corporate taxation and capital accumulation evidence from sectoral panel data for 14 oecd countries abstract we present new empirical evidence that sector level capital output ratios are strongly influenced by corporate tax incentives as summarised by the tax component of a standard user cost of capital measure we use sectoral panel data for the usa japan australia and eleven eu countries over the period 1982 2007 our panel combines internationally consistent data on capital stocks value added and relative prices from the eu klems database with corporate tax measures from the oxford university centre for business taxation our results for equipment investment are particularly robust and strikingly consistent with the basic economic theory of corporate investment

the long run relationship between productivity and capital abstract using panel cointegration techniques we show a cointegrating relationship exists between capital and productivity in 446 manufacturing industries panel dols and fmols estimates reveal that innovations to productivity increase and granger cause capital movements

investment specific technological changes the source of long run tfp fluctuations abstract technological innovations originating in the capital producing sector may spillover to the rest of the economy and enhance aggregate tfp in the long run this paper assesses the quantitative importance of investment specific technological changes in long run movements in aggregate tfp to this end we construct a two sector business cycle model where an ist diffusion process influences long run movements in aggregate tfp via spillover we then establish the linkage between the primitive shocks of the model and two shocks that can be identified from a var approach one shock accounting for the long run movement in aggregate tfp and the other accounting for the long run movement in the inverse of the relative price of investment we show analytically that the correlation of these two long run shocks can be fruitful in distinguishing the quantitative importance of ist innovations in long run movements in aggregate tfp using post war u s data we find that these two long run shocks identified by the mfev approach are almost perfectly collinear moreover these two shocks can explain a significant and surprisingly similar fraction of the business cycle fluctuations in other important macro variables our findings suggest that embodied technological changes are an important driver of long run movements in aggregate tfp

tracking the new economy using growth theory to detect changes in trend productivity abstract the acceleration of productivity after 1995 prompted a debate over whether the economy s underlying growth rate would remain high in this paper we draw on growth theory to identify variables other than productivity namely consumption and labor compensation to help estimate trend productivity growth we treat that trend as a common factor with two regimes high and low growth our analysis picks up striking evidence of a return in 1997 to the high growth regime nearly 25 years after a switch from high to low growth we find that both the common factor and regime switching aspects of the model are important for identifying changes in trend productivity and also show that the trend breaks are more difficult to detect with per capita as opposed to per hour based data because of persistent labor supply shifts finally we argue that our methodology is effective in detecting changes in trend in real time in the case of the 1990s the methodology would have signaled the regime switch by 1999 or within roughly six quarters of when it occurred according to the full sample

financial integration and business cycles in a small open economy abstract the purpose of this study is to examine a dynamic stochastic general equilibrium framework with financial and informational frictions and foreign borrowing in the case of money growth and technology shocks for a small open economy and to analyze the implications of varying degrees of financial integration for aggregate fluctuations and propagation mechanisms in the economy the existence of informational asymmetries among the agents in the model necessitates financial intermediation in the economy moreover there is uncertainty involved in the production process which leads to collateralized borrowing by firms and therefore has to be taken into account in the design of the loan contracts between firms and financial intermediaries it is shown that increasing financial integration amplifies the effect of a positive temporary monetary shock on output consumption investment labor demand and loans whereas it has barely any implication for the impact of a positive temporary technology shock on the economy

a new time varying parameter autoregressive model for u s inflation expectations we study the evolution of u s inflation by means of a new noncausal autoregressive model with time varying parameters that outperforms the corresponding causal and constant parameter noncausal models in terms of fit and forecast accuracy our model also beats the unobserved component stochastic volatility ucsv model one of the best performing univariate inflation forecasting models in terms of both point and density forecasts we also show how the new keynesian phillips curve can be estimated based on our noncausal model both expected and lagged inflation turn out important but the former dominates in determining the current inflation

capital accumulation sectoral heterogeneity and the taylor principle abstract in the presence of capital accumulation the taylor principle may not be sufficient for determinacy under reasonable parameter values in this paper i consider a two sector extension of the models used in the existing literature i show that what matters for whether the taylor principle is sufficient is the price stickiness of investment goods price stickiness of consumer goods on the other hand matters very little the taylor principle is sufficient i find unless there is considerable price stickiness in the investment goods sector

