estimates of effective marginal tax rates on factor incomes this chapter describes a method of calculating summary measures of effective factor income tax rates in the united states using readily available data the numbers resulting from application of this method in a study are reported in the chapter and some of their possible uses are discussed the estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy the postwar movement in the tax rate on income from labor relative to that on income from capital or more accurately the relevant components of these tax rates provides suggestive support for the miller scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax the tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate held capital they are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden

spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

world war i and the postwar depression a reinterpretation based on alternative estimates of gnp abstract this paper examines the official commerce department estimates of gross national product for 1909 1928 and suggests that they are far inferior to the less commonly used kendrick gnp estimates the paper then derives a revised version of the kendrick series that alters significantly the representation of annual movements in gnp before 1919 this endorsement of a revised kendrick gnp series in place of the official commerce department estimates before 1929 suggests that aggregate demand movements had much less effect on real output during world war i and the depression of 1921 than is commonly believed

interpreting the great moderation changes in the volatility of economic activity at the macro and micro levels most advanced economies have experienced a striking decline in the volatility of aggregate economic activity since the early 1980s volatility reductions are evident for output and employment at the aggregate level and across most industrial sectors and expenditure categories inflation and inflation volatility have also declined dramatically previous studies offer several potential explanations for this great moderation we review evidence on the great moderation in conjunction with evidence about volatility trends at the micro level we combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences the key ingredients are declines in firm level volatility and aggregate volatility most dramatically in the durable goods sector surprisingly this has occurred without a decline in household consumption volatility and individual earnings uncertainty our explanation for the aggregate volatility decline stresses improved supply chain management particularly in the durable goods sector and less important a shift in production and employment from goods to services we provide evidence that better inventory control made a substantial contribution to declines in firm level and aggregate volatility consistent with this view if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency short term fluctuations while these developments represent efficiency gains they do not imply nor is there evidence for a reduction in economic uncertainty faced by individuals and households

erratum to why has u s inflation become harder to forecast the article journal of money credit and banking supplement to vol 39 no 1 february 2007 contains errors in figures 2 4 and tables 4 5 associated with a coding error in our program for estimating the uc sv model we thank ling hu of platinum grove asset management for finding this error and bringing it to our attention the corrected uc sv rows for tables 4 and 5 are given below corrected versions of figures 2 4 and corrected replication files can be found at http www princeton edu mwatson

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

the role of credit in the great moderation a multivariate garch approach abstract during the great moderation financial innovation in the us increased the size and scope of credit flows supporting the growth of wealth we hypothesize that spending out of wealth came to finance a wider range of gdp components such that it smoothed gdp both these trends combined would be consistent with a decrease in the volatility of output we suggest testable implications in terms of both growth of credit and output and volatility of growth in a multivariate garch framework we test this view for home mortgages and residential investment we observe unidirectional causality in variance from total output residential investment and non residential output to mortgage lending before but not during the great moderation these findings are consistent with a role for credit dynamics in explaining the great moderation

wage changes and intrafirm job mobility over the business cycle two case studies despite the many reasons to expect sluggish wage adjustment recent evidence suggests that real wages are quite procyclical growing more rapidly during economic expansions than during recessions and that this wage procyclicality pertains even to workers who stay with the same employer one possible explanation for these findings is the old hypothesis that a portion of firms cyclical adjustment of labor costs is achieved not by changing the wages paid in particular jobs but by changing the quality of labor assigned to those jobs the authors analysis of interwar personnel data from the ford motor company and the a m byers company supports that hypothesis the authors recognize that case studies of only two firms cannot be definitive but they conclude that cyclicality in workers job assignments deserves further attention

