the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

real sectoral spillovers a dynamic factor analysis of the great recession abstract dynamic factor methods are used to identify the impact of common and idiosyncratic shocks on sixteen u s nonfarm business sectors this paper then studies changes in the transmission of these shocks across sectors during the great recession and evaluates the cross sectoral spillovers the great recession is found to be largely a time of heightened impact of common shocks which accounts for 3 4 of aggregate volatility and large spillovers of negative finance related shocks in addition prior to the recession aggregate fluctuations are mainly driven by sector specific shocks in contrast with findings from previous studies

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

eductive stability in real business cycle models we reexamine issues of coordination in the standard rbc model is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium surprisingly we nd that coordination cannot be expected even with strong common knowledge assumptions rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption this impossibility theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework

energy price shocks and medium term business cycles abstract energy price shocks pose sudden challenges to economies this paper examines how oil price shocks have influenced the u s economy over the last decades and especially focuses on the productivity slowdown in the years following an oil price shock we extend the existing literature by considering medium term business cycles which consist of high frequency components conventional business cycles up to 8 years and medium frequency components 8 50 years we find that the medium frequency consequences of energy price shocks are considerable and explain a significant part of the productivity slowdown

explaining output volatility the case of taxation this paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous in particular based on a closed form solution we obtain a long run equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes without affecting the mean we estimate the tax semi elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among oecd countries

the economic consequences of productivity changes a computable general equilibrium cge analysis cutler h and davies s the economic consequences of productivity changes a computable general equilibrium cge analysis regional studies this paper uses a data intensive cge model to examine sector specific impacts of increases in total factor productivity and labour and capital productivity it focuses on the importance of a sector s output in household consumption and firms intermediate input demand the importance of labour and capital in value added and the impact on the city s consumer price index cpi as factors influencing the transmission mechanism the general equilibrium effects result in unambiguous increases in household migration for total factor productivity and capital productivity but not for the labour case this analysis emphasizes the impact on household income and tax revenue per new household cutler h et davies s les consequences economiques des changements de productivite une analyse egc regional studies cet article utilise un modele d equilibre general calculable egc

detecting multiple factors in panel data an application on the growth of local regions in china abstractdue to unbalanced growth in china s local regions we construct a panel data model with multiple common factors to examine the differences among the growth factors in these areas this article shows the various impacts from the supply and demand sides on economic growth different from the demand side the supply side impacts have permanent influences this article focuses on these deep and profound impacts to explain the reasons behind china s fast economic growing by using data on 27 regions from 1958 to 2013 we summarize the main permanent influences along three lines the first comes from the coastal regions which have learned modern technology and systems from foreign companies such as in guangdong zhejiang fujian and liaoning the second comes from big cities such as beijing and shanghai in which a huge migration has given the companies opportunities to recruit excellent workers making the resource allocation specialized and more efficient the third is from the government s major p

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

production lags and price behaviour this paper explores the implications of the production lag for the firm s decisions the authors establish a significant relationship between price behavior and the length of the production lag they show that specific results in the literature are crucially dependent upon the assumption about the production lag by allowing the production time to exceed the decision period the basic framework of the earlier price inventory models is significantly extended the model thus incorporates finished goods inventories as well as goods in process inventories copyright 1992 by the london school of economics and political science

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

business cycles with distorting taxes and disaggregated capital markets abstract this paper studies a neoclassical growth model to examine the linkages between distorting corporate and personal taxes and cyclical movements of aggregates such as investments in equipment and structures suppose tax variables vary stochastically and annually we solve quarterly individual and aggregate decision rules by recursive methods and quantify the dynamic impacts on aggregates from unit changes in tax structures and individual and joint tax specifications the findings suggest that corporate income tax is the major factor leading to substantial tax effects on business cycles moreover the impact of investment tax credit for equipment on disaggregated investments is equally significant