uncertainty across volatility regimes we propose a nonrecursive identification scheme for uncertainty shocks that exploits breaks in the volatility of macroeconomic variables and is novel in the literature on uncertainty this approach allows us to simultaneously address two major questions in the empirical literature is uncertainty a cause or effect of decline in economic activity does the relationship between uncertainty and economic activity change across macroeconomic regimes results based on a small scale vector autoregression with us monthly data suggest that i uncertainty is an exogenous source of decline of economic activity and ii the effects of uncertainty shocks amplify in periods of economic and financial turmoil

productivity growth in goods and services across the heterogeneous states of america i introduction the study of income and productivity convergence and structural transformation are central and recurring themes in economic growth research the u s states have been a fertile testing ground for many intellectual advances in these areas the closed economy assumptions of the underlying models notwithstanding the states offer compensating advantages such as being subject to the same macroeconomic policy while simultaneously exhibiting considerable heterogeneity along many dimensions of interest to growth researchers demographics composition of output quality of workforce tax policy natural resource endowments geography etc at the same time knowledge on multifactor productivity mfp growth which is central to many growth models remains sparse for u s states this is mainly due to lack of data on capital accumulation beyond the manufacturing sector this is unfortunate as an emerging body of work has begun to draw attention to the fact that the convergence of state level incomes has slowed down over the past two to three decades in the absence of adequate data at the state level it becomes difficult to further analyze this problem within a multisectoral framework in this study we seek to rectify this shortcoming by constructing and analyzing productivity growth for the broadly defined privately produced goods and service sectors at the state level and undertake both growth accounting and convergence analysis for the period 1980 2007 1 our primary innovation is the use of the dual growth accounting method which relies on factor prices rather than factor stocks to construct mfp growth to get a sense of the underlying heterogeneity in sectoral labor productivity growth consider the convergence plots displayed in figure 1 in figure 1 a we plot labor productivity growth in the nonfarm nonmining private sector between 1980 and 2007 against initial labor productivity there is some evidence of absolute convergence although weak in figures ib and 1c we repeat similar plots but now for the goods sector and for the private service sector separately here we see markedly different patterns while convergence in the goods sector is apparent for services it is quite the opposite moreover if one inspects the values on the vertical axes one can also infer large differences across states this is particularly true for goods where the difference between oregon or and montana mt was almost 7 annually as a result even though montana had slightly higher labor productivity in 1980 by 2007 oregon s productivity was at least five times higher even for the service sector where the range is much smaller the difference between connecticut ct and michigan mi was almost 2 annually as a result though both states began with almost similar values connecticut s labor productivity in services was 60 higher than michigan s by 2007 clearly these are large underlying regional differences these very different patterns motivate some of the questions that we try to answer in this study using our constructed series of mfp growth and its constituent variables we examine the sources of variations in labor productivity growth first we conduct an in depth growth accounting exercise to explore the relative importance of mfp growth versus factor accumulation for the two broad sectors across u s states this allows us to undertake traditional growth accounting exercises and also examine the sources of variations across states as the dual accounting approach relies on the construction of real wage growth and real user cost growth we also investigate the sectoral patterns for these two variables second we conduct convergence analysis at the sectoral level for labor productivity growth mfp growth as well as factor price growth we show that while the goods sector shows convergence both absolute and conditional on initial human capital we see no such evidence for the service sector

total factor productivity and the measurement of technological change tfp is interpreted in the literature in different mutually contradictory ways changes in tfp are shown to measure not technological change only the super normal returns to investing in such change returns that exceed the full opportunity cost of the activity thus in the limit technological change can proceed with unchanged tfp measuring the effects of technological change instead requires counterfactual estimates reasons why changes in tfp are imperfect measures of super normal returns are also studied reasons connected with the timing of output responses the treatment of r d in the national accounts the omission of resource inputs and two types of aggregation la productivite totale des facteurs et la mesure du changement technologique la productivite totale des facteurs ptf est interpretee dans la litterature de manieres differentes et mutuellement contradictoires on montre que les changements dans la ptf ne mesurent pas le changement technologique mais seulement les rendements supra normaux sur les investissements dans de tels changements des rendements qui depassent le plein cout d opportunite de cette activite donc a la limite le changement technologique peut proceder sans que la ptf change mesurer les effets du changement technique reclame des evaluations d hypotheses de rechange les raisons pour lesquelles les changements dans la ptf sont des mesures imparfaites des rendements supra normaux sont aussi etudiees raisons connectees avec la reponse des niveaux de production le traitement de la r d dans les comptes nationaux l omission des intrants de ressources et deux types d agregation

