the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

residential construction using the urban growth model to estimate housing supply abstract this article presents an empirical model of housing supply derived from urban growth theory this approach describes new housing construction as a function of changes in house prices and costs rather than as a function of the levels of those variables which previous studies have used empirical tests support this specification over the leading alternative models our estimates show that a 10 rise in real prices leads to an 0 8 increase in the housing stock which is accomplished by a temporary 60 increase in the annual number of starts spread over four quarters

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

understanding the macroeconomic impact of illiquidity shocks in the united states in this paper we empirically investigate the role of stock market illiquidity shocks stemming from amihud s illiquidity measure in explaining u s macroeconomic fluctuations from 1973 to 2018 we find that the impact of illiquidity shocks on economic activity is substantial and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the great recession moreover our identified illiquidity shocks represent a distinct source of macroeconomic instability this suggests that illiquidity shocks measured by the stock price impacts may contain more information than other types of shocks in recent studies such as financial shocks and uncertainty shocks jel c32 e32

a flexible finite horizon alternative to long run restrictions with an application to technology shocks abstract recent studies using long run restrictions question the validity of the technology driven real business cycle hypothesis we propose an alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long but finite horizon in small sample monte carlo experiments our identification outperforms standard long run restrictions by significantly reducing the bias in the short run impulse responses and raising their estimation precision unlike its long run restriction counterpart when our max share identification technique is applied to u s data it delivers the robust result that hours worked responds negatively to positive technology shocks

international business cycles and the relative price of investment goods is the relative price of investment goods a good proxy for investment specific technology we model this relative price in a flexible price international economy with two fundamental shocks namely the total factor productivity tfp shock and the investment specific technology ist shock we show that the one to one correspondence between the ist shock and the relative price of investment goods breaks down in an international economy because of the short run correlation between the terms of trade and the relative price of investment goods the data congruent negative correlation between the investment rate and the relative price of investment goods thus does not necessarily reflect decline in investment frictions rise in ist as suggested by many studies a calibration experiment with the us data demonstrates that such an inverse relation between rate of investment and the relative price of investment goods basically reflects the positive effect of tfp on the terms of trade for a broad range of economies where the home bias in consumption exceeds investment and there is a sizable adjustment cost of investment est ce que le prix relatifs des biens d investissement est un bon indicateur du changement technique fonde sur l investissement on construit un modele du prix relatif des biens d investissement dans une economie internationale a prix flexibles soumis a deux chocs fondamentaux la productivite totale des facteurs tfp et le changement technique fonde sur l investissement ist on montre que la correspondance bijective entre le choc ist et les prix relatifs des biens d investissement disparait dans une economie internationale a cause de la correlation a court terme entre les termes d echange et les prix relatifs des biens d investissement la correlation negative entre le taux d investissement et les prix relatifs des biens d investissement qu on retrouve dans les donnees ne reflete donc pas necessairement un declin dans les frictions d investissement accroissement de ist comme certaines etudes le suggerent un effort de calibration a l aide de donnees americaines montre qu une telle relation entre le taux d investissement et le prix relatif des biens d investissement reflete l effet positif de la tfp sur les termes d echange pour un grand eventail d economies ou la preference pour les produits domestiques est plus grande dans les biens de consommation que dans les biens d investissement et qu il y a donc un ajustement considerable dans le cout de l investissement

monetary news shocks we pursue an empirical strategy to identify a monetary news shock in the u s economy we use a monetary policy residual along with other variables in a vector autoregression var and identify a monetary news shock as the linear combination of reduced form innovations that is orthogonal to the current residual and that maximizes the sum of contributions to its forecast error variance over a finite horizon real gdp declines in a persistent manner after a positive monetary news shock this contraction in economic activity is accompanied by a fall in inflation and a rapid increase in the nominal interest rate

sectoral tfp news shocks abstract we document a strong similarity in the macroeconomic effects of consumption specific and investment specific tfp news shocks this co linearity suggests a diffusion channel of technological innovations from the investment to the consumption sector that forecast future changes in aggregate tfp this finding connects two views of the literature on news shocks aggregate tfp news and investment specific news