returns to rural electrification evidence from bhutan abstract rural electrification re is a core component of the sustainable development goals and a major focal point of the global development community despite this focus more than one billion people worldwide lack access to electricity and electrification rates need to more than quadruple to meet international goals we believe that lack of progress is partly driven by a know do gap a misalignment between academic research and the information needs of policy makers most studies measuring the impacts of electrification focus on precise estimation of a few outcomes specifically health education and productivity impacts other important impacts e g environmental have remained largely unstudied as a consequence quantifying the full set of costs and benefits of expanding electricity access is difficult and rarely done when cost benefit analyses are done they are often incomplete and conclusions are highly susceptible to unavailable or uncertain parameters we illustrate these arguments in the case of bhutan where re rates have expanded rapidly in the past few decades we show that re via grid extension had positive impacts related to fuelwood consumption education and employment but we do not find an effect on health we then use these impact estimates to conduct cost benefit analyses for the cost benefit parameters not available from our impact evaluation we transfer reasonable estimates from related contexts to acknowledge the uncertainty induced by this process we conduct monte carlo analyses and confirm that while the private npv calculations are robust to alternative parameter values the social returns are sensitive to estimates of the social cost of carbon and costs of grid operation and maintenance based on this exercise we highlight research gaps that persist and that preclude 1 careful cost benefit analysis of re more generally and 2 financial investment in the sector

the role of energy in real business cycle models abstract this paper modifies hansen s 1985 analysis of a real business cycle mode with indivisible labor by explicitly including energy as a productive input and modelling the relative price of energy as an exogenous random process one goal is to determine the extent to which the introduction of energy price shocks reduces the reliance of the real business cycle model on unobserved technology shocks the other goal following christiano and eichenbaum 1991 is to compare the correlation between real wages and hours predicted by the energy inclusive model to that predicted by hansen s model

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

some consequences of temporal aggregation in empirical analysis i derive the generating mechanism of a temporally aggregated process when the disaggregated one belongs to the vector autoregressive integrated moving average class i then study the effects of temporal aggregation on a set of characteristics of usual interest such as exogeneity causality cointegration and common features an empirical example with canadian interest rates illustrates the main issues

sticky wage or sticky price analysis of the cyclical behavior of the real wage the study of business cycles has been at the heart of macroeconomic theory for decades theoretical efforts have focused on providing an adequate explanation for sources of economic fluctuations new keynesian explanations have emphasized rigidity that interferes with market forces increasing the effect of demand shocks on the output produced the form of rigidity is in sharp contrast between sticky wage and sticky price models the former imposes rigidity on the shortrun adjustment of wages to demand shocks 20 47 the latter in contrast imposes rigidity on the short run price adjustment to demand shocks 2 34 40 9 43 4 the theoretical plausibility of competing explanations of business cycles has stimulated interest to establish their empirical validity 32 28 1 8 11 23 21 26 these efforts have focused attention on cyclical fluctuations of the real wage in response to demand shocks the real wage may move procyclically or countercyclically according to the relative adjustment of wages and prices the interest in studying the cyclical behavior of the real wage relates to its implications to the real effects of aggregate demand shocks in the context of sticky wage models nominal wage rigidity reinforces the countercyclical response of the real wage to demand shocks and the real effect of these shocks on output growth sticky price models in contrast advocate that price rigidity increases the procyclical response of the real wage to demand shocks and their real effect on output growth the results of earlier investigations of the cyclical behavior of the real wage appear conflicting and therefore do not lend support to a given explanation 2 the present investigation seeks to contribute to this literature unlike previous empirical research on the subject the objective of this investigation is to study the cyclical behavior of the real wage and the relative flexibility of the nominal wage and the price level that determines this behavior in response to demand shocks using data for the united states in the preand post world war ii sample periods the cyclical

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

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

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

threshold behavior and aggregate fluctuation this paper concerns a propagation mechanism in an economy where many individuals follow a threshold rule and interact with a positive feedback we derive an asymptotic distribution of the propagation size when the number of the agents tends to infinity the propagation distribution exhibits a slower convergence to a deterministic value than it would if the agents followed a smooth adjustment policy this gives rise to significant aggregate fluctuations in a finite lumpy adjusting economy even when the agents are hit by small independent shocks

