nonmonetary effects of financial crises abstract this paper empirically examines the nonmonetary effects of financial crises it exploits the special nature of the great depression in canada to test propositions linking financial structure and aggregate economic activity canada s large domestic debt and shrinking banking system had little impact on the course of the depression in comparison with results for the united states this implicates bank failures as a prime factor in the real effects of financial crises

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

conditional asymmetries in real gnp a seminonparametric approach two critical assumptions are often made in empirical research regarding the relationship between economic variables and economic disturbances linearity and gaussianity together these two assumptions place strong restrictions on the time series behavior of a model most important these restrictions imply conditional symmetry using seminonparametric snp techniques this article presents evidence that real gross national product growth displays conditional asymmetry although these results confirm related results of brock and sayers sichel and hamilton the snp approach is novel in that it emphasizes the relationship between common modeling assumptions and the restrictions that these assumptions place on data

problems with identifying adjustment costs from regressions of investment on q abstract most econometricians evaluate investment q regressions by using the coefficients to estimate adjustment costs however these coefficients do not uniquely identify average adjustment costs or speeds nor do they appear in the expression for marginal adjustment costs in terms of observables

valuing morbidity from wildfire smoke exposure a comparison of revealed and stated preference techniques estimating the economic benefits of reduced health damages due to improvements in environmental quality continues to challenge economists we review welfare measures associated with reduced wildfire smoke exposure and a unique dataset from california s station fire of 2009 allows for a comparison of cost of illness coi estimates with willingness to pay wtp measures the wtp for one less symptom day is estimated to be 87 and 95 using the defensive behavior and contingent valuation methods respectively these wtp estimates are not statistically different but do differ from a 3 traditional daily coi estimate and 17 comprehensive daily coi estimate jel q51 q53

semi nonparametric distribution free dichotomous choice contingent valuation abstract we apply a semi nonparametric distribution free estimator for binary discrete response data to the estimation of a dichotomous choice contingent valuation model using this estimator mean and median compensating and equivalent variation can be consistently estimated without making nontheoretically motivated assumptions on consumer preferences the approach is illustrated using a contingent valuation survey of willingness to pay for reduction of risk of premature death due to exposure to hazardous waste we find that a conventional parametric estimator and the proposed estimator give similar estimates of unconditional wtp but that conditional on explanatory variables the estimates are quite different

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

the effect of work experience on female wages and labour supply this paper develops and implements a semiparametric estimator for investigating with panel data the importance of human capital and time nonseparable preferences to females when aggregate shocks are present it provides a set of conditions for making statistical inferences about agents expectations of their correlated future choices from a short panel under the assumption that observed allocations are pareto optimal a dynamic model of female labour supply and participation is estimated in which experience on the job raises future wages and time spent off the job in the past directly affects current utility or indirectly through productivity in the nonmarket sector

remittances and the dutch disease abstract using data for el salvador and bayesian techniques we develop and estimate a two sector dynamic stochastic general equilibrium model to analyze the effects of remittances on emerging market economies we find that whether altruistically motivated or otherwise an increase in remittance flows leads to a decline in labor supply and an increase in consumption demand that is biased toward non tradables the higher non tradable prices serve as incentive for an expansion of that sector culminating in reallocation of labor away from the tradable sector a phenomenon known as the dutch disease quantitative results also indicate that remittances improve the welfare of households because they smooth income flows and increase consumption and leisure levels a bvar analysis provides results that are consistent with the dynamics of the model

time to build monetary shocks and aggregate fluctuations abstract the idea that the investment process takes time to produce finished capital goods was an integral part of kydland and prescott s early work on real business cycles but this feature has been dropped in much recent work mainly because it seemed to have little effect on macroeconomic dynamics with a generalization of the time to build feature that incorporates multiple types of capital however a new keynesian model can produce u shaped responses in output investment and inflation to a monetary policy shock such responses are not found in many studies that assume no time to build friction in addition different specifications of the time to build structure result in substantially different response patterns for these aggregate variables