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

investment shocks consumption puzzle and business cycles a mass of recent research shows that investment shocks are primary driving forces of business cycles a thorny issue however arises due to countercyclical consumption behavior following the investment shocks this article contributes to the literature by resolving this anomalous issue in a model that features time inconsistency modeled as naive hyperbolic discounting the proposed model delivers positive responses of consumption to an investment shock and thus produces comovement of key macroaggregates which is in line with the observed u s business cycles furthermore this article also substantiates the validity of the proposed model by producing comovement following an investment news or anticipated investment shock additional analyses on changes in model structure and parameter value do not reverse the main finding jel e3 e7

a note on multi regional marketing this paper examines the profit maximizing behavior of a vertically integrated firm that operates in n geographically distinct regions a pair of alternative managerial decision scenarios are considered in one scenario all marketing mix variables are manipulated at the regional level so that each region may choose different levels of each marketing variable in the second scenario one marketing variable is manipulated globally so that its level is identical in all regions the first scenario generates an n region version of the dorfman steiner first order conditions for profit maximization however under some cost structures the profits associated with this dorfman steiner scenario are dominated by those associated with the second global regional scenario this second scenario yields an optimal solution in which the global marketing variable may have a negative marginal impact on sales in some regions as a result some managerial implications of the second scenario differ strikingly from those of the dorfman steiner scenario

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

real estate regulations in accra some macroeconomic consequences ghana has been one of the most rapidly growing economies in sub saharan africa this growth has been aided by ghana s improving policy environment in light of this the paper addresses the question of why given its higher level of per capita income and relatively strong growth the housing conditions of the poor in accra are considerably worse than those in a number of other african cities with lower incomes there are not many data available to answer this question so the method is indirect and takes two approaches first a variant of the monocentric city model is used to calculate accra s housing supply elasticity relative to those of other similarly sized african cities the model suggests that housing supply responsiveness is considerably lower in accra a result consistent with the observed higher housing costs secondly a number of traditional housing demand and reduced form equations are estimated for accra and the other cities this allows the formation of a quantitative judgment about accra

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

trend breaks long run restrictions and contractionary technology improvements abstract structural vector autoregressions with long run restrictions are extraordinarily sensitive to low frequency correlations recent literature finds that the estimated effects of technology shocks are sensitive to how one treats hours per capita however after allowing for statistically and economically significant trend breaks in productivity results are much less sensitive hours fall when technology improves the issue is that the common high low high pattern of productivity growth and hours i e the low frequency correlation inevitably leads to a positive estimated response the trend breaks control for this correlation this example suggests a practical need for care in using long run restrictions

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

how does government spending news affect interest rates evidence from the united states abstract this study analyzes the effects of news shocks to u s government spending on interest rates especially long term interest rates and investigates the role of agents expectations in the propagation of government spending to interest rates using large bayesian vector autoregressive models with sufficient information we find that news about increases in government spending induce significant increases in both short and long term interest rates while the effects of government spending surprise shocks on interest rates are mixed and ambiguous government spending news shocks in the baseline model account for around 10 of the variance in forecast errors in long term interest rates which is much more important than government spending itself using empirical dynamic term structural models we further decompose increases in long term interest rates into changes in expectations of future monetary policy and changes in term premiums we find that an increase in the long term interest rate after a positive government spending news shock mainly reflects higher expected future short term interest rates which demonstrates the importance of the coordination between fiscal and monetary policy communication

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

international money supply and real estate risk premium the case of the london office market abstract the main purpose of this study is to deeply investigate the determinants of the risk premium for the central london market between q2 2002 and q3 2015 using a vector autoregression var model we shed new light on the role of central banks in the historical level of the commercial real estate risk premium indeed since the global financial crisis gfc central banks have used unconventional monetary policies increasing the quantity of money available in the economy and creating structural changes therefore we have described the link between monetary policies and real estate using a theoretical is lm mundell fleming framework for a small open economy with a flexible exchange rate to empirically explore this phenomenon we have constructed a monetary index adapted to the office market we find that throughout the whole period 2002 2015 the vacancy rate the employment in services the ftse 100 the new monetary index and the autoregressive parameter are the main determinants of the historical risk premium however this result hides the complex realities of different sub periods finally we study the structural changes introduced by the monetary policy using a structural var model and impulse response function