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

estimating the private benefits of vaccination against cholera in beira mozambique a travel cost approach abstract this paper reports the results of the first study that estimates households private demand for cholera vaccines using the travel cost method we take advantage of an unusual natural experiment in january 2004 more than 41 000 residents from various locations in beira mozambique received two doses of oral cholera vaccine free of charge during the first vaccination trial to test its effectiveness in an endemic cholera zone of africa about 30 000 people participated from outside the target zone resulting in long queues and an average waiting time of about 85 min per dose we estimated travel cost models of the revealed demand for cholera vaccines among households informed of the trial using information collected in in person interviews conducted during the summer of 2005 to explore households participation in the trial we used standard and zero inflated household count models for all household members and dichotomous choice models for the head of the household our analysis shows that the quantity of vaccines obtained by households and the likelihood of participation decreased as travel cost in time and transport expenses rose our best estimates of per capita willingness to pay for the two required doses of cholera vaccine are about 0 85 usd these estimates are sensitive to the assumed value of time spent acquiring vaccines

the real interest rate and aggregate supply abstract this paper analyzes the effects of the anticipated real interest rate on aggregate supply variables in a model where time to produce and variable capital utilization play a crucial role the potential importance of the present mechanism for business cycle theory lies in its ability to generate positive co movements of employment capital utilization labor productivity output and investment these variables are predicted to be affected negatively by the real interest rate reduced forms for output and employment are derived and tested with canadian data taking estimates of the real interest rate prevailing in the united states as the relevant exogenous price

macroeconomic policy and output comovement the formal and informal sectors in india abstract is the informal sector different from the formal sector we present an aggregative analysis of the formal and informal sectors in india to investigate the extent to which the two can be viewed as broadly homogeneous using a macroeconometric framework the paper analyzes over past three decades the behavior of the two sectors with respect to each other and several government related policy variables it is found that the formal and informal sectors display markedly different attributes in terms of their relationship to policy variables furthermore the informal sector appears to be decoupled from the rest of the economy

market structure and schumpeterian growth abstract we present a discrete time version of a schumpeterian growth model a natural r d analogue to constant returns to scale implies a poisson production function with diminishing marginal product surprisingly the industry demand for r d inputs does not depend on the number of firms in the r d sector if bertrand competition ensues following ties in contrast demand is higher if ties result in collusion in general equilibrium bertrand competition leads to random switching between monopoly and competitive production under collusion production is always at the monopoly level but there is faster growth numerical simulations suggest that this leads to higher welfare

an estimate of a sectoral model of labor mobility this paper develops a model of sectoral labor mobility and tests its main implications the model nests two distinct hypotheses on the origin of mobility a sectoral shocks and b worker employer mismatch we estimate the relative importance of each hypothesis and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift we then try to put a value on society s match specific information that is we ask to what extent the availability of the option to change jobs raises gnp we find that the mobility option raises expected earnings by roughly between 8 5 percent and 13 percent of labor earnings which translates to an increase in gnp of between 6 percent and 9 percent

fiscal policy and indeterminacy in models of endogenous growth this paper investigates the dynamic behavior of two sector models of endogenous growth with sector specific external effects and government expenditure financed by distortionary taxation when this type of external effect is combined with a sufficient degree of capital taxation in a lucas uzawa endogenous growth model continua of equilibria will emerge in the region of the balanced growth paths by contrast indeterminacy is not possible when either sector specific external effects or factor taxation are added to the model in isolation in the second part of the paper we demonstrate that if labor supply is endogenous indeterminacy can be consistent with much lower degrees of increasing returns to scale furthermore certain types of fiscal policy will be associated with multiple balanced growth paths and the existence of a poverty trap finally in the last part of the paper we demonstrate that if physical capital is employed in both sectors of the economy indeterminacy will emerge for varying combinations of factor taxation and external effects even when returns to scale are constant at the social level

