatility of gnp growth rates and deviations from trends these tests suggest a structural break considerably later than

a simple framework for analysing bull and bear markets bull and bear markets are a common way of describing cycles in equity prices to fully describe such cycles one would need to know the data generating process dgp for equity prices we begin with a definition of bull and bear markets and use an algorithm based on it to sort a given time series of equity prices into periods that can be designated as bull and bear markets the rule to do this is then studied analytically and it is shown that bull and bear market characteristics depend upon the dgp for capital gains by simulation methods we examine a number of dgps that are known to fit the data quite well random walks garch models and models with duration dependence we find that a pure random walk provides as good an explanation of bull and bear markets as the more complex statistical models in the final section of the paper we look at some asset pricing models that appear in the literature from the viewpoint of their success in producing bull and bear markets which resemble those in the data copyright 2002 john wiley sons ltd

effects of global trade liberalization on softwood lumber markets this study develops a world spatial equilibrium softwood lumber model comprised of the major importing and exporting countries regions to analyse the impacts of global trade reform on the world softwood lumber market the results show that free trade leads to an increase in lumber trade and canadian producers and us consumers are the biggest beneficiaries trade liberalization improves the overall world welfare as world producer and consumer surpluses increase the result highlights the importance of moving towards free trade in the global softwood lumber market

a survey of new keynesian theories of aggregate supply and their relation to industrial organization i survey the recent literature on the phillips curve along the way i will try to relate this literature to topics of interest to industrial organization i will also point out the gaps in our understanding and places where more careful micro economic analysis would be helpful to macroeconomists in the conclusion i summarize what an industrial organization economist might take away from this literature

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

estimating the structure of market reaction to news information events and lumber futures prices we develop a new event study technique the distributional event response model derm appropriate to relatively slowly evolving information events we apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases a monthly housing starts estimates b aperiodic administrative and judicial announcements about u s canada trade disputes and c novel and unprecedented court decisions related to the endangered species act esa the information releases are different in ways that predict their relative speeds of impoundment in prices we find that housing start events are absorbed more quickly than trade events which are absorbed more quickly than esa events

firm dynamics and pricing under customer capital accumulation abstract in a search model of firm dynamics customer accumulation is shown to affect the lifecycle of firms and the dynamics of markups in response to aggregate demand shocks in the model sellers of different sizes and productivities post dynamic pricing contracts to strike a balance between attracting new customers and exploiting pre existing ones calibrated using establishment level and micro pricing data from the u s retail sector the model provides a quantitatively good fit to the lifecycle and cross sectional properties of retail establishments further the model predicts that markups are procyclical to aggregate demand shocks with a larger contribution by small sellers

decision stages and asymmetries in regular retail price pass through we study the pass through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer we model pass through as a two stage decision process that reflects both whether as well as how much to change the regular retail price we show that pass through is strongly asymmetric with respect to wholesale price increases versus decreases wholesale price increases are passed through to regular retail prices 70 of the time while wholesale price decreases are passed through only 9 of the time pass through is also asymmetric with respect to the magnitude of the wholesale price change with the magnitude affecting the response to wholesale price increases but not decreases finally we show that covariates such as private label versus national brand 99 cent price endings and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process i e whether to change the regular retail price than on th

the welfare impacts of u s trade restnctions against the canadian softwood lumber industry a spatial equilibrium in this paper we estimate the production and welfare impacts of various u s trade restrictions on canadian lumber after building a model that incorporates the regional character of the north american lumber market we simulate a variety of tariffs and quotas now advocated by a number of u s lawmakers we find that the tariff losses incurred by canadian producers could be substantial depending on the elasticity of their export supply voluntary restraint agreements however might lead to canadian gains as high as 40 per cent of their pre existing profits

business cycle durations and postwar stabilization of the u s economy average postwar expansions are twice as long as prewar expansions and contractions are one half as long this paper investigates three possible explanations the first explanation is that shocks to the economy have been smaller in the postwar period the second explanation is that the composition of output has shifted from very cyclical sectors to less cyclical sectors the third explanation is that the apparent stabilization is largely spurious and is caused by differences in the way that prewar and postwar business cycle reference dates were chosen by the national bureau of economic research the evidence presented in this paper favors this third explanation copyright 1994 by american economic association

aggregate demand idle time and unemployment this paper develops a model of unemployment fluctuations the model keeps the architecture of the barro and grossman 1971 general disequilibrium model but replaces the disequilibrium framework on the labor and product markets by a matching framework on the product and labor markets both price and tightness adjust to equalize supply and demand there is one more variable than equilibrium condition on each market so we consider various price mechanisms to close the model from completely flexible to completely rigid with some price rigidity aggregate demand influences unemployment through a simple mechanism higher aggregate demand raises the probability that firms find customers which reduces idle time for firms employees and thus increases labor demand which in turn reduces unemployment we use the comparative statics predictions of the model together with empirical measures of quantities and tightnesses to re examine the origins of labor market fluctuations we conclude that 1 price and real wage are not fully flexible because product and labor market tightness fluctuate significantly 2 fluctuations are mostly caused by labor demand and not labor supply shocks because employment is positively correlated with labor market tightness and 3 labor demand shocks mostly reflect aggregate demand and not technology shocks because output is positively correlated with product market tightness