social protection food security and asset formation summary the last two decades have seen a rapid rise in social protection programs and studies that assess their impacts on a large number of domains we construct a new database of studies of these programs that report impacts on food security outcomes and asset formation our meta analysis finds that social protection programs improve both the quantity and quality of food consumed by beneficiaries the magnitudes of these effect sizes are meaningful the average social protection program increases the value of food consumed expenditure by 13 and caloric acquisition by 8 food expenditure rises faster than caloric acquisition because households use transfers to improve the quality of their diet most notably increasing their consumption of calories from animal source foods since the consumption of animal source foods in these populations is low and because there are significant nutritional benefits to increasing the consumption of these this is a positive outcome our meta analysis also finds that social protection programs lead to increased asset holdings as measured by livestock non farm productive assets farm productive assets and savings there is no impact on land holdings though the number of studies that assess these is small

what or who started the great depression abstract herbert hoover i develop a theory of labor market failure for the depression based on hoover s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed i find that the theory accounts for much of the depth of the depression and for the asymmetry of the depression across sectors the theory also can reconcile why deflation low nominal spending apparently had such large real effects during the 1930s but not during other periods of significant deflation

price and quantity endogeneity in demand analysis evidence from directed acyclic graphs we propose to use the emerging method of directed graphs to study price quantity endogeneity issues in empirical demand analysis the approach is illustrated through the examination of u s meat consumption we find that for two major meat products beef and poultry retail prices contemporaneously caused quantities consumed thus were predetermined in contrast the quantity consumed of pork appeared to be predetermined relative to its price

a markup over average cost pricing rule for meat and poultry in the united states abstract this paper tests the hypothesis that meat and poultry wholesalers choose their inventory levels together with wholesale price so as to maximize profit made over the sales time of their stock the behavioral assumption predicts that markup over average cost will match the inverse of the price elasticity of the sales time of inventory price elasticity of inventory sales time is estimated for beef pork and poultry accounting for the simultaneity between these pricing decisions by adopting a systems approach the estimated range for the inverse of these elasticities includes all the markups applied over the sample range of the time series

identifying fiscal policy in effectiveness from the differential counter cyclicality of government spending in the interwar period differences across decades in the counter cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession we study government spending reaction functions from the 1920s and 1930s for twenty countries there are two main findings first surprisingly government spending was less counter cyclical in the 1930s than in the 1920s second the growth of government spending did not have a significant effect on output growth so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period resume identifier le caractere effectif ou non de la politique fiscale a partir de la contra cyclicite differentielle des depenses gouvernementales pendant l entre deux guerres des differences dans le degre de contra cyclicite de la politique budgetaire peuvent servir a identifier si la croissance des depenses publiques a un effet sur la croissance de l output et accelere ainsi la reprise de l activite suivant une recession nous etudions des fonctions de reaction des depenses publiques pour les annees 1920 et 1930 ce pour vingt pays il en ressort deux resultats principaux premierement et fait surprenant les depenses publiques etaient moins contra cycliques durant les annees 1930 que 1920 deuxiemement la croissance des depenses publiques n a pas eu d effet significatif sur la croissance de l output ce qui permet de douter que cet aspect de la politique budgetaire ait joue un role stabilisateur durant l entre guerre

does neoclassical theory account for the effects of big fiscal shocks evidence from world war ii much debate surrounds the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks we test the theory using data from world war ii which is by far the largest fiscal shock in the history of the united states we take observed changes in fiscal policy during the war as inputs into a parameterized dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

reviving the federal statistical system the view from academia there is a tendency to think of official government statistics as unambiguous measures of economic activity in truth however nearly all of the available series are based heavily on assumptions and are sensitive to the estimation techniques used furthermore many of these assumptions and estimation techniques have been refined and improved over time whether these underlying assumptions are reasonable and whether the refinement of assumptions over time has been useful depends crucially on the questions one is trying to answer for example an estimate of consumption derived from data on retail sales may be perfectly adequate for planning future production or setting government budgets but may be disastrous for testing a subtle economic theory similarly gathering more genuine consumption data might improve our current estimates of consumption but a series that reflects retail sales for one era and genuine consumption for another could wreak havoc when used in estimating a time series rela