overaccumulation interest and prices an emerging view of business cycles from the news shock literature suggests that recessions may occur when agents depress their demand for new capital upon the realization that they have accumulated too much conditional on current information in this paper i use a new keynesian model with a financial accelerator to study the behaviour of interest and prices under both a technology boom bust driven by changes in expectation about tfp and a credit boom bust driven by changes in expectations about the efficiency of the financial sector while the two scenarios are similar in that they both lead to a run up and then sharp drop off in new capital and debt i show that the behaviour of interest and prices depends critically on the nature of the new shock driving the overaccumulation in particular the boom phase of the tfp boom bust is characterized by below trend inflation or deflation whereas that of the credit boom bust is characterized by above trend but low inflation in contrast inflation falls below trend in the bust phases of both i show that consistent with results elsewhere in the literature stricter inflationtargeting fails to pull the economy toward the efficient equilibrium during the boom phase of the tfp boom bust in contrast stricter inflation targeting pushes the economy closer to the flexible price response during the boom phase of the credit boom bust in both cases however conditional on realization of overaccumulation inflation targeting pulls the economy towards the flexible price equilibrium

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

do technology shocks lead to a fall in total hours worked this paper contributes to the debate initiated by gali in 1999 i provide a theory with capital income taxation labor hoarding as well as long run shifts in the social attitudes to the workplace modelled as leisure at the workplace to argue that there are other shocks that may influence labor productivity in the long run i introduce medium run identification and show it to be superior to long run identification or standard short run identification when applied to artificial data with u s data and medium run identification i find the robust result that technology shocks lead to a hump shaped response of total hours worked which is mildly positive following a near zero initial response jel e32 e24 c32 c15 copyright c 2004 the european economic association

the demand for housing in developing countries empirical estimates from household data cities in developing countries are growing at extraordinary rates often compressing into decades the urbanization process that has taken centuries in developed countries in coping with this growth public authorities have devised a wide range of policy instruments to influence the rate and character of city expansion to meet the needs of people for shelter and urban services and to allocate resources in ways that redistribute both the costs and benefits of urban growth ideally such policy formulation should be informed by a careful understanding of the behavior of urban markets in fact little information on market behavior is available to the policymakers of developing countries such basic information is needed for improved project design and even more important for improved sector wide policies this paper reports on research conducted at the world bank to increase understanding of developing country housing markets in particular of housing demand behavior while the overall project examines both the demand for housing characteristics and the demand for housing as a composite good this paper addresses only the latter the objectives of this paper are 1 to review briefly previous evidence on housing demand parameters in developing countries 2 to present new evidence on housing demand parameters based on application of standardized models and comparable variable definitions in 16 cities in eight developing countries colombia egypt el salvador ghana india jamaica korea and the philippines and 3 to examine similarities and differences among cities in housing demand and in a preliminary way offer explanations for place to place differences limited comparisons are also made to two u s cities in order to begin comparison of developing and developed country market behavior

british planning policy and access to housing some empirical estimates there is evidence that the implementation of the planning system creates scarcity rents for land in different uses by acting as a constraint on land supply this paper provides for 1984 estimat

news and financial intermediation in aggregate fluctuations an important disconnect in the news view of fluctuations is the lack of consistent evidence suggestive of significant macroeconomic effects of news shocks findings from estimated dsge models that in theory allow news shocks to matter quantitatively suggest that they do not this disconnect can be resolved once we augment a dsge model with a financial channel that provides amplification to news shocks our results suggest that news shocks to the future growth prospects of the economy are significant drivers of u s fluctuations explaining as much as 50 and 37 of the variance in hours worked and output respectively in cyclical frequencies

what can we learn about news shocks from the late 1990s and early 2000s boom bust period this is a substantially revised version of the paper previously circulated as a new var based approach to identifying news shocks

chronicle of a war foretold the macroeconomic effects of anticipated defence spending shocks we identify us defense news shocks as shocks that best explain future movements in defense spending over a ve year horizon and are orthogonal to current defense spending our identied shocks are strongly correlated with the ramey 2011 news shocks but explain a larger share of macroeconomic uctuations and have signicant demand eects fiscal news induces signicant and persistent increases in output consumption investment hours and the interest rate standard dsge models fail to produce such a pattern we propose a sticky price model with distortionary taxation variable capital utilization capital adjustment costs and rule of thumb consumers that replicates the empirical ndings

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks