sentiments and aggregate demand fluctuations we formalize the keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations when production decisions must be made under imperfect information about demand optimal decisions based on sentiments can generate stochastic self fulfilling rational expectations equilibria in standard economies without persistent informational frictions externalities nonconvexities or strategic complementarities in production the models we consider are deliberately simple but could serve as benchmarks for more complicated equilibrium models with additional features

expectations and economic fluctuations an analysis using survey data abstract using survey based measures of future u s economic activity from the livingston survey and the survey of professional forecasters we study how changes in expectations and their interaction with monetary policy contribute to fluctuations in macroeconomic aggregates we find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation we also find that the short term interest rate rises in response to expectations of good times as monetary policy tightens

the quantitative importance of news shocks in estimated dsge models we estimate a dynamic stochastic general equilibrium dsge model with several frictions and both unanticipated and news shocks using quarterly u s data from 1954 to 2004 and bayesian methods we find that unanticipated shocks dominate news shocks in accounting for the unconditional variance of output consumption and investment growth interest rate and the relative price of investment the unanticipated shock to the marginal efficiency of investment is the dominant shock accounting for over 45 of the variance in output growth news shocks account for less than 15 of the variance in output growth within the set of news shocks nontechnology sources of news dominate technology news with wage markup news shocks accounting for about 60 of the variance share of both hours and inflation we find that in the estimated dsge model i the presence of endogenous countercyclical price and wage markups due to nominal frictions substantially diminishes the importance of news shocks relative to a model without these frictions and ii while there is little change in the estimated contributions of technology news when we restrict wealth effects on labor supply the contributions of nontechnology news shocks are relatively more sensitive

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

expectation shocks and learning as drivers of the business cycle psychological factors market sentiments and less than fully rational shifts in beliefs are widely believed to play a role in the economy yet they are rarely considered in macroeconomic models this paper evaluates the empirical role of expectational shocks on business cycle fluctuations the paper relaxes the rational expectations assumption to exploit survey data on expectations in the estimation of a new keynesian model which allows for learning by economic agents expectation shocks affect the formation of expectations and capture waves of optimism and pessimism that lead agents to form forecasts that deviate from those implied by their learning model the empirical results uncover a crucial role for these novel expectations shocks as a major driving force of the u s business cycle expectation shocks regarding future real activity are the main source of economic fluctuations accounting for roughly half of business cycle fluctuations

comparing new keynesian models of the business cycle a bayesian approach abstract the baseline new keynesian model cannot replicate the observed persistence in inflation output and real wages for sensible parameter values as a result several extensions have been suggested to improve its fit to the data we use a bayesian approach to estimate and compare the baseline sticky price model of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 and three extensions our empirical results are as follows first we find that adding price indexation improves the fit of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 model second models with both staggered price and wage setting dominate models with only price rigidities third introducing wage indexation does not significantly improve the fit fourth all model estimates suggest a high degree of price stickiness fifth the estimates of labor supply elasticity are higher in models with both staggered price and wage contracts finally the estimated inflation parameters of the taylor rule are stable across models

news noise and fluctuations an empirical exploration a common view of the business cycle gives a central role to anticipations consumers and firms continuously receive information about the future which is sometimes news and sometimes just noise based on this information consumers and firms choose spending and because of nominal rigidities spending affects output in the short run if ex post the information turns out to be news the economy adjusts gradually to a new level of activity if it turns out to be just noise the economy returns to its initial state therefore the dynamics of news and noise generate both short run and long run changes in aggregate activity this view appears to capture many of the aspects often ascribed to fluctuations the role of animal spirits in affecting demand spirits coming here from a rational reaction to information about the future the role of demand in affecting output in the short run together with the notion that in the long run output follows a natural path determined by fundamentals in this paper we examine whether this view is consistent with the data we reach three main conclusions the first two methodological the third substantive structural vars typically cannot recover news and noise shocks the reason is straightforward if agents face a signal extraction problem and are unable to separate news from noise then the econometrician faced with either the same data as the agents or a subset of these data cannot do it either while structural estimation methods cannot recover the actual time series for news and noise shocks either they can recover underlying structural parameters and thus the relative role and dynamic effects of news and noise shocks estimation of both a simple model and then of a more elaborate dsge model suggest that agents indeed solve such a signal extraction problem and that noise shocks play an important role in determining short run dynamics recent efforts to estimate business cycle models in which expectations about the future play an important role include christiano et al 2010 and schmitt grohe and uribe 2012 those papers follow the approach of jaimovich and rebelo 2009 and model news as perfectly anticipated productivity changes that will occur at