great moderation and great recession from plain sailing to stormy seas many have argued that the great recession of 2008 marks the end of the great moderation of the eighties and nineties this paper shows this is not the case through painstaking empirical analysis of the data output volatility remains subdued despite the tumult created by the great recession this nding has important implications for policymaking since a lower volatility of output the hallmark of the great moderation is associated with lower recoveries jel classication c22 e32

could stable money have averted the great contraction i introduction although over fifty years have elapsed since the onset of the great contraction controversy still swirls about the factors responsible for its depth and long duration a basic issue is the hypothesis due to friedman and schwartz 1963 that the great contraction would have been attenuated had the federal reserve not allowed the money stock to decline although the validity of the hypothesis has been a subject of much debate there is little empirical evidence directly addressing it a direct test of the friedman and schwartz hypothesis requires simulating the behavior of output under a counterfactual policy of stable money that approach was adopted by warburton 1966 friedman 1960 and modigliani 1969 none of whom constructed a model of the economy on the basis of which to conduct his test recently mccallum 1990 has used simulations from a macro model to show that his base rule with feedback would have avoided the severe decline in nominal income that occurred between 1929 and 1933 1 the extent to which his rule would have improved the behavior of nominal income depends on the value of the feedback coefficient mccallum s simulations however do not address the issue considered here of how a stable money rule would have performed in this paper we present simulations that focus on the stable money counterfactual our model is based on mccallum s but we use a more general framework than his that a estimates separate relations for output and the price level and b places no prior restrictions on the feedback from output and the price level to money our stable money counterfactual does not change the long term rate of money growth from that actually experienced and thus involves only short run changes in the behavior of the money supply we assume that dynamics embedded in the output and price relation are not especially sensitive to this type of policy change we simulate two variants of milton friedman s 1960 constant money growth rule the first a strong form of the rule assumes that the fed could quickly offset changes in the money multiplier by changes in high powered money and thus keep the money stock on the constant growth rate path in each quarter the second a weaker form of the rule assumes that the money multiplier is observed with a one quarter lag and the fed can only set the expected rate of growth of money conditional on last period information equal to the constant rate our basic simulation is derived from a model estimated for the 1921 1 1941 4 interwar period the results of this simulation buttress the views of friedman and schwartz had a constant money growth rule with an annual rate equal to the average 1921 41 rate of 2 95 percent been followed throughout the interwar period the great contraction would have been avoided real output would have declined from 1929 3 to 1933 1 but the order of magnitude of the cumulative change 11 1 to 21 6 percent and the annual rate of change 3 3 to 6 6 percent when the actual cumulative change was 36 2 percent and the annual rate of change was 12 1 percent would have been comparable to other recessions in the nineteenth and twentieth centuries in the basic simulation we assume that the output and price relations remained stable over the entire interwar period the extraordinary economic conditions of the great contraction could have arguably shifted the output and price relations thus we also present an alternative simulation that uses estimates of these relations based on the 1920s data this simulation shows that a constant money growth rule with an annual rate equal to the 1921 29 average of 3 29 percent would have prevented even a mild recession during the great contraction period section ii contains a brief survey of the continuing debate over the cause and propagation mechanism of the great contraction and its implications for the stable money hypothesis

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

measuring uncertainty and its impact on the economy we propose a new framework for measuring uncertainty and its effects on the economy based on a large var model with errors whose stochastic volatility is driven by two common unobservable factors representing aggregate macroeconomic and financial uncertainty the uncertainty measures can also influence the levels of the variables so that contrary to most existing measures ours reflect changes in both the conditional mean and volatility of the variables and their impact on the economy can be assessed within the same framework moreover identification of the uncertainty shocks is simplified with respect to standard var based analysis in line with the favar approach and with heteroskedasticity based identification finally the model which is also applicable in other contexts is estimated with a new bayesian algorithm which is computationally efficient and allows for jointly modeling many variables while previous var models with stochastic volatility could only handle a handful of variables empirically we apply the method to estimate uncertainty and its effects using us data finding that there is indeed substantial commonality in uncertainty sizable effects of uncertainty on key macroeconomic and financial variables with responses in line with economic theory