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

new evidence on labor supply employment versus hours elasticities by sex and marital status using the tri annual micro panel data of the survey of income and program participation we estimate fixed effects labor supply models separating the extensive and intensive margins the employment elasticity is 0 6 for single men versus 1 1 for married men the employment elasticity is 2 4 for single women versus 1 8 for married women the compensated hours worked elasticity is 0 4 for employed single and married men and 0 7 for employed single and married women the implied aggregate employment elasticity of 1 5 and hours per employee elasticity of 0 5 indicate employment fluctuations account for three fourths of wage induced variation in labor hours

habit formation and the persistence of monetary shocks this paper studies the persistent e ects of monetary shocks on output previous empirical literature documents this persistence but standard general equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts this paper constructs and estimates a general equilibrium model with price rigidities habit formation and costly capital adjustment the model is estimated via maximum likelihood using u s data on output real money balances and the nominal interest rate econometric results suggest that habit formation and adjustment costs to capital play an important role in explaining the output e ects of monetary policy in particular impulse response analysis shows that the model generates persistent hump shaped output responses to monetary shocks

the dynamic eects of monetary policy a structural factor model approach we use the structural factor model proposed by forni giannone lippi and reichlin 2007 to study the eects of monetary policy the advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set made up of 112 us monthly macroeconomic series monetary policy shocks are identified using a standard recursive scheme in which the impact eects

a comparison of willingness to pay estimation techniques from referendum questions referendum style willingness to pay questions have been used to estimatepassive use values this referendum question format method may beproblematic for many reasons including the statistical techniques used toestimate willingness to pay from discrete responses this paper comparesa number of parametric semi nonparametric and nonparametric estimationtechniques using data collected from us households regarding federalprotection of endangered fish species the advantages and disadvantagesof the various statistical models used are explored a hypothesis test forstatistical equality among estimation techniques is performed using ajackknife bootstrapping method when the equality test is applied themodeling techniques do show significant differences in some possiblecomparisons but only those that are nonparamentric this can lead toconflicting interpretations of what the data show resource managers andpolicy analysts need to use caution when interpreting results until anindustry standard can be developed for estimating willingness to pay fromclosed ended questions

a satisfactory benefit cost indicator from contingent valuation abstract standard economic concepts are used to develop a model of individual behavior when subject to the constraints of the contingent valuation choice context the model yields refutable consequences that are consistent with previously reported empirical findings including some that have been thought to be anomalous the model is used to show that different contingent valuation formats have predictably different performance characteristics notably the hicksian compensating measures are satisfactory benefit cost indicators when elicited using any one of several formats identified in the text of the formats examined one form of a policy referendum appears to have the most satisfactory characteristics overall we conclude that contingent valuation is a progressing research program

the rbc models through statistical inference an application with french data the aim of this paper is to evaluate the capacity of rbc models to mimic the french business cycle we are thus led to investigate the three following assumptions on the labour market 1 the non time separability of leisure 2 the indivisibility of labour and 3 the imperfect information on labour market and time varying effort using the general method of moments we estimate the structural parameters and we test 1 the model s hypothesis using a set of overidentifying restrictions and 2 the model s implications i e its ability to reproduce the cyclical features of the french economy

testing preference formation in learning design contingent valuation using advance information and repetitive treatments policymakers have largely replaced single bounded discrete choice valuation by the more statistically efficient repetitive method double bounded discrete choice and discrete choice experiments repetitive valuation permits classification into rational and irrational preferences 1 a priori well formed 2 consistent nonarbitrary values discovered through repetition and experience 3 consistent but arbitrary values as shaped by preceding bid level and 4 inconsistent and arbitrary values policy valuations should demonstrate behaviorally rational preferences we outline novel methods for testing this in double bounded discrete choice experiments applied to renewable energy premiums in chile

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

contributions to canadian economic history the last 30 years the cliometric revolution that transformed economic history in the us in the 1960s was soon embraced by canadian economic historians many of the important issues surrounding canadian development remained the same the role of resources the place of international trade immigration capital accumulation and interactions with native americans among others but beginning in the 1960s and certainly over the last 30 years economic historians of canada have addressed them with the tools of modern economics both theoretical and empirical we highlight the recent work emphasizing not just the methods but also the fundamental ways our understanding of canadian history has been changed

