limited participation and exchange rate dynamics does theory meet the data the paper explores the empirical dimensions of a new open economy macronomy model characterized by credit market frictions we find that these frictions are essential for the model to match a large set of moments of german data moreover the simulated impulse response functions to supply and nominal shocks are consistent with var findings since the model is estimated on moments rather than on conditional irfs this underlines the ability of the model to match the data finally monetary shocks do not seem to be the primary driving force behind the aggregate dynamics which is consistent with the var literature

business cycles theory evidence and policy implications this paper looks at recent advances in the study of aggregate fluctuations the emphasis is on three prominent areas of research the stochastic growth model economies which exhibit macroeconomic complementarities and models that emphasize heterogeneity each section of the paper outlines the theory examines relevant empirical evidence and then discusses some policy implications of the analysis

why aren t developed countries saving abstract national saving rates differ enormously across developed countries but these differences obscure a common trend namely a dramatic decline over time france and italy for example saved over 23 and 19 of national income in 1970 but only 9 and 4 respectively in 2008 japan saved almost 33 in 1970 but only 7 in 2008 and the u s saved around 11 in 1970 but only 1 in 2008 what explains these international and intertemporal differences is it demographics government spending productivity growth or preferences for the u s and france whose saving behavior we study preferences appear to be an important factor american and french societies are placing increasing weight on the welfare of those currently alive particularly contemporaneous older generations government spending also appears to be one of the reasons why france is saving at much lower rates these conclusions emerge from estimating two models in which society makes consumption and labor supply decisions in light of uncertainty over future government spending productivity and social preferences the two models differ in terms of the nature of preference uncertainty and the extent to which current society can control future societies spending and labor supply decisions

the differential incidence of a land tax the paper analyses the sharing of the burden of a land tax between consumers and owners of land at different points in a semi closed city the basic conclusion is that the pattern of differential incidence of the tax depends upon the magnitude of the elasticity of substitution between land and the composite private good in the utility function of residents the share of the burden on landowners increases decreases as the periphery is approached depending upon whether the elasticity of substitution is greater less than unity

tax distortions in sweden and the united states we calculate the welfare costs of distortionary taxation including inflation in models calibrated for the united states and sweden the welfare costs are calculated using comparative steady state as well as dynamic analysis where we take the costs of transition from the distorted to the optimal steady state into account we also calculate the welfare costs of adding stochastic fluctuations our main finding is that the total welfare costs of the distortionary taxes including the distortionary effects of inflation are about five times higher in sweden than in the united states meanwhile stochastic fluctuations in policy turn out to have a relatively small impact on welfare

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

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

fixed and variable rate mortgages business cycles and monetary policy the aim of this paper is twofold first i study how the proportion of xed and variable rate mortgages in an economy can aect the way shocks are propagated second i analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion i develop and solve a new keynesian dynamic stochastic general equilibrium model that features a housing market and a group of constrained individuals who need housing collateral to obtain loans a given proportion of constrained households borrows at a variable rate while the rest borrows at a xed rate the model predicts that in an economy with mostly variable rate mortgages an exogenous interest rate shock has larger eects on borrowers than in a xed rate economy aggregate eects are also larger for the variable rate economy for plausible parametrizations dierences are muted by wealth eects on labor supply and by the presence of savers more persistent shocks such as in ation target and technology shocks cause larger aggregate dierences from a normative perspective i nd that in the presence of collateral constraints the optimal taylor rule is less aggressive against in ation than in the standard sticky price model furthermore for given monetary policy a high proportion of xed rate mortgages is welfare enhancing

modelling nominal debt contracts and fixed rate debt we provide a simple model of sticky nominal debt contracts and fixed rate debt that can easily be embedded in a dynamic general equilibrium framework once linearized the debt process increases the order of autoregressive dynamics in the system by one thus potentially introducing more complex adjustment processes

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

endogenous business cycle propagation and the persistence problem the role of labor market frictions contrasting sharply with a recent trend in dsge modeling we propose a business cycle model where frictions and shocks are chosen with parsimony the model emphasizes a few labor market frictions and shocks to monetary policy and technology the model estimated from u s quarterly postwar data accounts well for important differences in the serial correlation of the growth rates of aggregate quantities the size of aggregate fluctuations and key comovements including the correlation between hours and labor productivity despite its simplicity the model offers an answer to the persistence problem chari et al 2000 that does not rely on multiple frictions and adjustment lags or ad hoc backward looking components we conclude modern dsge models need not embed large batteries of frictions and shocks to account for the salient features of postwar business cycles