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

the fiscal role of conscription in the u s world war ii effort an often overlooked role of conscription is as a method of lump sum taxation in times of war conscription of military personnel allows the fiscal authority to minimize wartime government expenditure and hence minimize tax distortions associated with war finance this paper presents a simple dynamic general equilibrium model to articulate this view and calibrates the model to the u s world war ii experience analysis of the calibrated model indicates that the welfare value of conscription as a fiscal policy tool is quantitatively large despite the fact that the american involvement lasted only four years conscription is worth approximately 2 of annual aggregate consumption in perpetuity

episodes of war and peace in an estimated open economy model we analyze the effects of world wars on the macroeconomic dynamics of the u s france germany and the uk by means of an estimated open economy model the model allows wars to affect the economy through capital depreciation sovereign default a military draft household preferences and spillovers on other exogenous processes productivity investment trade policy variables if the bulk of fluctuations during war episodes can be explained by the rise in government spending in the u s other factors are crucial in other countries we also discuss the size and state dependence of public spending multipliers and a counterfactual welfare exercise

business cycle stylized facts and inventory behaviour new evidence for the euro area abstract the purpose of this paper is for the first time to use business tendency survey data first to identify new facts that are useful for the interpretation of the decline in the volatility of real activity in the euro area and second to test the inventory management hypothesis as an explanation for the great moderation in europe we present stylized facts from the business tendency data on series for inventories current production current orders and expected production for the euro area emphasizing the decline in the volatility of the series further we investigate whether the decline in inventory volatility can be attributed to an endogenous change in the persistence of shocks to the accumulation dynamics of inventories or to an exogenous change in the shocks hitting the inventory optimisation process our results at euro level generally indicate that there is no evidence of a break in the inventory accumulation process on the contrary the impact of exogenous shocks on inventory volatility appears to be steadily declining over time beginning from the mid 1980s

an inverse demand system for u s composite foods this article provides a theoretically consistent framework for estimating a complete price dependent demand system where the concept of distance function and its related substitution and scale effects are used the approach is applied to a u s demand system consisting of thirteen food and one nonfood categories

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

does the benefits schedule of cash assistance programs affect the purchase of temptation goods evidence from peru a critique of cash assistance programs is that beneficiaries may spend the money on temptation goods such as alcohol and tobacco we exploit a change in the payment schedule of peru s conditional cash transfer program to identify the impact of benefit receipt frequency on the purchase of temptation goods we use annual household data among cross sectional and panel samples to analyze the effect of the policy change on the share of the household budget devoted to four categories of temptation goods using a difference in differences estimation approach we find that larger less frequent payments increased the expenditure share of alcohol by 55 80 and sweets by 10 40 although the absolute magnitudes of these effects are small our study suggests that less frequent benefits scheduling may lead cash recipients to make certain types of temptation purchases