directed technical change with capital embodied technologies implications for climate policy abstract we develop a theoretical model of directed technical change in which clean zero emissions and dirty emissions intensive technologies are embodied in long lived capital stocks switching from dirty to clean innovation leads to ongoing reductions in the relative costs of producing clean investment goods making them ever cheaper to purchase and so encouraging clean investment at the same time falling replacement costs imply falling asset values consequently continuing innovation in capital embodied clean technologies also generates obsolescence costs which are borne by users of clean capital the negative effect of obsolescence costs on demand for clean investment and consequently on the speed of transition to clean growth has been neglected in the literature on directed technical change we show theoretically and using numerical simulations that optimal policies differ in our model of embodied technological change relative to an otherwise comparable model of disembodied technological change with embodied technologies i optimal emissions taxes start higher and rise faster ii much higher clean research and development subsidies are required to effect the switch to clean innovation and iii climate damages under optimal policies are greater we suggest that more attention should be paid to the role of obsolescence costs in modelling transitional effects of climate policies

assessing energy price induced improvements in efficiency of capital in oecd manufacturing industries to assess how capital stocks adapt to energy price changes it is necessary to account for the impacts on different vintages of capital and to account separately for price induced and autonomous improvements in the energy efficiency of capital stock the results of econometric analysis for five manufacturing industries in 19 oecd countries between 1990 and 2005 indicate that higher energy prices resulted in smaller energy use due to both improved energy efficiency of capital stock and reduced demand for the energy input the investment response to energy prices varied considerably across manufacturing industries being more significant in energy intensive sectors the results of policy simulations indicate that a carbon tax can deliver significant reductions in energy consumption in the medium run with modest declines in energy using capital stock

forming priors for dsge models and how it affects the assessment of nominal rigidities abstract we discuss prior elicitation for the parameters of dynamic stochastic general equilibrium dsge models and provide a method for constructing prior distributions for a subset of these parameters from beliefs about steady state relationships and second moments of the endogenous variables the empirical application documents how the specification of the prior distribution affects our assessment of the relative importance of price and wage rigidities in a new keynesian dsge model

capital skill complementarity sectoral labor productivity and structural transformation abstract in the postwar u s economy labor productivity has been growing faster in the goods sector versus the service sector this paper argues that this sectoral labor productivity growth gap can largely be explained by the fact that capital intensity also increases faster in the goods sector i build a two sector neoclassical growth model in which capital substitutes low skilled labor but complements high skilled labor and the goods sector is more intensive in low skilled labor relative to the service sector as observed in the data as capital becomes more abundant relative to labor along economic growth low skilled labor is substituted by capital leading to faster growth of capital intensity and hence labor productivity in the goods sector using a calibrated model i find that two thirds of the sectoral labor productivity growth gap can be explained by capital accumulation and its interaction with capital skill complementarity

horizons of understanding a review of ray fair s estimating how the macroeconomy works ray fair s estimating how the macroeconomy works is the latest in a series of books by fair that build estimate and apply his macroeconometric model to study the u s economy in this book fair updates the model to incorporate the most recent data and uses it to analyze several important empirical questions such as whether the u s economy moved into a new age of high productivity in the last half of the 1990s and the dynamics of prices output and unemployment this review places his work in the context of the historical evolution of aggregate econometric models compares it with the current developments in the estimation of dynamic stochastic general equilibrium models and discusses some salient aspects of fair s contributions