convergence endogenous growth and productivity disturbances abstract kelly 1992 has recently shown that evidence on convergence cannot be taken as evidence against endogenous growth in general this study uses a well known class of stochastic growth models to show other difficulties with traditional empirical studies of convergence key parameters typically cannot be estimated consistently in cross section regressions when the parameters are assumed known implications for convergence are unavailable except under restrictive and economically unmotivated assumptions those same assumptions that relate key parameters to cross country convergence render cross section regressions impossible to estimate consistently

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

sectoral versus aggregate shocks a structural factor analysis of industrial production using factor methods we decompose industrial production ip into components arising from aggregate and sector specific shocks an approximate factor model finds that nearly all of ip variability is associated with common factors we then use a multisector growth model to adjust for the effects of input output linkages in the factor analysis thus a structural factor analysis indicates that the great moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged consequently the role of idiosyncratic shocks increased considerably after the mid 1980s explaining half of the quarterly variation in ip

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

wars and capital destruction abstract in this paper we propose a theoretical framework to investigate the impact of conflicts and wars on key macroeconomic aggregates and welfare using a panel data with 9 countries from 1870 onwards we first show that the consumption to output ratio is minimal during wwii for participants while this can be explained by an increase in public spending in the usa this cannot be the case in other countries that participated in wwii as they experience a large fall in output during wartime to account for this we build a variation of a real business cycle model first proposed by hercowitz and sampson 1991 we extend the initial model to account for specific shocks that destroy private and public capital stocks as conflicts do by assuming an exogenously time varying parameter in the law of capital accumulation in addition the model imbeds generalized tfp shocks capturing standard technological factors as well as the potential effects of war on the labor force the model is estimated and used i to assess the importance of capital shocks during war episodes and ii to quantify the welfare effects of conflicts we show that capital shocks are crucial to account for the macroeconomic dynamics of countries that have experienced large war related destruction and that the welfare losses from fluctuations can be quite large when considering data samples that include major war episodes

coping with poor public capital abstract despite recent successes in stabilization and structural reforms in many developing countries the private investment response to date has been mixed even among the strongest reformers this disappointing result can be partly explained by the continued poor provision of public capital and services we test this hypothesis using unique firm level data on investment and provision of public infrastructure services the results suggest that poor complementary public capital significantly reduces private investment however firms can substitute for deficient public services by investing in complementary capital themselves but this comes at a cost less productive capital will be installed

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

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

output growth the real wage and employment fluctuations this paper is an attempt to contribute to the integration of business cycle analysis with long term growth a real business cycle model with endogenous growth is developed and estimated with u s data in the present framework wage movements do not have to be transitory to generate fluctuations in labor effort the reduced form is a constrained bivariate output hours or real wage hours vector autoregressive process the bivariate setup provides a useful framework for analyzing the persistence of output fluctuations given that the theory implies that hours of work contain information about future output movement copyright 1991 by american economic association

stock index futures mispricing profit opportunities or risk premia this paper reports empirical evidence on stock index futures pricing based on about four years of synchronous hourly data from the uk reported index values are based on firm quotes identified arbitrage opportunities are therefore actually exploitable and economically significant the analysis controls for cash market settlement procedures the results show that ex ante trading rules would have generated attractive profits after transaction costs and after the risks of dividend uncertainties marking to market and possible delays in execution are considered the far contract and the near contract tend to be mispriced in the same direction the mild tendency of futures to be overpriced in rising markets and underpriced in falling markets appears to be unimportant finally significant positive relationships are observed between the absolute magnitude of mispricing and time to maturity and between mispricing and index option implied volatility