the 1920 21 deflation the role of aggregate supply i introduction the 1920 21 recession in the united states was brief relative to the great depression of a decade later but it included a remarkably sharp price deflation the decline in the gnp price deflator from 1920 to 1921 is the largest one year percentage decline in the series in the more than 120 years covered this is true whether the department of commerce 1986 estimates or the recently provided balke and gordon 1989 or romer 1989 estimates are used these estimates produce one year deflation figures of 18 percent 13 0 percent and 14 8 percent respectively the closest competitor is the 11 5 percent deflation recorded for 1931 32 the third year of the great depression 1 annual data for wholesale prices tell a similar story wholesale prices declined by 36 8 percent for 1920 21 the largest one year decline on record going back at least to the american revolutionary war period the 1920 21 deflation contains another striking feature not only was it sharp it was large relative to the accompanying decline in real product the ratio of the percentage decline in the gnp deflator for 1920 21 to the percentage decline in real gnp is 2 6 using the department of commerce figures 3 7 using the balke and gordon data and 6 3 using the romer data by contrast during 1929 30 the first year of the great depression the gnp deflator declined by 2 7 percent and real gnp by 9 4 percent for a ratio of 0 3 the ratios of the percentage decline in gnp prices to the percentage decline in real gnp for 1930 31 1931 32 1932 33 and 1937 38 the other great depression years in which real gnp declined were 1 0 0 9 1 2 and 0 3 respectively all well below the 1920 21 figures this paper examines the 1920 21 deflation it asks why the deflation was so sharp both in itself and in relation to the decline in real product the answer the paper concludes is that the deflation was produced by a sharp decline in aggregate demand combined with an increase in aggregate supply a supply increase in which deflationary expectations played a prominent role ii the 1920 1921 recession the national bureau of economic research dates the 1920 21 recession from a general business peak in january 1920 to a trough in july 1921 it was mild at first wholesale prices continued to increase until may 1920 four months past the general business peak by july 1920 the federal reserve board s index of industrial production had declined by only 7 percent from its january peak and factory employment had fallen 7 3 percent the contraction then became severe by the year s end industrial production had fallen 25 6 percent below its january 1920 peak and bottomed out at 32 6 percent below its january 1920 level in july 1921 the general business trough wholesale prices were 42 9 percent below their may 1920 peak by july 1921 industrial production had fallen by 32 6 percent in eighteen months wholesale prices by 42 9 percent in fourteen months the deflation eliminated more than 70 percent of the rise in wholesale prices associated with world war i civilian unemployment rose substantially during the recession according to lebergott 1964 512 the unemployment rate was 1 4 percent for both 1918 and 1919 5 2 percent for 1920 and 11 7 percent for 1921 the 1920 21 recession was not the first following the end of world war i the economy had slowed in 1918 at about the time of the november armistice as the transition was made from wartime to peacetime production both industrial production and wholesale prices declined moderately the national bureau of economic research dates this first post war recession as extending from august 1918 to march 1919 the economy then turned upward and expanded peaking in january 1920 in this period industrial production rose by 25 5 percent wholesale prices after hitting bottom in february 1919 had risen by 20

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

wars and capital destruction abstract in this paper we propose a theoretical framework to investigate the impact of conflicts and wars on key macroeconomic aggregates and welfare using a panel data with 9 countries from 1870 onwards we first show that the consumption to output ratio is minimal during wwii for participants while this can be explained by an increase in public spending in the usa this cannot be the case in other countries that participated in wwii as they experience a large fall in output during wartime to account for this we build a variation of a real business cycle model first proposed by hercowitz and sampson 1991 we extend the initial model to account for specific shocks that destroy private and public capital stocks as conflicts do by assuming an exogenously time varying parameter in the law of capital accumulation in addition the model imbeds generalized tfp shocks capturing standard technological factors as well as the potential effects of war on the labor force the model is estimated and used i to assess the importance of capital shocks during war episodes and ii to quantify the welfare effects of conflicts we show that capital shocks are crucial to account for the macroeconomic dynamics of countries that have experienced large war related destruction and that the welfare losses from fluctuations can be quite large when considering data samples that include major war episodes

the inverse almost ideal demand system abstract a new demand system related to the almost ideal demand system aids of deaton and muellbauer is developed and illustrated this inverse aids iaids retains all of the desirable theoretical properties of the aids model with the exception of consistent aggregation an empirical issue is whether a linear approximation will work as well for the iaids as it has for the aids model since quantities are not as highly correlated as prices an application to u s meat demand demonstrates that the linear approximation of the iaids is excellent which enhanced the ease and range of application

facts and challenges from the great recession for forecasting and macroeconomic modeling this paper provides a survey of business cycle facts updated to take account of recent data emphasis is given to the great recession which was unlike most other postwar recessions in the united states in being driven by deleveraging and financial market factors we document how recessions with financial market origins are different from those driven by supply or monetary policy shocks this helps explain why economic models and predictors that work well at some times do poorly at other times we discuss challenges for forecasters and empirical researchers in light of the updated business cycle facts

explaining the great moderation it is not the shocks this paper shows that the explanation of the decline in the volatility of gdp growth since the mid eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism

anticipated money unanticipated money and output 1873 1930 anticipated money unanticipated money and output 1873 1930 i introduction this paper examines the roles of anticipated and unanticipated money in the period between the civil war and the depression 1 such an examination is warranted for at least two reasons first estimation of the impact of anticipated and unanticipated money on output for historical periods can enhance our understanding of the responses of economic activity to these key variables 2 second recent work has shown that traditional historical estimates of output may be faulty see romer 1986a 1986b 1986c 1988 not only do most studies investigating the economic roles played by anticipated and unanticipated money concentrate on the post world war ii era those that discuss the period before world war ii such as rush 1985 1986 use traditional data indeed despite the interesting analyses by rush if the validity of the conventional data on output and unemployment for the era under consideration is rejected then virtually no results on the importance of monetary and real factors for economic activity are available for this important period thus further discussion of this topic is needed to answer two important questions what do the revised data show us about the historical economy do these revisions change the inferences drawn about monetary influences on economic activity the analysis presented here is comprehensive in that a wide range of output measures are employed both in terms of the types of output and in terms of the manner in which the output measures are constructed given this variety in the output measures consistent results on the effects of anticipated and unanticipated money across output measures indicate that conclusions drawn from the analysis are robust in particular the empirical results presented below support the following hypotheses i that anticipated m2 and monetary base growth have no effect on output regardless of the output measure used ii that unanticipated m2 and monetary base growth do effect output regardless of the output measure used and iii that changes in financial intermediation may be important for the evolution of output over time support for hypotheses i and ii is consistent with the monetary explanation of business cycles support for hypotheses iii may be consistent with real explanations of business cycles if exogenous shocks to the monetary production technology subsequently affect output 3 taken together the joint support for hypotheses i iii suggests that at a minimum neither the real nor the monetary explanations for historical u s business cycles can be discounted without additional work the remainder of the paper is organized as follows section ii presents a brief overview of the historical period under consideration along with a discussion of prior work on the effects of anticipated and unanticipated money on output determination during this time period section iii discusses the data and the methodology the empirical results are presented in section iv and the conclusions in section v ii overview the historical period the period under investigation 1873 1930 is one of substantial economic change banking panics the return to the gold standard the founding of the federal reserve system and world war i are some of the more important events occuring during this period we consider the role played by expected and unexpected money in output determination for several major subperiods while data availability largely determined the selection of these subperiods they generally correspond to major economic events despite the structural and institutional changes over the period we also examine the roles of anticipated and unticipated money growth in the determination of output over the entire time period to be valid tests of the impact of money growth on output require a reasonable degree of homogeneity in the economic environment

the federal reserve amendments of 1917 the beginning of a seasonal note issue policy the federal reserve adopted a policy of smoothing the seasonal behavior of interest rates after the amendments of 1917 these amendments reduced the collateral requirements for notes issued and thereby increased note issue capability notes in circulation more than doubled from june to december 1917 these amendments were passed to assist with war related financing as their timing coincided with the entry of the united states into world war i the smoothing of interest rates seasonals between 1914 and 1917 was not due to the founding of the federal reserve system but rather to trade related gold flows copyright 1991 by ohio state university press