bridging dsge models and the raw data abstract a method to estimate dsge models using the raw data is proposed the approach links the observables to the model counterparts via a flexible specification which does not require the model based component to be located solely at business cycle frequencies allows the non model based component to take various time series patterns and permits certain types of model misspecification applying standard data transformations induces biases in structural estimates and distortions in the policy conclusions the proposed approach recovers important model based features in selected experimental designs two widely discussed issues are used to illustrate its practical use

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

non stationary hours in a dsge model the time series fit of dynamic stochastic general equilibrium dsge models often suffers from restrictions on the long run dynamics that are at odds with the data using bayesian methods we estimate a stochastic growth model in which hours worked are stationary and a modified version with permanent labor supply shocks if firms can freely adjust labor inputs the data support the latter specification once we introduce frictions in terms of labor adjustment costs the overall time series fit improves and the model specification in which labor supply shocks and hours worked are stationary is preferred

great recession slow recovery and muted fiscal policies in the us this paper reconsiders the role of macroeconomic shocks and policies in determining the great recession and the subsequent recovery in the us the great recession was mainly caused by a large demand shock and by the zlb on the interest rate policy in contrast with previous findings the subsequent jobless recovery is explained by the zlb effect we estimate a fraction of non ricardian households which is close to 50 and obtain comparatively large fiscal multipliers however we cannot detect a significant contribution of fiscal policies in stabilizing the us economy for instance the 2007 2009 large increase in expenditure to gdp ratios was apparently determined by the adverse non policy shocks that caused the recession

investment specific news shocks and u s business cycles we provide robust evidence that news shocks about future investment specific technology ist constitute a significant force behind u s business cycles positive ist news shocks induce comovement that is raise output consumption investment and hours these shocks account for 70 of the business cycle variation in output hours and consumption and 60 of the variation in investment and have played an important role in 9 of the last 10 u s recessions our findings provide strong support for shifting focus to ist news shocks when investigating the role of news in driving u s business cycles

business cycle measurement with some theory a method to evaluate cyclical models not requiring knowledge of the dgp and the exact specification of the aggregate decision rules is proposed we derive robust restrictions in a class of models use some to identify structural shocks in the data and others to evaluate the class or contrast sub models the approach has good properties even in small samples and when the class of models is misspecified the method is used to sort out the relevance of a certain friction the presence of rule of thumb consumers in a standard class of models

financial development and pathways of growth state branching and deposit insurance laws in the united states 1900 1940 abstract this paper studies the effect of state level banking regulation on financial development and on components of state level growth in the united states from 1900 to 1940 we use these banking laws to assess the findings of a large recent literature that has argued that financial development contributes to economic growth we contend that the institutional mechanism leading to financial development is important in determining its consequences and that some types of financial development can even retard economic growth for the united states from 1900 to 1940 we argue that the financial expansion induced by expanded bank branching accelerated the mechanization of agriculture and spurred growth in manufacturing in contrast financial expansions induced by state deposit insurance had negative consequences for both the agricultural and manufacturing sectors

the empirical merit of structural explanations of commodity price volatility review and perspectives this paper presents both the history of and state of the art in empirical modeling approaches to the world commodity price volatility the analysis builds on the storage model and key milestones in its development specifically it is intended to offer a reader unfamiliar with the relevant literature an insight into the modeling issues at stake from both a historical and speculative viewpoint the review considers primarily the empirical techniques designed to assess the merits of the storage theory it does not address purely statistical approaches that do not rely on storage theory and that have been studied in depth in other streams of the commodity price literature the paper concludes with some suggestions for future research to try to resolve some of the existing empirical flaws and hopefully to increase the explanatory power of the storage model