the evolution of financial intermediation evidence from 19th century ontario microdata microdata for ontario decedents in 1892 and 1902 is analyzed to help explain the dramatic growth of the canadian banking system in the late 19th century combining data from probate inventories with census data at the township level we find that the expansion of deposit banking happened at the extensive rather than intensive margin and was correlated with the expansion of the branch network of the banking system although we cannot assign causation wealth and urbanization help to explain the growth of deposit banking but the significance of a dummy variable for 1902 points to other time correlated factors such as innovations in transportation and financial innovations that lowered costs and facilitated access to banking services resume l evolution de l intermediation financiere resultats a partir de micro donnees pour l ontario au 19e siecle les auteurs analysent les micro donnees pour les personnes decedees en ontario en 1892 et en 1902 pour tenter d expliquer la croissance dramatique du systeme bancaire canadien a la fin du 19 siecle en combinant des donnees provenant d inventaires apres deces avec celles de recensements au niveau des cantons on decouvre que l expansion du systeme bancaire va se produire a la marge extensive plutot qu a la marge intensive et etre co reliee a l expansion du reseau de succursales du systeme bancaire encore qu on ne puisse assigner un lien de causalite richesse et urbanisation aident a expliquer la croissance des banques de depots mais la signification de la variable fictive pour 1902 pointe vers des facteurs comme l innovation dans le transport et l innovation financiere qui ont reduit les couts et facilite l acces aux services bancaires

bridging dsge models and the raw data abstract a method to estimate dsge models using the raw data is proposed the approach links the observables to the model counterparts via a flexible specification which does not require the model based component to be located solely at business cycle frequencies allows the non model based component to take various time series patterns and permits certain types of model misspecification applying standard data transformations induces biases in structural estimates and distortions in the policy conclusions the proposed approach recovers important model based features in selected experimental designs two widely discussed issues are used to illustrate its practical use

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

testing between competing models of real business cycles this paper tests a real business cycle model with efficient long term labor contracts the efficient long term contract model against a standard real business cycle model the intertemporal substitution model in the former model employment and real wages are determined by bilateral dynamic bargaining between firms and workers in the latter model employment and real wages are determined instead by the dynamic optimization of households within the competitive market framework we estimate each model using aggregate japanese data our results show that the data are consistent with the efficient long term contract model but are inconsistent with the intertemporal substitution model a business cycle phenomenon is typically found in time series data on employment and real wages according to the data of almost all developed countries employment fluctuations are considerably greater than wage fluctuations many recent economic studies have attempted to explain this phenomenon most of these studies fall into the equilibrium business cycle theory in which business cycles are the result of individual agents optimizing in a competitive environment among the most famous early examples of such a theory are the rational expectations general equilibrium models of lucas 1972 and barro 1976 which stress the role of nominal shocks in the presence of imperfect information more recently the predominant equilibrium business cycle theory has been the real business cycle model of kydland and prescott 1982 long and plosser 1983 and king and plosser 1984 which emphasizes the importance of real shocks to production technology real business cycle theory considers a model economy populated by a single infinitely lived individual with given initial resources production possibilities and tastes the representative individual chooses a preferred consumption production plan and the resulting allocation is pareto optimal the implications of real business cycle theory are thus derived from the pareto optimal equilibrium allocation as calculated from the planning problem of a social planner or representative agent a policy implication of this theory is that monetary policy has no significant effect

investment behavior observable expectations and internal funds we use earnings forecasts from securities analysts to construct a new measure of the neoclassical fundamentals that drive investment spending we find that investment responds significantly to our new measure of fundamentals but is insensitive to cash flow even for firms typically thought to be liquidity constrained these results have two key implications first fundamentals may be more important for investment spending than would be suggested by the results to date from investment q models second the positive cash flow effects obtained in such models may reflect a failure to control properly for fundamentals rather than the presence of financial constraints jel d92 e22

new estimates of the canadian money stock 1871 1967 in this paper the authors construct historical data series beginning in 1871 for canadian m1 m2 and monetary base the new series are at a monthly frequency and use the bank of canada s definition of the monetary aggregates institutional and reporting changes however make perfect backwards extrapolation of the bank s series impossible there are only end of month data rather than average weekly since january 1994 daily data and the authors cannot precisely match savings accounts at chartered banks and trust companies that are included in the modern monetary aggregates their adjustments for these changes and their impact on the aggregates are documented

