sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

aggregate investment in a business cycle model with adjustment costs abstract this paper explains the observed cyclical variability of aggregate investment and the counter movements with respect to its relative price in the us data using a stochastic growth model with adjustment costs the exogenous disturbances of the model represent preference shocks productivity innovations and changes on the relative price between consumption and investment goods simulations of the model imply that the volatility of those relative price innovations need to be three to four times larger than the standard solow residual innovations in order to match the model with the data

trust market participation and economic outcomes evidence from rural china markets can only function properly in the presence of sufficient trust we explore the relation between trusting behavior and market integration in rural china we link the results of a trust experiment to actual behavior in the field participation in the labor market versus informally exchanging labor and find that high trust households are more likely to use formal markets we proceed by exploring the relation between labor market participation and economic outcomes finding tentative evidence of a causal relation running from market participation to higher levels of income

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

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

a test for moral hazard in the labor market contractual arrangements effort and health moral hazard plays a central role in many models depicting contractual relationships involving worker effort the authors show how time series information on worker health consumption and work time can be used to measure the effort effects of payment schemes estimates from longitudinal data describing farming rural households indicate that time wage payment schemes and share tenancy contracts reduce effort compared to piece rate payment schemes and on farm employment the evidence also indicates consistent with moral hazard that the same workers consume more calories under a piece rate payment scheme or in on farm employment than when employed for time wages copyright 1994 by mit press

how to identify trust and reciprocity this paper uses a three games or triadic design to identify trusting and reciprocating behavior a large literature on single game trust and reciprocity experiments is based on the implicit assumption that subjects do not have altruistic or inequality averse other regarding preferences such experimental designs test compound hypotheses that include the hypothesis that other regarding preferences do not affect behavior in contrast experiments with the triadic design do discriminate between transfers resulting from trust or reciprocity and transfers resulting from other regarding preferences that are not conditional on the behavior of others decomposing trust from altruism and reciprocity from altruism or inequality aversion is critical to obtaining empirical information that can guide the process of constructing models that can increase the empirical validity of game theory

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

an alternative to steady state comparisons in perfect foresight models abstract this note examines a technique for the computation of the welfare impact of a pertubation of the steady state in a typical perfect foresight model the major innovation is the ability to analyze non stationary perturbations

the productivity of trust this paper tests whether social trust affects total factor productivity tfp using both development and growth accounting we find strong evidence of a causal positive effect of social trust on the level and growth of tfp we moreover observe that the effect of social trust on tfp runs through economic judicial institutions but not through political institutions those findings resist a series of robustness checks

formal institutions and social capital in value chains the case of the ethiopian commodity exchange we explore whether the creation of the ethiopian commodity exchange ecx and its formal monitoring and enforcement institutions has affected social capital and trust in the ethiopian segment of the sesame value chain consistent with a simple theoretical marketing model our panel data suggest this is indeed the case trade in sesame is increasingly governed by formal rather than informal institutions and in response traders have broadened their trading network rely more frequently on traders with whom they do not have social relations and have reduced the provision of credit that cements personalized relationships they also have lower levels of trust in the intentions and capabilities of their trading partners and attach less weight to trust

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

trust and cooperation social capital and community resource management social capital is one of the main determinants of community resource management success we use the average amount sent in a trust game as a measure of social capital in five rural villages in india combining these experimental data with household surveys we analyze i how the amount sent is correlated with socio cultural community characteristics ii how social capital affects community resource management and iii to what extent experimental play is consistent with real on farm behavior in terms of providing a semi public good the results are interesting from a policy perspective and provide insight into bridging the gap between lab experiments and the field

who trusts others community and individual determinants of social capital in a low income country this study presents new evidence on individual and community specific determinants of social trust using data from 96 villages in bangladesh we find perceived institutional trust to be positively correlated with stated inter personal trust at the same time there is significant social distance among various faith groups in our data both hindus and muslims trust their coreligionists more than they trust those from other religions moreover hindus trust christians buddhists and ngo workers more than muslims and are not distrustful of the wider society trust towards non muslims is negatively correlated with islamic school attendance among muslim respondents while religiosity tends not to play any role compared to religion the effects of institutional trust and local economic development are modest these findings are robust to control for a range of individual and community level correlates and enumerator fixed effects