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

indeterminacy and learning an analysis of monetary policy in the great inflation abstract the great inflation of the 1970s can be understood as the result of equilibrium indeterminacy in which loose monetary policy engendered excess volatility in macroeconomic aggregates and prices the federal reserve inadvertently pursued policies that were not anti inflationary enough because it did not fully understand the economic environment it was operating in specifically it had imperfect knowledge about the structure of the economy and was subject to data misperceptions the combination of learning about the economy and the use of mis measured data resulted in policies which the federal reserve believed to be optimal but when implemented led to equilibrium indeterminacy

the economics and politics of regulation this article provides a critical survey of the literature on the economics and politics of regulation after some conceptual clarifications the article surveys the evolution of perspectives on regulation during the post second world war period emphasizing especially the interactions between intellectual changes and real world economic and political developments it then looks at some themes that are neglected in the current literature the inevitability of regulation the need to create and not simply regulate markets distributional issues dynamic considerations and the politics of regulation and suggests that incorporating these themes more closely into the discussion will improve our understanding in this area copyright 1997 by oxford university press

technology shocks in the new keynesian model in the new keynesian model preference cost push and monetary shocks all compete with the real business cycle model s technology shock in driving aggregate fluctuations a version of this model estimated via maximum likelihood points to these other shocks as being more important for explaining the behavior of output inflation and interest rates in the postwar u s data these results weaken the links between the current generation of new keynesian models and the real business cycle models from which they were originally derived they also suggest that federal reserve officials have often faced difficult trade offs in conducting monetary policy

can news be a major source of aggregate fluctuations a bayesian dsge approach we examine whether the news shocks as explored in beaudry and portier 2004 can be a major source of aggregate fluctuations for this purpose we extend a dynamic stochastic general equilibrium model a la christiano eichenbaum and evans 2005 by allowing news shocks on the total factor productivity and estimate the model using bayesian methods estimation results on the japanese and u s economies show that 1 the news shocks play an important role in business cycles 2 a news shock with a longer forecast horizon has larger effects on nominal variables and 3 the overall effect of the total factor productivity on hours worked becomes ambiguous in the presence of news shocks

the effects of monetary policy news and surprises there is substantial agreement in the monetary policy literature over the effects of exogenous monetary policy shocks the shocks that are investigated however almost exclusively represent unanticipated changes in policy which surprise the private sector and which are typically found to have a delayed and sluggish effect on output in this paper we estimate a new keynesian model that incorporates news about future policies to try to disentangle the anticipated and unanticipated components of policy shocks the paper shows that the conventional estimates confound two distinct effects on output an effect due to unanticipated or surprise shocks which is smaller and more short lived than the response usually obtained in the literature and a large delayed and persistent effect due to anticipated policy shocks or news news shocks play a larger role in influencing the business cycle than unanticipated policy shocks although the overall fraction of economic fluctuations that can be attributed to monetary policy remains limited

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

reconciling output gaps unobserved components model and hodrick prescott filter abstract this paper reconciles two widely used trend cycle decompositions of gdp that give markedly different estimates the correlated unobserved components model yields output gaps that are small in amplitude whereas the hodrick prescott hp filter generates large and persistent cycles by embedding the hp filter in an unobserved components model we show that this difference arises due to differences in the way the stochastic trend is modeled moreover the hp filter implies that the cyclical components are serially independent an assumption that is decidedly rejected by the data by relaxing this restrictive assumption the augmented hp filter provides comparable model fit relative to the standard correlated unobserved components model

monetary policy judgment and near rational exuberance we study how the use of judgement or add factors in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods we examine the possibility of a new phenomenon which we call exuberance equilibria i n the new keynesian monetary policy framework inclusion of judgement in forecasts can lead to self fulfilling fluctuations in a subset of the determinacy region we study how policymakers can minimize the risk of exuberance

perceived uncertainty shocks excess optimism pessimism and learning in the business cycle abstract what are the effects of beliefs sentiment and uncertainty over the business cycle to answer this question we develop a behavioral new keynesian macroeconomic model in which we relax the assumption of rational expectations agents are instead boundedly rational they have a finite planning horizon and they learn about the economy over time moreover we allow agents to have a potentially asymmetric loss function in forecasting which creates a direct channel for expected variances to affect the economy in forming expectations agents may be subject to shifts in optimism and pessimism sentiment and their beliefs may be influenced by their perceptions about future uncertainty we estimate the behavioral model using bayesian methods and exploit a large number of subjective expectation series both point and density forecasts at different horizons from the survey of professional forecasters we find that sentiment shocks are the key source of business cycle fluctuations shifts in perceived uncertainty can also affect real activity and inflation through a confidence channel as they play an important role in belief formation overall the results shed light on the importance of behavioral forces over the business cycles and on the contribution and interaction of first moment sentiment shocks versus second moment perceived uncertainty shocks

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

changes in the federal reserve s inflation target causes and consequences this paper estimates a new keynesian model to draw inferences about the behavior of the federal reserve s unobserved inflation target the results indicate that the target rose from 1 1 4 percent in 1959 to over 8 percent in the mid to late 1970s before falling back below 2 1 2 percent in 2004 the results also provide some support for the hypothesis that over the entire postwar period federal reserve policy has systematically translated short run price pressures set off by supply side shocks into more persistent movements in inflation itself although considerable uncertainty remains about the true source of shifts in the inflation target jel e31 e32 e52

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

plant closures and local economic conditions rowland m 1988 plant closures and local economic conditions reg studies 22 193 207 this paper tests the hypotheses that plant closures are influenced by local production costs local rates of unionization changes in local production costs and local and national market growth using data on three of the three digit standard industrial code industries of metalworking machinery electronic components and motor vehicles the study finds that local economic conditions have little impact on plant closures the only variables to consistently predict the probability a plant will close is the plant s status as a branch subsidiary headquarters or independents and for independents the firm s age the likelihood of a branch plant or subsidiary closing is much higher than that of an independent or headquarters with headquarters and independents equally likely to close not surprisingly new firms were more likely to close than more mature firms and for two of the industries small establishments exhib

sentiment and the u s business cycle abstract psychological factors are commonly believed to play a role on cyclical economic fluctuations but they are typically omitted from state of the art macroeconomic models this paper introduces sentiment in a medium scale dsge model of the u s economy and tests the empirical contribution of sentiment shocks to business cycle fluctuations the assumption of rational expectations is relaxed the paper exploits instead observed data on expectations in the estimation the observed expectations are assumed to be formed from a near rational learning model agents are endowed with a perceived law of motion that resembles the model solution under rational expectations but they lack knowledge about the solution s reduced form coefficients they attempt to learn those coefficients over time using available time series at each point in the sample and updating their beliefs through constant gain learning in each period however they may form expectations that fall above or below those implied by the learning model these deviations capture excesses of optimism and pessimism which can be quite persistent and which are defined as sentiment in the model different sentiment shocks are identified in the empirical analysis waves of undue optimism and pessimism may refer to expected future consumption future investment or future inflationary pressures the results show that exogenous variations in sentiment are responsible for a sizable above forty percent portion of historical u s business cycle fluctuations sentiment shocks related to investment decisions which evoke keynes animal spirits play the largest role when the model is estimated imposing the rational expectations hypothesis instead the role of structural investment specific and neutral technology shocks significantly expands to capture the omitted contribution of sentiment

solving and estimating indeterminate dsge models we propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step by step guidelines for implementing this method in the matlab based packages dynare and gensys our method redefines a subset of expectational errors as new fundamentals this redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms we prove that our method is equivalent to the solution method proposed by lubik and schorfheide 2003 2004 and using the new keynesian model described in lubik and schorfheide 2004 we demonstrate how to apply our theoretical results with a practical exercise

estimation of dsge models when the data are persistent dynamic stochastic general equilibrium dsge models are often solved and estimated under specific assumptions as to whether the exogenous variables are difference or trend stationary however even mild departures of the data generating process from these assumptions can severely bias the estimates of the model parameters this paper proposes new estimators that do not require researchers to take a stand on whether shocks have permanent or transitory effects these procedures have two key features first the same filter is applied to both the data and the model variables second the filtered variables are stationary when evaluated at the true parameter vector the estimators are approximately normally distributed not only when the shocks are mildly persistent but also when they have near or exact unit roots simulations show that these robust estimators perform well especially when the shocks are highly persistent yet stationary in such cases linear detrending and first differencing are shown to yield biased or imprecise estimates

estimating and testing rational expectations models when the trend specification is uncertain abstract this paper explores various strategies for estimating and testing rational expectations models when the trend specification is uncertain one approach seeks to make estimators and tests robust to trend misspecification by reducing the influence of low frequency dynamics however contrary to intuition the effects of trend specification errors are not confined to low frequencies but are spread across the entire frequency domain thus operations that damp low frequency components do not remove trend specification errors and are not sufficient for constructing robust estimators and tests another approach seeks representations of approximating models that do not condition on a specification of the trend and it uses gmm to estimate parameters and test over identifying restrictions because these methods do not condition on assumptions about trends they are robust to errors in that part of the approximating model