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

confidence intervals for evaluating benefits estimates from dichotomous choice contingent valuation studies i evaluate the potential usefulness of nonmarket valuation concepts and techniques from environmental economics for improving wildlife conservation the concepts include distinguishing between on site recreation use value and off site passive use or

structural dynamic factor analysis using prior information from macroeconomic theory dynamic factor models are becoming increasingly popular in empirical macroeconomics due to their ability to cope with large datasets dynamic stochastic general equilibrium dsge models on the other hand are suitable for the analysis of policy interventions from a methodical point of view in this article we provide a bayesian method to combine the statistically rich specification of the former with the conceptual advantages of the latter by using information from a dsge model to form a prior belief about parameters in the dynamic factor model because the method establishes a connection between observed data and economic theory and at the same time incorporates information from a large dataset our setting is useful to study the effects of policy interventions on a large number of observed variables an application of the method to u s data shows that a moderate weight of the dsge prior is optimal and that the model performs well in terms of forecasting we then analyze the impact of monetary shocks

investment and time to plan and build a comparison of structures vs equipment in a panel of italian firms time to build models of investment expenditures play an important role in many traditional and modern theories of the business cycle especially for explaining the dynamic propagation of shocks we estimate the structural parameters of a time to build model using annual firm level investment data on equipment and structures for expenditures on equipment we find no evidence of time to build effects beyond one year for expenditures on structures by contrast there is clear evidence of such effects in the range of two to three years the contrast between equipment and structures is intuitively reasonable and consistent with previous results the estimates for structures also indicate that initial period expenditures are low and increase as projects near completion these results provide empirical support for including time to plan effects for investment in structures more generally these results suggest a potential source of specification error for q models of investment and production based asset pricing models that ignore the time required to plan build and install new capital jel d24 g31 c33 c34

the spectre of deflation a review of empirical evidence what explains the widespread fear of deflation this article reviews the history of thought economic history and empirical evidence on deflation with a view to answering this question it also outlines informally the main effects of deflation in applied monetary models the main finding is that for both historical and contemporary deflations there are many open empirical questions that could be answered using the tools economists use to study inflation and monetary policy more generally qu est ce qui explique la peur tres repandue de la deflation ce memoire fait un tour d horizon de l histoire de la pensee economique de l histoire economique et des resultats empiriques quant aux effets de la deflation en vue de repondre a cette question on fait aussi echo informellement aux effets principaux de la deflation dans les modeles monetaires appliques ce qui ressort principalement de ce travail est que tant pour les deflations dans l histoire que dans le monde contemporain il y a bien des questions empiriques encore irresolues auxquelles on pourrait donner une reponse en utilisant l outillage mental que les economistes utilisent pour etudier l inflation et la politique monetaire plus generalement sp c tre n thing that is thought to be seen but has no material existence haunting presentiment of ruin war madness etc

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

global business cycles convergence or decoupling we analyze the evolution of the degree of global cyclical interdependence over the period 1960 2008 using a dynamic factor model we decompose macroeconomic fluctuations in output consumption and investment into a global factor factors specific to country groups and country specific factors we find that during 1985 2008 there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies surprisingly there is a concomitant decline in the relative importance of the global factor we conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence or decoupling between them

investment gestation lags the difference between time to build and delivery lags the timing of investment and capital stock accumulation can differ as a result of time to build and or delivery lags in this paper simple calibration methods are used to illustrate the differences in these sources of gestation lags

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

supplanting the minnesota prior forecasting macroeconomic time series using real business cycle model priors abstract although general equilibrium models are in wide use in the theoretical macroeconomic literature their empirical relevance is uncertain we develop procedures for using dynamic general equilibrium models to aid in analyzing the observed time series relationships among macroeconomic variables our strategy is based on that developed by doan litterman and sims 1984 who constructed a procedure for improving time series forecasts by shrinking vector autoregression coefficient estimates toward a prior view that vector time series are well described as collections of independent random walks in our case the prior is derived from a fully specified general equilibrium model we demonstrate that like the atheoretical random walk priors real business cycle model priors can aid in forecasting

fat tails and truncated bids in contingent valuation an application to an endangered shorebird species a yes response function in a contingent valuation study is said to have fat tails if it has a high and slowly declining yes response rate at high bid levels truncated bids refer to the practice of dropping high bid offers before a yes response rate of near zero is reached this is a common practice in contingent valuation we explore the extent and implications of fat tails and truncated bids in a study of an endangered shorebird species we find among other things that mean willingness to pay is quite sensitive to the highest bid offered so much so that the choice of highest bid nearly dictates outcomes

the limits of business cycle research assessing the real business cycle model the real business cycle model dominates business cycle research in the new classical tradition typically real business cycle modelers both offer the bold conjecture that business cycles are equilibrium phenomena driven by technology shocks and also novel strategies for assessing the success of the model this article critically examines the real business model and the assessment strategy surveys the literature supporting and opposing the model and evaluates the evidence on the empirical success of the model it argues that on the preponderance of the evidence the real business cycle model is refuted copyright 1997 by oxford university press