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

rare shocks great recessions summary we estimate a dsge dynamic stochastic general equilibrium model where rare large shocks can occur by replacing the commonly used gaussian assumption with a student s t distribution results from the smets and wouters american economic review 2007 97 586 606 model estimated on the usual set of macroeconomic time series over the 1964 2011 period indicate that i the student s t specification is strongly favored by the data even when we allow for low frequency variation in the volatility of the shocks and ii the estimated degrees of freedom are quite low for several shocks that drive us business cycles implying an important role for rare large shocks this result holds even if we exclude the great recession period from the sample we also show that inference about low frequency changes in volatility and in particular inference about the magnitude of great moderation is different once we allow for fat tails copyright 2014 john wiley sons ltd

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

labor market volatility in the search and matching model the role of investment specific technology shocks abstract shocks to investment specific technology have been identified as a main source of u s aggregate output volatility in this paper we present a model with frictions in the labor market and explore the contribution of these shocks to the volatility of labor market variables namely unemployment vacancies tightness and the job finding rate thus our paper contributes to a recent body of literature assessing the ability of the search and matching model to account for the large volatility observed in labor market variables to this aim we solve a neoclassical economy with search and matching where neutral and investment specific technologies are subject to shocks the three key features of our model economy are i firms are large in the sense that they employ many workers ii adjusting capital and labor is costly iii wages are the outcome of an intra firm nash bargaining problem between the firm and its workers in our calibrated economy we find that shocks to investment specific technology explain 40 of the observed volatility in u s labor productivity moreover these shocks generate relative volatilities in vacancies and the workers job finding rate which match those observed in u s data relative volatilities in unemployment and labor market tightness are 55 and 75 of their empirical values respectively

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

disaster risk and preference shifts in a new keynesian model in rbc models disaster risk shocks reproduce countercyclical risk premia but generate an increase in consumption along the recession and asset price fall through their effects on agents preferences gourio 2012 this paper offers a solution to this puzzle by developing a new keynesian model with such a small but time varying probability of disaster we show that price stickiness combined with an eis smaller than unity restores procyclical consumption and wages while preserving countercyclical risk premia in response to disaster risk shocks the mechanism then provides a rationale for discount factor first and second moment uncertainty shocks

sunspot driven fat tails a note abstract empirical growth rate distributions of major macroeconomic aggregates are typically non normal and exhibit fat tails we advance the idea that indeterminacies in standard rational expectations models can qualify as a source of high frequency extreme macroeconomic outcomes in a univariate setup we demonstrate the emergence of fat tailed behavior for an endogenous variable even though structural and sunspot shocks both follow normal distributions

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

a tale of fat tails abstract we document the extent to which major macroeconomic series used to inform linear dsge models can be characterized by power laws whose indices we estimate via maximum likelihood assuming data follow a linear recursion with multiplicative noise low estimated indices suggest fat tails we then ask whether standard dsge models under constant gain learning can replicate those fat tails by an appropriate increase in the estimated gain and without much change in the transmission mechanism of shocks we find that is largely the case via implementation of a minimum distance estimation method that eschews any allegiance to distributional assumptions

benefit sharing in holding situations a situation is studied where one agent has available an amount of storage facility and the other agents have some goods part of which can be stored generating benefits the problem of sharing the benefits produced by full cooperation between agents is tackled in this paper by introducing a related cooperative game this game turns out to be a big boss game with interesting theoretical properties a solution concept relying on optimal storage plans and associated holding prices is also introduced and its relationship with the core of the above holding game is explored in detail the family of monotonic decreasing bijective mappings defined on the set of non negative real numbers plays an important role in our approach

the augmented solow model and the productivity slowdown abstract in an insightful and influential paper mankiw et al 1992 quarterly journal of economics 107 407 437 have suggested that an augmented solow growth model can account for 80 of the variation in output per capita across countries due to different steady state growth paths that result from differences in saving rates education and population growth this paper carries their analysis one step further and asks whether changes in the growth rate between the 1960s and the 1980s can also be explained by this framework our results provide further support for several of mankiw et al s key conclusions investment in physical capital population growth and the initial levels of output seem to matter a great deal however investment in human capital has no ability to account for changes in growth rates over time we conclude that investment in physical capital seems to be quite important for economic growth though the reasons for this importance may not be fully captured by the augmented solow growth model

capital reallocation and liquidity this paper studies the cyclical properties of capital reallocation and the frictions which inhibit such reallocation we show that the amount of capital reallocation and the benefits to reallocation vary at the business cycle frequency the amount of capital reallocation is procyclical in contrast the benefits to capital reallocation appear countercyclical we measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using several measures of the cross sectional dispersion of the productivity of capital we then study a calibrated model of an economy where capital reallocation is costly and impute the cost of reallocation which is consistent with the amount of and benefits to reallocation in the data we find that the cost of reallocation needs to be substantially countercyclical to be consistent with the observed joint cyclical properties of reallocation and productivity dispersion the cyclical variation in this cost is interpreted as variation in the liquidity of capital broadly defined since physical costs are unlikely to vary countercyclically

bargaining and commitment in a permanent relationship abstract when bargaining over a flow of trades the players may decide themselves whether or not to continue trade during the bargaining previous work has shown that if one extends the rubinstein alternating offers bargaining model by adding the feature that one of the players the union in each period can choose whether to disrupt trade strike in that period then there is a multiplicity of equilibria this paper shows that if one of the players is able to commit to disrupt trade for two periods then there is a unique subgame perfect equilibrium journal of economic literature classification numbers j5 c78

modeling cooperation on a class of distribution problems in this paper we study models of cooperation between the nodes of a network that represents a distribution problem the distribution problem we propose arises when over a graph a group of nodes offers certain commodity some other nodes require it and a third group of nodes neither need this material nor offer it but they are strategically relevant to the distribution plan the delivery of one unit of material to a demand node generates a fixed profit and the shipping of the material through the arcs has an associated cost we show that in such a framework cooperation is beneficial for the different parties we prove that the cooperative situation arising from this distribution problem is totally balanced by finding a set of stable allocations in the core of an associated cooperative game in order to overcome certain fairness problems of these solutions we introduce two new solution concepts and study their properties

the optimal economic lifetime of vintage capital in the presence of operating costs technological progress and learning abstract this paper studies the optimal vintage specific investment and disinvestment decision of a firm the decision is formulated as a distributed optimal control problem with a constraint on the state variable the economic model takes into accounts maintenance and operating costs technological progress and learning it allows firms to purchase not only the latest technology but also previous year vintages and completely disinvest old machines it does not assume that the firms keep machines of all vintages as other similar models do an analytical expression for the optimal economic lifetime of capital is derived and the qualitative dynamics of the optimal investment and disinvestment rules is analyzed

investment specific technological change and growth accounting greenwood et al 1997 long run implications of investment specific technological change american economic review 87 3 342 362 and 2000 the role of investment specific technological change in the business cycle european economic review 44 91 115 and hercowitz 1998 the embodiment controversy a review essay journal of monetary economics 41 217 224 have claimed that the jorgenson form of growth accounting is conceptually flawed and severely understates the importance of technological progress embodied in new capital goods for explaining growth to the contrary this paper shows that in its technology aspects their model is a special case of the jorgensonian growth accounting model what they call investment specific technological change is shown to be closely related to the more familiar concept of total factor productivity tfp growth statements about the one can be translated into statements about the other empirically differences between their conclusions and those of growth accounting studies about the extent to which embodiment explains us economic growth are found to relate more to data than to methodology

daily exchange rate behaviour and hedging of currency risk textabstractwe construct models which enable a decision maker to analyze the implications of typical time series patterns of daily exchange rates for currency risk management our approach is bayesian where extensive use is made of markov chain monte carlo methods the effects of several model characteristics unit roots garch stochastic volatility heavy tailed disturbance densities are investigated in relation to the hedging strategies consequently we can make a distinction between statistical relevance of model specifications and the economic consequences from a risk management point of view we compute payoffs and utilities from several alternative hedge strategies the results indicate that modelling time varying features of exchange rate returns may lead to improved hedge behaviour within currency overlay management

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

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

the economic crisis from a neoclassical perspective abstract this paper assesses the 2007 2009 recession using neoclassical business cycle theory i find that the 2007 2009 u s recession differs substantially from other postwar u s recessions and also from the 2008 recession in other countries in that lower labor input accounts for virtually all of the decline in income and output in the united states while lower productivity accounts for much of other u s recessions and the 2007 2009 recession in other countries i also find that existing classes of models including financial market imperfections models do not explain the u s recession this is because the 2007 2009 recession is almost exclusively related to what appear to be labor market distortions that drive a wedge between the marginal product of labor and the marginal rate of substitution between consumption and leisure a topic about which current classes of financial imperfection models are largely silent i discuss future avenues for developing this class of models and i consider alterna

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

is physical investment the key to china s growth miracle i introduction unprecedented high rates of economic growth in china over the past decades have stimulated a wide interest among researchers and policymakers in establishing whether rapid physical capital accumulation is the main driving force behind such outstanding growth performance and whether it suffices to sustain china s rapid economic growth in the next decades by exploiting the different implications that the relation between investment and growth has according to the neoclassical paradigm pioneered by solow 1956 and cass 1965 and endogenous growth models of the ak type this paper will attempt to test the empirical validity of the ak model for the chinese economy the main difference between the ak model and the solow model is that the former allows for the existence of constant returns to a sufficiently broad definition of capital which in turn enables investment to have a long run impact on growth in contrast under the neoclassical paradigm diminishing returns to reproducible capital leads inevitably to only temporary growth effects along the transitional path and long run growth depends on exogenous technological progress constant returns to reproducible capital characterizing linear accumulation driven models may stem from different sources like 1 positive externalities as in the models of frankel 1962 lucas 1988 and romer 1986 2 bounding the marginal product of reproducible factors away from zero jones and manuelli 1990 or 3 the existence of constant returns to all accumulable factors characterizing the different sectors of the economy barro 1990 rebelo 1991 according to standard linear accumulation driven models steady state output growth directly depends on the total investment rate in physical capital hence the dynamics of output growth should behave similarly to the dynamics of the investment rate as noted by jones 1995a a hallmark of the endogenous growth literature implies that any large permanent change in total investment should translate into a permanent change in long run growth in the same direction jones 1995a constitutes the first attempt at testing the ak type growth models using a time series framework his sample includes 15 organization for economic co operation and development oecd countries with data spanning over the period 1950 1988 he shows that the investment share in producer durables and to a lesser extent the total investment rate presents an upward deterministic trend and is generally found nonstationary when augmented dickey fuller adf 1979 tests are applied in contrast rates of economic growth remain fairly stable jones then claims that the fact that output growth rates exhibit no large permanent movements imposes a strong and testable restriction on endogenous growth models if an endogenous growth model predicts that permanent movements in some variable x have permanent effects on growth then either a x must exhibit no large persistent movements or b some other variable or variables must also have persistent effects on growth that offset the movements of x in a way that is determined by the endogenous growth model jones 1995a 502 despite the considerable effort using this framework to try to test the empirical validity of ak type growth models for the oecd countries jones 1995a li 2002 romero avila 2006 no work has been conducted along these lines for the chinese economy this is surprising because this issue should be particularly important for a country like china which is expected to become the leading economy in the coming decades with a population more than 1 3 billion which is more than four times the population of the united states this paper tries to fill this gap in the literature by applying jones test to the chinese economy over the past five decades the chinese economy has shown spectacular growth performance with an average annual growth rate of real per capita gross domestic product gdp equal to 6

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

anticipation effects of technological progress on capital accumulation a vintage capital approach abstract due to embodied technological progress new generations of capital goods are more productive therefore in order to study the effects of technological progress a model must be analyzed in which different generations of capital goods can be distinguished we determine in what way the firm adjusts current investments to predictions of technological progress in the presence of market power we show that a negative anticipation effect occurs i e current investments in recent generations of capital goods decline when faster technological progress will take place in the future because then it becomes more attractive to wait for new generations of capital goods in case that only investments in new machines are possible actually a whole wave of anticipation phases arises

learning adaptive expectations and technology shocks this study explores the macroeconomic implications of adaptive expectations in a standard growth model we show that the self confirming equilibrium under adaptive expectations is the same as the steady state rational expectations equilibrium for all admissible parameter values but that dynamics around the steady state are substantially different between the two equilibria the differences are driven mainly by the dampened wealth effect and the strengthened intertemporal substitution effect not by escapes emphasised by williams 2003 consequently adaptive expectations can be an important source of frictions that amplify and propagate technology shocks and seem promising for generating plausible labour market dynamics