stochastic growth in the united states and euro area this paper estimates using data from the united states and the euro area a two country stochastic growth model in which both neutral and investment specific technology shocks are nonstationary but cointegrated across economies the results point to large and persistent swings in productivity both favorable and adverse originating in the united states but not transmitted to the euro area more specifically the results suggest that while the euro area missed out on the period of rapid investment specific technological change enjoyed in the united states during the 1990s it also escaped the stagnation in neutral technological progress that plagued the united states in the 1970s

using survey data of inflation expectations in the estimation of learning and rational expectations models do survey data on inflation expectations contain useful information for estimating macroeconomic models i address this question by using survey data in the new keynesian model by smets and wouters 2007 to estimate and compare its performance when solved under the assumptions of rational expectations and learning this information serves as an additional moment restriction and helps to determine the forecasting model for inflation that agents use under learning my results reveal that the predictive power of this model is improved when using both survey data and an admissible learning rule for the formation of inflation expectations

plant closures in multi plant enterprises the case of a declining industrial sector healey m j 1982 plant closures in multi plant enterprises the case of a declining industrial sector reg studies 16 37 51 the decline in british manufacturing industry and its uneven spatial manifestation has led to a growing interest in the study of plant closures this paper examines the closures made by a group of multi plant enterprises in the textile and clothing industries between 1967 and 1972 the frequency of closures is related to six enterprise characteristics profitability size growth rate organizational structure industrial nature and investment strategy and seven plant characteristics size age length of time operated location within enterprise internal linkages status and industrial nature where possible the findings are compared with those of other relevant surveys the implications for urban and regional development are discussed

a simple recursive forecasting model abstract we compare the performance of alternative recursive forecasting models a simple constant gain algorithm used widely in the learning literature both forecasts well out of sample and also provides the best fit to the survey of professional forecasters

modeling fluctuations in the global demand for commodities it is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply one of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity

are supply shocks important for real exchange rates a fresh view from the frequency domain abstract this paper re examines the role of supply shocks for real exchange rate fluctuations and contributes by exploiting insights from the frequency domain perspective in contrast to the existing literature our empirical findings point towards an important role played by supply productivity shocks in driving us real effective exchange rate fluctuations at low frequencies while real demand shocks matter mostly at high and medium frequencies in addition we propose an approach to structurally decompose the persistence of the real exchange rate and find that supply shocks explain up to half of its persistence

fitting observed inflation expectations abstract the paper provides evidence on the extent to which inflation expectations generated by a standard christiano et al 2005 smets and wouters 2003 type dsge model are in line with what observed in the data we consider three variants of this model that differ in terms of the behavior of and the public s information on the central banks inflation target allegedly a key determinant of inflation expectations we find that i time variation in the inflation target is needed to capture the evolution of expectations during the post volcker period ii the variant where agents have imperfect information is strongly rejected by the data iii inflation expectations appear to contain information that is not present in the other series used in estimation and iv none of the models fully capture the dynamics of this variable

local environments and plant closures by multi locational firms a cross cultural analysis stafford h a and watts h d 1991 local environments and plant closures by multi locational firms a cross cultural analysis reg studies 25 427 438 this paper provides a comparison of continuing and closing plants in multi locational firms in the us and uk in an attempt to identify local environment effects on plant closure decisions closed plants in two metropolitan areas cincinnati usa and sheffield uk are compared with plants elsewhere in the usa and uk on twenty four differentiating characteristics in each case the comparator plant was operated by the same firm and undertook similar activities in a different urban area a local environmental effect was detected particularly through the influence of poor labour relations by combining a measure of labour relations with appropriateness of plant size and degree of technological sophistication it is possible to predict with a high degree of accuracy the closed and continuing plants amongst the pairs of plants operated by multi locationa

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

maximum likelihood in the frequency domain the importance of time to plan abstract we illustrate the use of various frequency domain tools for estimating and testing dynamic stochastic general equilibrium models we show how to exploit the well known fact that the log gaussian density function has a linear decomposition in the frequency domain we also propose a new resolution to the problem that the phase angle between two variables is not uniquely determined these methods are applied to the analysis of business cycles our substantive findings confirm existing results in the literature which suggest that time to plan in the investment technology has a potentially useful role to play in business cycle analysis