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

overtime effort and the propagation of business cycle shocks abstract this paper presents and estimates a variant of hansen and sargent s 1988 real business cycle model with straight time and overtime the model presented has only one latent variable the state of technology yet it does a better job propagating and magnifying shocks than the labor hoarding models which incorporate unobserved effort this model as well as a version of burnside eichenbaum and rebelo s 1993 labor hoarding model is estimated using maximum likelihood the maximum likelihood parameter estimates are compared to those using gmm

time to build capital revisiting investment cash flow sensitivities a large body of empirical work has established the significance of cash flow in explaining investment dynamics this finding is further taken as evidence of capital market imperfections we show using a perfect capital markets model that time to build for capital projects creates an investment cash flow sensitivity as found in empirical studies that may not be indicative of capital market frictions the result is due to mis specification present in empirical investment q equations under time to build investment in addition time aggregation error can give rise to cash flow effects independently of the time to build effect importantly both errors arise independently of potential measurement error in q evidence from a large panel of u k manufacturing firms confirms the validity of the time to build investment channel

transactions costs and agricultural household supply response we develop and estimate a model of supply response when transactions costs create a situation where some producers buy others sell and others do not participate in markets we present two rationales for why producing households may have different relationships to the market proportional and fixed transactions costs using data on mexican corn producers we estimate an empirical model that allows for separate tests of the significance of both types of transactions costs revealing that both fixed and proportional transactions costs matter for the estimation the results provide consistent estimates of supply elasticity and measures of the relative importance of factors determining both proportional and fixed transactions costs

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

distribution free estimation with interval censored contingent valuation data troubles with turnbull contingent valuation cv surveys frequently employ elicitation procedures that return interval censored data on respondents willingness to pay wtp almost without exception cv practitioners have applied turnbull s self consistent algorithm to such data in order to obtain nonparametric maximum likelihood npml estimates of the wtp distribution this paper documents two failings of turnbull s algorithm 1 that it may not converge to npml estimates and 2 that it may be very slow to converge with regards to 1 we propose starting and stopping criteria for the algorithm that guarantee convergence to the npml estimates with regards to 2 we present a variety of alternative estimators and demonstrate through monte carlo simulations their performance advantages over turnbull s algorithm

the impact of idiosyncratic uncertainty when investment opportunities are endogenous this paper develops a general equilibrium model to study the impact of aggregate fluctuations in idiosyncratic volatility that incorporates the endogenous determination of investment opportunities by making investment options more valuable an increase in volatility encourages the creation of new investment options i find the response of the economy to a volatility shock depends on how investment opportunities are obtained if potential entrants are allowed to invest in new idiosyncratic technologies thereby acquiring options for further investment the volatility shock increases overall investment and results in an economic boom on the other hand if such an investment in option creation is precluded and investment opportunities are exogenously given the volatility shock decreases aggregate investment

can a real business cycle model pass the watson test abstract watson 1993 measures of fit for calibrated models journal of political economy 101 6 1011 1041 proposes a procedure for evaluating the fit of a dynamic equilibrium business cycle model under watson s criterion the standard real business cycle rbc model fails dramatically in reconciling the dynamics of the model with the data this inability to account for the dynamics of us aggregate data remains a major challenge to rbc theory this paper demonstrates that reasonable modifications can bring rbc theory into closer conformity with the data the empirical results indicate that when habit formation on leisure choice and employment externality are incorporated into the analysis the striking spectral density differentials documented by watson virtually vanish at business cycle frequencies

measuring factor adjustment costs i estimate adjustment costs for labor and capital from the euler equations for factor demand for both factors i find relatively strong evidence against substantial adjustment costs my estimates use annual data from two digit industries my results support the view that rents arising from adjustment costs are relatively small and are not an important part of the explanation of the large movements of the values of corporations in relation to the reproduction costs of their capital i investigate the potential effects of three types of specification error 1 aggregation over time 2 aggregation over firms with heterogeneous demand shocks and 3 estimation of a convex adjustment cost technology in the presence of nonconvex discrete adjustment costs i find that the likely biases from these specification errors are relatively small