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

stock index futures arbitrage in finland theory and evidence in a new market abstract this paper examines the pricing of stock index futures contracts on the new finnish market the striking feature of the finnish market is that there is no institutional framework for short selling of stocks this has been suggested to be the most important reason for the underpricing futures contracts persistent mispricing would however imply that also early and delayed unwindings have value which increases the arbitrage profits several rollover profits are reported in this study this suggest that current stock owners have not yet begun trading on the finnish futures market on a large scale

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

government spending growth and poverty in rural india using state level data for 1970 93 a simultaneous equation model was developed to estimate the direct and indirect effects of different types of government expenditure on ruralpoverty and productivity growth in india the results show that in order to reduce rural poverty the indian government shoul d give highest priority to additionalinvestments in ruralroads and agricul turalresearch these types of investment not only have much larger poverty impacts per rupee spent than any other government investment but also generate higher productivity growth apart from government spending on education which has the third l argest marginalimpact on ruralpoverty and produc

sticker shocks using vat changes to estimate upper level elasticities of substitution we estimate the upper level elasticity of substitution between goods and services of a nested aggregate ces preference specification we show how this elasticity can be derived from the long run response of the relative price of a good to a change in its vat rate we estimate this elasticity using new data on changes in vat rates across 74 goods and services for 25 european union countries from 1996 through 2015 depending on the level of aggregation we find a vat pass through rate between 0 4 and 0 7 this implies an upper level elasticity of 3 at the lowest level of aggregation with 74 categories and 1 cobb douglas preferences at a high level of aggregation that distinguishes 10 categories of goods and services

can world real interest rates explain business cycles in a small open economy abstract while the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies much of the recent quantitative research that studies this mechanism concludes that it has little effect on output investment and net exports we re examine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology we begin with a small open economy business cycle model but rather than specifying the stochastic processes for the shocks and then solving and simulating the model to evaluate how well these shocks explain business cycles we use the model to back out the shocks that are consistent with the model s observable endogenous variables then we use variance decompositions to examine the importance of each shock we apply this methodology to canada and find that world real interest rate shocks can play an important role in explaining the cyclical variation in a small open economy in particular they can explain up to one third of the fluctuations in output and more than half of the fluctuations in net exports and net foreign assets

program trading and systematic stock price behavior 1989 program trading and systematic stock price behavior financial analysts journal vol 45 no 3 pp 61 67

short sale restrictions implications for stock index arbitrage abstract this paper offers a study of relevant transaction costs when examining the efficiency of stock index futures markets we suggest that a different transaction cost estimate should be used when testing the upper side of the cost of carry model than when testing the lower side of the model empirical evidence indicates that this explains most of the underpricing observed in the finnish stock index futures market

using an error correction model to test whether endogenous long run growth exists abstract a major empirical interest in growth studies is whether permanent changes in economic fundamentals affect the long run growth rate or not however a direct time series analysis of this hypothesis may not always be feasible because the permanence of many such changes is rather questionable this paper explains why examining the long run effects of temporary changes in investment share on per capita output provides indirectly the answer regarding the effects of possibly hypothetical permanent changes in investment share when log per capita output and log per capita investment are cointegrated applying the proposed method to the post war data of major industrial countries it is found that a disturbance to investment share does not produce a positive long run effect in each of the three countries france japan and the united kingdom in which log per capita output and log per capita investment are cointegrated the evidence is unfavorable to the class of endogenous growth models

endogenous capital depreciation and technology shocks i examine the dynamic impact of capital maintenance on key aggregates through the depreciation rate i find that two factors are crucial for the short run effects of total factor productivity and investment specific shocks i the marginal efficiency of maintenance and its connection with the rate of utilization and ii the interplay between the intertemporal effect of maintenance and the substitution effect between maintenance and utilization the latter is expressed by the relative size of the elasticity of maintenance to the hicksian elasticity of complementarity between maintenance and utilization these theoretical results suggest that to match the observed responses of the macroeconomic aggregates the sign of the cross derivative should be negative and that the relative size of the hicksian elasticity should be smaller than the maintenance elasticity of marginal depreciation finally the model suggests that the main macroeconomic aggregates react procyclically with the exception of maintenance the behavior of which depends on the type of the shock