production inventory games a new class of totally balanced combinatorial optimization games in this paper we introduce a new class of cooperative games that arise from production inventory problems several agents have to cover their demand over a finite time horizon and shortages are allowed each agent has its own unit production inventory holding and backlogging cost cooperation among agents is given by sharing production processes and warehouse facilities agents in a coalition produce with the cheapest production cost and store with the cheapest inventory cost we prove that the resulting cooperative game is totally balanced and the owen set reduces to a singleton the owen point based on this type of allocation we find a population monotonic allocation scheme for this class of games finally we point out the relationship of the owen point with other well known allocation rules such as the nucleolus and the shapley value

wage bargaining and nominal rigidities abstract delays in wage negotiations do not necessarily mean work stoppage production can continue under the terms of the old contract while the parties are bargaining holdout this holdout option is included in a strategic bargaining game in addition to strike and lock out threats integrating the bargaining model in a standard macroeconomic framework it turns out that holdout threats will prevail under certain circumstances in this case wages will be rigid in nominal terms so that an increase in aggregate nominal demand increases aggregate output

strategic wage bargaining with destructive power the role of commitment abstract we build a simple alternating offers bargaining model in which one of the players can commit to damage the pic that they are bargaining over in the unique equilibrium partition his share does not vary monotonically with the discount factor

an analysis of fiscal policy with endogenous investment specific technological change the effects of distortional fiscal policies are studied within a model in which there is endogenous investment specific technological change labor is used in the production of output and also for research purposes labor or capital taxes then distort the trade off between developing new technologies and investing in existing types of capital it is shown that if there is an externality in the research activity then it may be socially optimal to impose both a capital tax and an investment tax credit the growth rate is shown to be increasing in the rate of capital taxation and decreasing in the rate of labor taxation although the effect of taxation on the growth rate is modest this supports the observation that there is relatively little relationship between growth rates of economies and their rates of taxation

can natural disasters have positive consequences investigating the role of embodied technical change it has been suggested that disasters might have positive economic consequences through the accelerated replacement of capital this possibility is referred to as the productivity effect this effect is investigated using a model with embodied technical change in this framework disasters can influence the production level but cannot influence the growth rate in the same way than the saving ratio in a solow like model depending on reconstruction quality indeed accounting for embodied technical change can either decrease or increase disaster costs but is never able to turn disasters into positive events moreover a better but slower reconstruction amplifies the short term consequences of disasters but pays off over the long term regardless the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity potentially leading to poverty traps c 2008 elsevier b v all rights reserved

endogenous risk in a dsge model with capital constrained financial intermediaries abstract this paper proposes a perturbation based approach to implement the idea of endogenous financial risk in a standard dsge macro model recent papers such as mendoza 2010 brunnermeier and sannikov 2012 and he and krishnamurthy 2012 that have stimulated the research field on endogenous risk in a macroeconomic context are based on sophisticated solution methods that are not easily applicable in larger models we propose an approximation method that allows us to capture some of the basic insights of this literature in a standard macro model we are able to identify an important risk channel that derives from the risk aversion of constrained intermediaries and that contributes significantly to the overall financial and macroeconomic volatility

modeling time varying uncertainty of multiple horizon forecast errors we estimate uncertainty measures for point forecasts obtained from survey data pooling information embedded in observed forecast errors for different forecast horizons to track time varying uncer

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

human capital prices productivity and growth separate identification of the price and quantity of human capital has important implications for understanding key issues in labor economics and macroeconomics price and quantity series are derived and subjected to robustness checks the human capital price series associated with dierent education levels are highly correlated and exhibit a strong secular trend three result

what drives the skill premium technological change or demographic variation abstract this paper quantitatively examines the effects of two exogenous driving forces investment specific technological change istc and the demographic change known as the baby boom and the baby bust on the evolution of the skill premium and the college enrollment rate in the postwar u s economy we develop a general equilibrium overlapping generations model with endogenous discrete schooling choice the production technology features capital skill complementarity as in krusell et al 2000 istc through capital skill complementarity raises the relative demand for skilled labor while demographic variation affects the skill premium by changing the age structure and hence the relative supply of skilled labor we find that istc is the key element driving the skill premium in the postwar u s economy and it is quantitatively important for the dynamics of the college enrollment rate the quantitative importance of the demographic change for the evolution of both the skill premium and the college enrollment rate however is limited