reconsidering the use of hicks neutrality to recover total value abstract in this paper i reconsider the use of hicks neutrality for recovering total value for a change in an environmental good i clarify the need to adjust expenditures and explain how numerical techniques can be used in approximating these adjustments i show that the circumstance believed to support hicks neutrality weak neutrality at the choke price vector is a case of weak complementarity i mathematically demonstrate that the necessary degree of hicks neutrality is unlikely to be satisfied i derive the ensuing relative bias and show its usefulness in selecting goods which may approach hicks neutrality

nonlinear response of firm investment to q abstract abel and eberly 1994 study optimal investment behavior in the presence of flow fixed costs proportional costs and convex costs a clear prediction is that investment will alternate between regimes of insensitivity and responsiveness to q separated by unknown threshold levels of q at the firm level we find evidence for different regimes of sensitivity to q but not for a regime of zero sensitivity our finding that investment has a nonlinear relationship to q is important because it implies an elasticity of aggregate investment to q and fundamentals that is high and variable over time

income velocity and institutional change some new time series evidence 1870 1986 this paper applies tests of cointegration to assess whether institutional factors in addition to income and an interest rate explain the long run behavior of velocity over a century of annual data from five industrialized countries are used institutional characteristics make a significant contribution to the determination of velocity in all the countries considered one generally rejects the hypothesis of cointegration between velocity and its traditional determinants but the same hypothesis cannot be rejected when velocity is also a function of institutional change proxies tests of coefficient stability also reinforce the validity of the institutional change hypothesis of velocity copyright 1993 by ohio state university press

financing constraints and inventory investment a comparative study with high frequency panel data this study provides new evidence of the importance of financing constraints for explaining the dramatic cycles in inventory investment we compare the empirical performance of different financial variables coverage ratio cash stocks and cash flow used in previous research to test for the presence of financing constraints the comparison is undertaken in a common framework with an identical sample and high frequency quarterly firm panel data cash flow is much more successful than cash stocks or coverage in explaining the facts about inventory investment across firm size different inventory cycles and different manufacturing sectors

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

investment default propensity score and cash flow sensitivity in six eu member states evidence based on firm level panel data abstractusing a panel data set covering six european countries and 119700 firms 582153 observations over the period 2008 2013 we analyse the cash flow sensitivity of investment spending as most

corporate profitability and stock valuation in japan the coexistence of low corporate profitability and high valuations in the japanese stock market is seemingly contradictory the japanese financial system which provided low cost debt and equity capital as a package to major corporations through stable interlocking relationships between large financial institutions and borrowing companies was in fact a hidden key factor for the unprecedented economic success of japan after world war ii as japan s economy successfully completes its catch up phase and enters a mature stage the traditional financial system is becoming more of a liability than an asset for achieving new economic priorities pressures are building to transform the system into one based on purely financial investment emphasizing management efficiency and profitability of borrowing companies how soon and in what form this transformation will take place remains to be seen

estimation of dsge models when the data are persistent dynamic stochastic general equilibrium dsge models are often solved and estimated under specific assumptions as to whether the exogenous variables are difference or trend stationary however even mild departures of the data generating process from these assumptions can severely bias the estimates of the model parameters this paper proposes new estimators that do not require researchers to take a stand on whether shocks have permanent or transitory effects these procedures have two key features first the same filter is applied to both the data and the model variables second the filtered variables are stationary when evaluated at the true parameter vector the estimators are approximately normally distributed not only when the shocks are mildly persistent but also when they have near or exact unit roots simulations show that these robust estimators perform well especially when the shocks are highly persistent yet stationary in such cases linear detrending and first differencing are shown to yield biased or imprecise estimates

what do residuals from first order conditions reveal about dge models the first order condition foc associated with labour in many dynamic general equilibrium models involves only current period variables residuals constructed from this foc are inconsistent with aggregate us data in that they are very large and highly persistent the persistence suggests that models which introduce dynamic terms in the labour foc may be more consistent with the data three such models one with learning by doing one with habit formation and one with labour adjustment costs confirm that they can reduce the persistence in the residuals making the models more consistent with the joint dynamics of consumption output and hours