index futures arbitrage and the behavior of stock index futures prices this article examines intraday transaction datafor s p 500 stock indexfutures prices and the intraday quotes for the underlying index the data indicate that thefutures price changes are uncorrelated and that the variability of these price changes exceeds the variability ofprice changes in the s p 500 index this excess variability of the futures over the index remains even after controlling for the nonsynchronous prices in the index quotes which induces autocorrelation in the index changes we advance and examine empirically two hypotheses regarding the difference between the futures price and its theoretical value that this mispricing increases on average with maturity and that it is path dependent evidence supporting these hypotheses is presented

structural benefit transfer an example using vsl estimates abstract this paper describes and illustrates a method for benefits transfer referred to as preference calibration or structural benefits transfer this approach requires selection of a preference model capable of describing individual choices over a set of market and associated non market goods to maximize utility when facing budget constraints once the structure is selected the next step involves defining the analytical expressions for the tradeoffs being represented by the set of available benefit measures these algebraic relationships are used with the benefit estimates from the literature to calibrate the parameters of the model the calibrated model then offers the basis for defining the new tradeoffs required for the policy analysis i e for transferring benefits a new application is used to illustrate the structural benefits transfer logic it involves the benefits for mortality risk reductions measured with labor market compensation a worker would accept to be willing to work with added risk the measure is usually labeled the value of a statistical life vsl our application indicates that we should not have expected differences in these measures for the economic value of risk reductions with age the calibrated estimates were not greatly different for combinations of risk levels labor supply choices wages and non wage income for older adults thus simple adjustments relying on value per discounted life year remaining seem questionable

spillovers from foreign direct investment within or between industries this paper contributes an estimation framework to measure both technological and linkage externalities from foreign direct investment fdi empirical research dealt mainly with intra industry spillovers from fdi with restrictive treatment of inter industry effects until recently however as optimal organization of the multinational corporation mnc involves minimization of profit losses due to leakage of technical information to competitors host country firms within the mnc s sector experience limited productivity gains ensuing fdi host country producers in other sectors may benefit for example mncs transfer knowledge to local downstream clients or outsource to local upstream suppliers hence fdi substitutes within sector domestic investment but complements it across sectors the net impact on aggregate capital formation by host country producers hinges on the interaction between linkages and spillovers estimations based on the colombian manufacturing census yield the sectoral pattern of fdi spillovers displaying knowledge propagation between but not within industries the findings reveal outsourcing relationships of mncs with local upstream suppliers as the channel of diffusion

remittances and labor force participation in mexico an analysis using propensity score matching summary about 2 5 million mexicans migrated to the united states during 1997 2002 and 1 6 million of them sent remittances to their families did recipients change their labor force status in response to these remittances this question has been examined before unlike the previous studies we separate persistent from sporadic remittances and we use propensity score matching to measure differences in behavior we find limited evidence of labor force participation effects of persistent remittances which is broadly consistent with remittances being an integral part of household s income generation strategy

the effects of rural electrification on employment new evidence from south africa this paper estimates the impact of electrification on employment growth by analyzing south africa s mass roll out of electricity to rural households using several new data sources and two different identification strategies an instrumental variables strategy and a fixed effects approach i find that electrification significantly raises female employment within five years this new infrastructure appears to increase hours of work for men and women while reducing female wages and increasing male earnings several pieces of evidence suggest that household electrification raises employment by releasing women from home production and enabling microenterprises migration behavior may also be affected jel h54 l94

a guide to wavelets for economists abstract wavelet analysis although used extensively in disciplines such as signal processing engineering medical sciences physics and astronomy has not fully entered the economics discipline yet in this survey article wavelet analysis is introduced in an intuitive manner and the existing economics and finance literature that utilizes wavelets is surveyed and explored extensive examples of exploratory wavelet analysis are given most using canadian us and finnish industrial production data finally potential and possible future applications for wavelet analysis in economics are discussed