political parties and the variable duration of business cycles a number of recent studies explore how political factors influence real economic activity with electoral models economic performance peaks near the election as in the retrospective model of nordhaus 30 electoral cycles also emerge at least in fiscal policy in the rational expectations model of rogoff and sibert 34 and rogoff 33 with partisan models economic activity differs systematically by party as in both the ideological model of hibbs 26 and the rationalexpectations model of alesina 1 economic activity surges after election of democratic presidents and recedes after election of republican presidents although recent tests of the electoral approach are supportive 21 22 24 25 the partisan approach enjoys the more compelling support 2 3 9 10 23 26 27 the electoral and partisan views are not mutually exclusive as the possibility of conflict between ideology and the desire to be reelected as the election approaches is well recognized indeed our evidence here is consistent with a combined electoralpartisan model the macroeconomic literature at large however has been slow to absorb accumulating evidence that the party affiliation of the incumbent president together with the timing of the electoral period are linked to real economic activity in this study we gauge the significance of these links for the united states and relate them to two important strands of the macroeconomic literature one strand the time series literature investigates the statistical properties of measures of real economic activity finding that these measures often exhibit nonconstant means and heteroscedastic variances in autoregressive integrated moving average arima models the conditional mean is a function of past innovations while the conditional variance is constant applications of arima and related models beginning with nelson and plosser 29 suggest that real economic activity for the united states exhibits near random walk behavior in autoregressive conditional heteroscedastic arch models the conditional variance is a function of past squared innovations while the conditional mean is constant applications of arch and related models beginning with engle 17 suggest that real activity exhibits heteroscedastic variances

insiders outsiders and nominal wage contracts while the consequences of nominal wage contracts have been rather thoroughly analyzed there is no generally accepted theory of why such contracts prevail in this paper i argue that the distinction between insiders and outsiders is important for understanding nominal wage contracts since most employment fluctuations take the form of fluctuations in hiring insiders are normally not affected by them since prices are primarily determined by costs demand shocks have small effects on real wages thus insiders have little incentive to change to more complicated contracts with rigid nominal wages nominal demand shocks have large effects on the employment opportunities of outsiders but outsiders have little influence on labor contracts

can non linear time series models generate us business cycle asymmetric shape abstract fifteen univariate non linear time series models of us output are evaluated by their ability to reproduce the asymmetric shape of the us business cycle two models account for the growth being faster after a trough and slower before a peak

federal timber restrictions and interregional arbitrage in u s lumber harvesting restrictions to protect the habitat of the northern spotted owl on federal forests in the pacific northwest pnw substan tially reduced timber available for processing by the forest products industry we consider the ex tent to which these restrictions may have altered the degree of integration of the pnw and u s south in a national market for lumber descrip tive statistics and econometric analysis of monthly price data suggest that a structural break occurred in the relationship between the two re gions product prices around the time of the har vest restrictions leading to a more integrated market after the restrictions were imposed jel q23

volatility and persistence of fluntuations individual production series in italy 1890 1985 the analysis is focused on possible time related changes in the cyclical behaviour of production using a set of individual production series disaggregate data are used to analyse whether short run fluctuations have actually become less extreme or erratic in time and whether the tendency of shocks to have permanent or transitory effects has changed between the pre war and post war eras a third aspect of cyclical trends examined concerns the correlation of short term changes across sectors the main finding of the paper is that there has been little change in the behaviour of the individual series over time in fluctuation size persistence and frequency thus a reduction in variability appears also to be due to a problem of statistical measurement rather then suggesting as the standard literature does that demand shocks were unimportant in the post war period which implies that supply shocks were more important an estimate of the italian experience gives evidence of the importance of both causes

a spatial analysis of sectoral complementarity this paper presents a spatial econometric method for characterizing productivity comovement across sectors of the u s economy input output relations provide an economic distance measure that is used to characterize interactions between sectors as well as conduct estimation and inference we construct two different economic distance measures one metric implies that two sectors are close to one another if they use inputs of other industrial sectors in nearly the same proportion and the other metric implies that sectors are close if their outputs are used by the same sectors our model holds that covariance in productivity growth across sectors is a function of economic distance we find that 1 positive cross sector covariance of productivity growth generates a substantial fraction of the variance in aggregate productivity 2 cross sector productivity covariance tends to be greatest between sectors with similar input relations and 3 there are constant to modest increasing returns to scale we tes

an information diffusion based model of oil futures price abstract inspired by the increasing evidence of financialization speculation in commodity pricing this paper constitutes a first attempt to build an information diffusion based asset pricing framework for the oil futures market with gradual information dissemination slowly decaying uncertainty about the asset s future fundamentals generates persistent conditional volatility and a drift in asset return volatility based proxies for information flows are proposed to examine empirically the asset pricing implications the results confirm a significant intertemporal relationship between return on the price of oil futures information diffusion and volatility components an important implication of our study is that the slow diffusion of information generates predictability in price dynamics a forecasting model is then constructed and tested in relation to our theory it is found that the lagged series of the pricing factors possess significant predicting power for returns

a multi level panel star model for us manufacturing sectors we introduce a multi level smooth transition model for a panel of time series which can be used to examine the presence of common nonlinear business cycle features across many variables the model is positioned in between a fully pooled model which imposes such common features and a fully heterogeneous model which allows for unrestricted nonlinearity we introduce a second stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables thereby allowing for lead lag relationships across panel members we discuss representation estimation by concentrated simulated maximum likelihood and inference we illustrate our model using quarterly industrial production in 19 us manufacturing sectors and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions copyright 2005 john wiley sons ltd

an econometric analysis of some models for constructed binary time series macroeconometric and financial researchers often use binary data constructed in a way that creates serial dependence we show that this dependence can be allowed for if the binary states are treated as markov processes in addition the methods of construction ensure that certain sequences are never observed in the constructed data together these features make it difficult to utilize static and dynamic probit models we develop modeling methods that respect the markov process nature of constructed binary data and explicitly deals with censoring constraints an application is provided that investigates the relation between the business cycle and the yield spread