a small open economy model with transaction costs in foreign capital abstract in this paper we develop a stochastic dynamic general equilibrium model for a small open economy in the real business cycle modeling tradition household preferences depend on private and public consumption and leisure production technology depends on public capital government finances its investment consumption and transfer payments by means of a proportional income tax rate households buy and sell foreign assets in an international capital market with transaction costs and also receive transfer payments from abroad we calibrate the model for the greek economy the volatility persistence and co movement properties of the business cycle component of the data generated by the model are broadly consistent with the actual behavior of the corresponding actual data we use the model to investigate the response of major macroeconomic variables to temporary and permanent changes in government policy variables foreign transfers and the rate on return of foreign assets we find that increasing government consumption and domestic transfers financed through distorting taxation lowers capital labor in most cases and output while it increases foreign asset holdings both in the short and the long run increasing government investment financed by distorting taxation eventually increases capital and output and decreases labor finally transfers from abroad decrease capital labor and output while they increase consumption

efficient decentralized fiscal and environmental policy a dual purpose henry george tax abstract one consequence of decentralized responsibility to set tax policy and environmental standards is that local governments might try to attract industry and jobs by underproviding local public goods with lower taxes or lax environmental standards or both but if local authorities exploit fixed property site i e land taxation to fund local public goods affect firm migration and internalize potential local emission rents herein we find decentralized efficiency is supported this result reflects a dual form of the classic henry george theorem previously overlooked

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

expansionary fiscal contractions and equilibrium indeterminacy a case study for germany on several occasions the 1980s witnessed non keynesian effects of fiscal contractions most notably cuts in government spending in ireland denmark and germany are known to have coincided with increases in private consumption spending self fulfilling expectations about the effects of stabilization policies may explain these and a diversity of opposing experiences this paper formulates a dynamic stochastic equilibrium model with equilibrium indeterminacy which allows for sunspot fluctuations as well as for systematic consumption effects of government policy in either direction cointegration tests and euler equation estimates suggest that the model is approximately in accord with german data parameter estimates imply that the non keynesian experiences are not due to self fulfilling expectations but to the productivity effects of government provided infrastructure services

explaining business cycles a multiple shock approach abstract aiyagari 1992 and prescott 1986 1991 claim that a large fraction of the variance of united states quarterly detrended real gnp is attributable to an unobservable shock to total factor productivity this paper argues that the importance of a productivity shock in explaining the variance of output is fundamentally indeterminate any model that is in accord with the several time series that make up united states macroeconomic data must feature multiple shocks that are correlated at all leads and lags sorting out the separate effects of these various shocks on a single variable such as real gnp is impossible we illustrate this argument using a multiple shock version of the king plosser rebelo 1988 benchmark real business cycle model

monetary stabilisation with nominal asymmetries optimal monetary stabilisation in the standard new keynesian framework usually assumes a policy loss function from outside the model in this paper in contrast the objective arises directly from the model credit constraints and sticky nominal debt contracts imply that monetary stabilisation has asymmetric impacts depending on whether consumers are credit constrained the policy problem is to maximise some weighting of the expected utility of the different types of consumer features of optimal stabilisation are derived that do not appear to be far out of line with empirical evidence for many countries but that clearly conflict with standard loss function results

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

swedish postwar business cycles generated abroad or at home the relative importance of foreign and domestic shocks for the swedish postwar business cycle is examined in a neoclassical stochastic growth model of a small open economy since recent research has shown that fiscal policy shocks may be important for business cycles i extend previous work in the literature by allowing for stochastic fiscal policy it is found that the introduction of fiscal policy improves the empirical fit of the model although not significantly so when hours worked are detrended with the hp filter the results suggest that domestic shocks are more important than foreign shocks for output fluctuations among the domestic shocks innovations in fiscal policy seem to have been more important than technology shocks during this period foreign shocks are very important for fluctuations in the real exchange rate and the current account

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

on interjurisdictional competition and environmental federalism herein we construct a competitive interjurisdictional model that reconciles two recent exceptions to the race to the bottom j publ econ 35 1988 333 354 j urban econ 37 1995 290 310 our results suggest that since environmental rents from local production are likely not captured 100 percent by local residents devolved command and control environmental regulation is inefficient moreover faced with the reality of fiscal constraints local governments adopt property tax structures that serve to compound inefficiencies within such a second best setting if a jurisdiction underprovides non environmental public goods and jurisdictional capital productivity and emissions are strong complements a race to the bottom equilibrium is supported

stochastic fiscal policy and the swedish business cycle in this paper we show that fluctuations in distortive taxes can account for some of the key features of the swedish post war business cycle the empirical fit of a simple stochastic growth model is significantly improved when it is amended to include imperfectly predictable fluctuations in payroll taxes consumption taxes and government consumption indeed using the simulated method of moments smm we find that for large sets of conventional moments models with stochastic fiscal policy cannot be statistically rejected whereas a model without it is always rejected