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

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

the role of intratemporal adjustment costs in a multisector economy abstract in this paper we construct a multisector business cycle model which is capable of reproducing the procyclical behavior of cross sector measures of capital employment and output we start by documenting the difficulty that a standard variant of a conventional real business cycle model has in accounting for these facts we then show how the introduction of intratemporal adjustment costs for investment can significantly enhance the performance of such a model these costs make it difficult to alter the composition of production of new capital goods the presence of these costs eliminates many counterfactual observations of the model that would otherwise be present the dynamic response of variables in the model is different from what one would observe in the standard one sector model we also examine the implications of imposing intratemporal adjustment costs for labor the model can also account for the cross sector behavior of employment observed in the data

the effects of technology shocks on hours and output a robustness analysis we analyze the effects of neutral and investment specific technology shocks on hours and output long cycles in hours are removed in a variety of ways hours robustly fall in response to neutral shocks and robustly increase in response to investment specific shocks the percentage of the variance of hours output explained by neutral shocks is small large the opposite is true for investment specific shocks news shocks are uncorrelated with the estimated technology shocks copyright 2009 john wiley sons ltd

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

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

elasticities science or fiction abstract apart from discrepancies in statistical data series the most frequent source of inconsistencies among elasticity estimates is the model specification and the interpretation of empirical results this paper investigates this issue and in particular highlights the misconception that elasticities can scientifically and uniquely be determined by econometric techniques however it is common knowledge that econometric methods constitute a very good tool for analysing the past thus the main message of this exercise is that in the absence of complete specification there are important trends in the elasticities themselves such trends are very crucial and need to be interpreted if elasticities are to be used for forecasting purposes

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

the analytics of technology news shocks abstract this paper constructs several models in which unlike the standard neoclassical growth model positive news about future technology generates an increase in current consumption hours and investment these models are said to exhibit procyclical news shocks we find that all models that exhibit procyclical news shocks in our paper have two commonalities there are mechanisms to ensure that i consumption does not crowd out investment or vice versa ii the benefit of forgoing leisure in response to news shocks outweighs the cost among the models we consider we believe one model holds the greatest potential for explaining procyclical news shocks its critical assumption is that news of the future technology also illuminates the nature of this technology this illumination in turn permits economic actors to invest in capital that is forward compatible i e adapted to the new technology on the technical side our paper reintroduces the laplace transform as a tool for studying dynamic economies analytically using laplace transforms we are able to study and prove results about the full dynamics of the model in response to news shocks

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

climate change policy market structure and carbon leakage abstract the 1997 kyoto protocol on climate change obliges the industrialized countries to initiate the international effort of abating anthropogenic greenhouse gas ghg emissions if such an initiative is to be taken the associated competitive effects may lead to significant relocation of developed countries energy intensive production this paper examines this issue i adopt an oligopolistic structure combined with increasing returns to scale production technologies to represent the strategic interaction among the firms producing energy intensive products this representation is then embedded within a multi regional computable general equilibrium model which in turn is used for quantifying these relocational effects the results suggest that significant relocation of energy intensive industries away from the oecd may occur depending on the type of market structure with leakage rates as high as 130 in which case ghg control policies in the industrialized countries actually lead to higher global emissions

bootstrapping for consistent standard errors for translog price elasticities some evidence from industrial electricity demand abstract this note extends the hirschberg aigner method for deriving price elasticities of various time differentiated electric inputs using estimated cost share elasticities in a translog formulation the h a method leaves out an important component of variance as the estimated cost share elasticities are themselves estimates and are not known quantities this omission leads to overestimating the significance levels of price elasticities with our extension using repeated sampling techniques such as bootstrapping the price elasticity estimates significant when derived through the h a method now become insignificant this points out the need for such an extension when evaluating computed price elasticity estimates particularly when these are used in policy making

an exploration into pigou s theory of cycles abstract this paper explores a theory of business cycles in which recessions and booms arise due to difficulties encountered by agents in properly forecasting the economy s future needs in terms of capital the idea has a long history in the macroeconomic literature as reflected by the work of pigou industrial fluctuation macmillan london 1926 the contribution of this paper is twofold first we illustrate the type of general equilibrium structure that can give rise to such phenomena second we examine the extent to which such a model can explain the observed pattern of u s recessions frequency depth without relying on technological regress we argue that such a model offer a framework for understanding elements of both the recent u s recession and of the asia downturns of the late 1990s