revisiting the coyne affair a singular event that changed the course of canadian monetary history the coyne affair occurred during the 1959 61 period and led to the resignation of the governor eventually major reforms of the bank of canada act were enacted archival and empirical evidence is used to assess the performance of monetary policy throughout the 1950s in doing so a real time data set is constructed for both canada and the us that permits the estimation of a reaction function i find that while the case against james coyne is not proven there was a brief period when monetary policy was excessively tight and this may well have worsened an already weak economic environment l affaire coyne a eu lieu au cours de la periode 1959 61 et a conduit a la demission du gouverneur de la banque du canada eventuellement des reformes majeures a la loi sur la banque du canada ont ete mises en uvre on utilise des documents d archives et des resultats empiriques pour evaluer la performance de la politique monetaire dans les annees 1950 ce faisant on construit une base de donnees en temps reel pour le canada et les etats unis qui permet de faire l estimation d une fonction de reaction on decouvre que meme si l argumentation developpee contre coyne n est pas prouvee il y a eu une courte periode durant laquelle la politique monetaire a ete excessivement restrictive et que cela peut fort bien avoir entraine la deterioration d une economie deja affaiblie

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

home production meets time to build an innovation in this paper is to introduce a time to build technology for the production of market capital into a model with home production our main finding is that the two anomalies that have plagued all household production models the positive correlation between business and household investment and household investment s leading business investment over the business cycle are resolved when time to build is added

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

a small open economy in depression lessons from canada in the 1930s this paper tests the hypothesis that idiosyncratic u s disturbances and their inter national propagation can account for the global depression exploiting common stochastic trends in u s and canadian interwar data we estimate a small open economy model for canada that decomposes output fluctuations into sources identifiable with world and country specific disturbances we find that the onset depth and duration of output collapse in both canada and the united states are primarily attributable to a common permanent output shock leaving little significant role for idiosyncratic disturbances originating in either economy

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

inference and optimal design for a welfare measure in dichotomous choice contingent valuation this paper considers the use of contingent valuation to estimate non market benefits from separately valued nested goods survey respondents were asked referendum wtp questions regarding either a scheme to protect the whole area of a wetland or a

the relation between firm growth and q with multiple capital goods theory and evidence from panel data on japanese firms we derive from a model of investment with multiple capital goods a one to one relation between the growth rate of the capital aggregate and the stock market based q we estimate the growth q relation using a panel of japanese manufacturing firms taking into account the endogeneity of q identification is achieved by combining the theoretical structure of the q model and an assumed serial correlation structure of the technology shock which is the error term in the growth q equation for early years of our sample cash flow has significant explanatory power over and above q the significance of cash flow disappears for more recent years for the heavy industry when japanese capital markets was liberalized the estimated q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment cost

technology shocks and the business cycle on empirical investigation abstract this paper uses maximum likelihood to estimate a prototypical real business cycle model under several different assumptions regarding the stochastic process governing technological change the estimation approach permits the use of formal statistical hypothesis tests to help discriminate between competing specifications the approach also allows each specification to be evaluated based on its ability to generate accurate out of sample forecasts overall the results indicate that the data prefer a version of the model in which technology shocks are extremely persistent but still trend stationary

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

housing cycles and the period of production us fixed residential investment is one of the most periodic economic time series a theory of housing cycles is analysed on the basis of the period of housing construction substantial lags between planning and completion phases of housing construction cause housing investment to respond cyclically to exogenous shocks in demand and production costs known structural parameters of the housing industry provide sharp numerical benchmarks for the resulting dynamic system the calibrated model with two construction lags describes the housing data and cycles well

maximum likelihood in the frequency domain the importance of time to plan abstract we illustrate the use of various frequency domain tools for estimating and testing dynamic stochastic general equilibrium models we show how to exploit the well known fact that the log gaussian density function has a linear decomposition in the frequency domain we also propose a new resolution to the problem that the phase angle between two variables is not uniquely determined these methods are applied to the analysis of business cycles our substantive findings confirm existing results in the literature which suggest that time to plan in the investment technology has a potentially useful role to play in business cycle analysis

money growth and inflation a regime switching approach abstract we develop a markov switching model for inflation with time varying transition probabilities inflation is characterized by two regimes high and low inflation and the probability of regime changes depends on money growth using bayesian techniques we apply the model to the euro area germany the us the uk and canada for data from the 1960s up to the present our estimates suggest that a smoothed measure of broad money growth corrected for real time estimates of trend velocity and potential output growth has important leading indicator properties for switches between inflation regimes thus money growth provides an important early warning indicator for risks to price stability