volatility and slow technology diffusion abstract i study the effects of uncertainty on technology adoption and thereby on volatility and growth i present an analytically tractable model in which i uncertainty about the returns to adoption delays technology diffusion and ii the mean and volatility of output growth are jointly determined in equilibrium i then test the key predictions of the model by studying the introduction of three major information and communication technologies icts computers internet and cell phones i find that countries with more volatile growth rates of real gdp per capita have higher time adoption lags and lower average growth as predicted by the model

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

identification of dsge models the effect of higher order approximation and pruning abstract this paper shows how to check rank criteria for a local identification of nonlinear dsge models given higher order approximations and pruning this approach imposes additional restrictions on higher order moments and polyspectra which can be used to identify parameters that are unidentified in a first order approximation the identification procedures are demonstrated by means of the kim 2003 and the an and schorfheide 2007 models both models are identifiable with a second order approximation furthermore analytical derivatives of unconditional moments cumulants and corresponding polyspectra up to fourth order are derived for the pruned state space

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

rare shocks vs non linearities what drives extreme events in the economy some empirical evidence abstract a small scale vector autoregression var is used to shed some light on the roles of extreme shocks and non linearities during stress events observed in the economy the model focuses on the link between credit financial markets and the real economy and is estimated on us quarterly data for the period 1984 2013 extreme shocks are accounted for by assuming t distributed reduced form shocks non linearity is allowed by the possibility of regime switch in the shock propagation mechanism strong evidence for fat tails in error distributions is found moreover the results suggest that accounting for extreme shocks rather than explicit modeling of non linearity contributes to the explanatory power of the model finally it is shown that the accuracy of density forecasts improves if non linearities and shock distributions with fat tails are considered

microeconomic origins of macroeconomic tail risks we document that even though the normal distribution provides a good approximation to gdp fluctuations it severely underpredicts macroeconomic tail risks that is the frequency of large economic downturns using a multi sector general equilibrium model we show that the interplay of idiosyncratic microeconomic shocks and sectoral heterogeneity results in systematic departures in the likelihood of large economic downturns relative to what is implied by the normal distribution notably we also show that such departures can happen while gdp is approximately normally distributed away from the tails highlighting the qualitatively different behavior of large economic downturns from small or moderate fluctuations we further demonstrate the special role that input output linkages play in generating tail comovements whereby large recessions involve not only significant gdp contractions but also large simultaneous declines across a wide range of sectors

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

fiscal policy and asset prices with incomplete markets we study the simultaneous impact of fiscal policy decisions on macroeconomic activity wealth distribution and asset prices we consider a general equilibrium overlapping generations model with incomplete markets and heterogeneous agents where government debt and capital are imperfect substitutes increases in public debt lead to significant increases in the riskless rate and to a reduction in the equity premium while higher capital income tax rates lead to a higher equity premium the crowding out effects on capital and output are much higher than in models where government debt and capital are perfect substitutes which thus ignore households portfolio reallocation decisions the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

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

skill biased technological change and the business cycle over the past two decades technological progress in the united states has been biased towards skilled labor what does this imply for business cycles we construct a quarterly skill premium from the cps and use it to identify skill biased technology shocks in a var with long run restrictions hours fall in response to skill biased technology shocks indicating that at least part of the technology induced fall in total hours is due to a compositional shift in labor demand investment specific technology shocks reduce the skill premium indicating that capital and skill are not complementary in aggregate production

measuring embodied technical change in the us local telephone industry this study attempts to measure the rate of embodied technical change by using a short run variable cost function that contains arguments for labour and capital quality in this short run variable cost model the expansion of the amount of physical capital increases variable costs due to more maintenance outlays and then it leads to improvements in capital quality when a measure of competition is included as a proxy for organizational efficiency improvements in labour and capital quality explain more than two thirds of productivity growth the degree of returns to scale and the shadow cost of capital input in the embodiment cost model are presented as well the study is based on pooled time series and cross section data of eight us local exchange carriers