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

is schumpeterian creative destruction a plausible source of endogenous real business cycle shocks abstract this paper examines the link between growth and business cycles by incorporating schumpeterian growth into an otherwise standard real business cycle rbc model we ask whether schumpeter s creative destruction process can generate realistic business cycles we solve the model generate artificial time series and compare statistical properties of these series with their historical counterparts in our approach the trend component is included in our artificial series just as it is in the data hence we are not tied to any particular filtering method for our comparisons we find that schumpeterian fluctuations alone can generate time series that match key moments from u s data we also find however that a model with both schumpeterian and standard rbc shocks performs better

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

endogenous growth cycles current explanations why a growing economy necessarily goes through periods of high and low growth predict countercyclical r d investment as this is very controversial from an empirical perspective a stochastic poisson model of endogenous growth cycles is presented where the determinants of the cyclical behaviour of r d investment are analytically studied providing an explicit expression for the expected length of a cycle shows that high frequency fluctuations can indeed be understood by this approach it is also shown how small technological improvements translate into large aggregate fluctuations

the economic determinants of technology shocks in a real business cycle model abstract creative destruction due to new technologies causes both long run growth and short run business fluctuations new technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units obsolescence induces an adjustment period during which growth rates gradually fall at some endogenously determined point research for the next technology starts once the new technology is discovered a technology shock occurs and the next cycle starts this is shown in a continuous time rbc model with risk averse agents where savings can be used for financing deterministic capital accumulation and stochastic r d for new technologies

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

aggregate fluctuations and the industry structure of the us economy abstract in a two sector economy changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment specific and neutral shocks i document that the cost shares of intermediate inputs produced by the investment sector correlate positively with gdp whereas those of inputs produced by the consumption sector correlate negatively with gdp the two sector model of greenwood et al 1988 is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors shock amplification that is the effect of a sectorial shock on aggregate value added depends on the degree of heterogeneity in these elasticities of substitution for a calibrated economy to that of the united states i find that shock amplification is stronger than in a unitary elasticity economy it is also stronger than in an economy with a common non unitary elasticity that is either inferred from data via reduced form estimates or calibrated to match the same targets as our benchmark economy

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

disaggregate stochastic trends in industrial production abstract several industries appear cointegrated at a highly disaggregated level but the cointegration is not sufficient to reduce the system to a single common trend instead the results indicate that ten common trends are present in the industrial production aggregate

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed

liquidity and real activity in a simple open economy model abstract this paper analyzes the ability of an open economy version of lucas s 1990 liquidity model to account for properties of international data the focus is on the model s ability to account for exchange rate dynamics and measured effects of monetary policy shocks on exchange rates interest rates and real activities across countries the model generates a prediction that a positive domestic monetary innovation is associated with nominal and real currency depreciations however the model s predictions with respect to nominal and real exchange rate volatilities are low

technical progress and aggregate fluctuations abstract we compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change all of which are highly autocorrelated the results obtained are quite sensitive to the precise form of this stochastic process in particular the results depend on whether growth is deterministic or stochastic and in each case are quite sensitive to the persistence of an innovation the model does a relatively poor job of accounting for features of observed business cycles when technical change is difference stationary and does a better job when technical change is trend stationary but highly autocorrelated

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

a multisectoral general equilibrium model of schumpeterian growth and fluctuations abstract this paper builds a dynamic multisectoral general equilibrium model of schumpeterian growth and fluctuations based on the endogenous introduction of new products the set of technological opportunities determines the degree of product quality upgrading and consists of breakthroughs and improvements the latter exhibiting diminishing returns if the degree of diminishing returns to technological improvements is low then there is no steady state equilibrium but cycles of breakthroughs and improvements we analyze two symmetric stable patterns of innovation which generate endogenous cycles and growth there is a negative correlation between the duration of each cycle and the long run growth trend