investment cash flow sensitivities are useful a comment on kaplan and zingales arecent paper in this journal by kaplan and zingales reexamines a subset of erms from work of fazzari hubbard and petersen and criticizes the usefulness of investment cash eow sensitivities for detecting enancing constraints we show that the kaplan and zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique moreover we describe why their empirical classiecation system is eawed in identifying both whether erms are constrained and the relative degree of constraints across erm groups we conclude that their results do not support their conclusions about the usefulness of investment cash eow sensitivities in a recent paper in this journal kaplan and zingales 1997 hereinafter kz argue that investment cash eow sensitivities do not provide useful evidence about the presence of enancing constraints because kz use a subset of the same erms and the same regressions as fazzari hubbard and petersen 1988 hereinafter fhp and claim page 176 that fhp can legitimately be considered the parent of all papers in this literature it is appropriate that we respond based on a simple theoretical model kz reach the provocative conclusion page 211 that the investment cash eow sensitivity criterion as a measure of enancial constraints is not well grounded in theory in section i we show that the kz model does not capture the theoretical approach employed in fhp and many subsequent studies most of the kz paper attempts to show that empirical investment cash eow sensitivities do not increase monotonically with the degree of enancing constraints within the 49 low dividend erms from the fhp sample in section ii we explain why the kz classiecation of the degree of constraints is eawed in identifying both whether or not erms are constrained absolute constraints as well as the relative degree of constraints across erms as a result we argue in section iii that there is no expected ex ante pattern for the

analyst forecasting errors and their implications for security analysis an alternative perspective dreman and berry in the may june 1995 financial analysts journal offered a perspective on analyst earnings forecast errors and their implications for security analysis among other arguments they contended that the errors are too large to be reliably used by investors the forecasts are less accurate than forecasts by time series models the errors are increasing over time the analysts forecasts are too optimistic and the investment community relies too heavily on analyst forecasts this article provides an alternative perspective on these issues the argument is that analysts forecast errors are within 3 percent of an appropriate benchmark namely stock price that their forecasts generally are significantly more accurate than forecasts by naive or sophisticated time series models that analyst forecast errors have not been increasing over time that analysts have been too pessimistic in recent years and that the investment community by placing too much weight on forecasts made by time series

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

how sensitive is investment to cash flow when financing is frictionless i analyze the sensitivity of a rm s investment to its own cash ow in the benchmarkcase where nancing is frictionless this sensitivity has been proposed as a measure of nancing constraints in earlier studies i nd that the investment cash ow sensitivities that obtain in the frictionless benchmarkare very similar both in magnitude and in patterns they exhibit to those observed in the data in particular the sensitivity is higher for rms with high growth rates and low dividend payout ratios tobin s q is shown to be a more noisy measure of near term investment plans for these rms does a high sensitivityof a rm s investment to its own cash ow indicate that the rm is nancially constrained a large body of research starting with fazzari hubbard and petersen 1988 hereafter fhp suggests that rms facing nancing constraints should exhibit high investment cash ow sensitivities re ecting the wedge between the costs of external and internal funds empirical ndings seem to give support to this hypothesis since rms classi ed as constrained on a priori criteria such as size dividend payout or leverage do have higher cash ow sensitivities even after controlling for their investment opportunities by conditioning on tobin s q however the reliability of these results critically depends on whether q is a proper control for the investment opportunity set if q performs worse for certain classes of rms higher sensitivities may obtain for these rms simply because cash ow re ects information about investment opportunities this critique is not new in his discussion of fhp poterba 1988 was the rst to point out that measurement error in q may cloud the empirical results similar concerns have been raised in subsequent studies as well while the qualitative point is well known its quantitative impact on the investment cash ow sensitivity has not been analyzed can the linkbetween cash ow and the investment opportunity set account for the observed magnitudes of the sensitivity or are these magnitudes too large to be explained without nancing frictions

time to build and investment the paper investigates the effect of the time to build technology on investment dynamics it explains the positive autocorrelation of investment by showing that investment is serially correlated once the time to build technology is taken into account the paper also shows that the time to build technology can explain a substantial portion of the variation in aggregate investment data using estimated marginal q the paper illustrates that investment responds asymmetrically to different levels of q a fact in favor of the irreversibility argument