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

does market participation promote generalized trust experimental evidence from southern africa does market participation promote generalized morality and trust as postulated by some recent theories we use experimental data from zimbabwe and mozambique to probe into one specific component of this question and find evidence to the contrary the short term effect of market integration appears to be to lower generalized trust however this finding is not robust across all countries

investment shocks and the comovement problem recent work based on sticky price wage estimated dynamic stochastic general equilibrium dsge models suggests investment shocks are the most important drivers of post world war ii us business cycles consumption however typically falls after an investment shock this finding sits oddly with the observed business cycle comovement where consumption along with hours worked and investment moves with economic activity we show that this comovement problem is resolved in an estimated dsge model when i the cost of capital utilization is specified in terms of increased depreciation of capital as originally proposed by greenwood et al 1988 in a neoclassical setting or ii there is no wealth effect on labor supply the data however favors the first channel traditionally the cost of utilization is specified in terms of forgone consumption following christiano et al 2005 who studied the effects of monetary policy shocks the alternative specification we consider has two additional implications relative to the traditional one i it has a substantially better fit with the data and ii the contribution of investment shocks to the variance of consumption is over three times larger the contributions to output investment and hours are also relatively higher suggesting that these shocks may be quantitatively even more important than previous estimates based on the traditional specification

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

no news in business cycles this paper uses a structural large dimensional factor model to evaluate the role of news shocks shocks with a delayed eect on productivity in generating the business cycle

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

domestic market integration and regional economic growth china s recent experience from 1995 2011 summary this paper constructs an enhanced indicator for trade barrier and examines the endogenous relationship between market integration and regional economies across china from 1995 to 2011 beyond the current literature this study shows the endogenous relationship is significant reflecting a virtuous cycle domestic openness contributes to the economies in the central region more than in the other regions the feedback effect is stronger in the eastern and central regions than in the western and northeastern domestic openness and regional economies are adversely affected by state owned enterprises and government non productive expenditure several policy implications relevant to chinese economy are drawn from the findings

bootstrapping for standard errors of instrumental variable estimates abstract theil and finke 1983 used the distance from the equator as an instrumental variable iv in the estimation of a cross country demand system here we obtain standard errors of the iv estimates using efron s 1979 bootstrap technique

the co2 abatement game costs incentives and the enforceability of a sub global coalition abstract this paper studies the economic incentives and the institutional issues governing the outcomes of a short term climate change policy package guided by the united nations framework convention on climate change and the berlin mandate initiatives game theoretic tools and the global trade environment interface are explored within a 26 region 13 commodity computable general equilibrium framework to characterize the incentives of oecd regions to comply with a non binding agreement in a carbon abatement coalition the results showed that in the absence of side payments the achievement of such a coalition might require the design of suitable trade instruments

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

is competition good for trust cross country evidence using micro data abstract this paper empirically analyzes implications of market competition for generalized trust of about 80 000 individuals in about 60 countries we find that competition amplifies the trust generating effect of market integration for highly integrated individuals

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

the intertemporal elasticity of substitution an exploration using a us panel of state data this paper uses state level consumption data to estimate the intertemporal elasticity of substitution of consumption ies in contrast to the results of hall 1988 and campbell and mankiw 1989 we provide evidence indicating that the ies is significantly different from zero and probably close to one since inference about the ies in the context of the standard euler equation is problematic as a result of mis specification bias we cast most of our discussion in the context of the framework developed by campbell and mankiw this modifies the euler equation in that a fraction of agents simply consume their income the use of panel data to examine the relationship between interest rates and consumption growth has two advantages first we achieve a significant increase in precision which in particular allows us to rule out a zero ies second we can use the panel aspect of the data to bypass asset return measurement problems in particular we identify a common time component in expected consumption growth that is associated with movements in interest rates when the ies is positive

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

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

sufficient information in structural vars abstract necessary and sufficient conditions under which a var contains sufficient information to estimate the structural shocks are derived on the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient var a simulation based on a dsge model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem in an empirical application we show that a bivariate var including unemployment and labor productivity is informationally deficient once the relevant information is included into the model technology shocks appear to be contractionary