what explains the great moderation in the u s a structural analysis this paper investigates what has caused output and inflation volatility to fall in the u s using a small scale structural model using bayesian techniques and rolling samples there are instabilities in the posterior of the parameters describing the private sector the policy rule and the variance of the shocks results are robust to the specification of the policy rule changes in the parameters describing the private sector are the largest but those of the policy rule and the covariance matrix of the shocks explain the changes most jel e52 e47 c53

business cycles synchronicity and income levels has globalisation brought us closer than ever research on business cycle linkages shows a tendency to model countries of relatively the same income levels jointly however the issue of whether these countries move along the same business cycles has not been formally investigated in the literature in this paper we take this approach and investigate whether each group of countries follows its own dynamics and is therefore subjected to the same business cycle and whether these cycles are independent of each other across income groups results indicate that high income per capita countries hics tend to be guided by stronger similarity in business cycles than countries in the middle mics and low income lics groups in search for an explanation of the business cycles synchronicity observed panel data analysis was explored the results from the robust fixed effects estimation show neither trade openness nor shocks to consumption underlie international business cycle synchronization but rather shocks to oil prices

deposit interest rate ceilings as credit supply shifters bank level evidence on the effects of regulation q abstract how did deposit interest rate ceilings an important feature of the u s regulatory regime until the mid 1980s affect individual banks lending and the transmission of monetary policy to credit i estimate the effect of deposit rate ceilings inscribed in regulation q on commercial banks credit growth using a historical bank level data set starting in 1959 banks credit growth contracted sharply when legally fixed deposit rate ceilings were binding interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non linear and significantly larger when rate ceilings were in place bank size and capitalization mitigate these effects at the bank level short term interest rates exceeding the legally fixed deposit rate ceilings identify policy induced credit supply shifts that disappeared with deposit rate deregulation and thus weakened the bank lending channel substantially since the early 1980s

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

the structure of food demand interrelatedness and duality this paper presents a new empirical demand system which mitigates the effects of multicollinearity while facilitating the measurement of interrelatedness duality theory is used to derive the inverse demand functions using data on fourteen food items a complete set of demand equations is estimated in both quantity and price dependent forms the model is used to test for the theoretical restrictions of homogeneity additivity and negativity as well as the habit formation hypothesis a comparison is made between these results and those of brandow and george and king

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

revealing the preferences of the us federal reserve we use bayesian methods to estimate changes in us post war monetary policy in the smets and wouters model we perform the estimations by allowing for a break in monetary policy at the time of volcker s appointment as chairman this enables us to capture changes in the monetary policy regime introduced by volcker during the volcker greenspan period we find support for the assumption that monetary policy in the volcker greenspan period performed optimally under commitment our estimation strategy allows us to estimate the preferences of the us federal reserve in the volcker greenspan period where the main objective of policy appears to be inflation followed by interest rate stabilization output growth and interest rate smoothing we find that the great moderation of output growth is explained by a combination of two factors the decrease in the volatility of the structural shocks and the improved monetary policy conduct inflation stabilization however is mainly due to the change in monetary policy that took place at the beginning of volcker s mandate copyright 2010 john wiley sons ltd

a note on america s 1920 21 depression as an argument for austerity this note argues that recent interest in the 1920 21 depression in the usa as a historical precedent for austerity is inappropriate most of the austerity measures preceded the depression which had already begun receding by the time warren harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity the evidence suggests that the 1920 21 depression was the result of a variety of supply constraints rather than a deficiency of effective demand and is therefore a poor test of the efficacy of keynesian fiscal policy

seasonality in u s consumer demand this study uses a new body of quarterly not seasonally adjusted data to test various hypotheses regarding consumer demand the almost complete demand system acs was used to test for the various restrictions of economic theory and for the presence of seasonality zero degree homogeneity cournot aggregation and negativity were for the most part accepted tests showed that seasonal effects can be modeled by quarterly intercepts and that slope coefficients are homogeneous over seasons also it was demonstrated that although habit plays a significant role it is not as prominent as past studies have shown

the heterogeneous great moderation in this paper i show that a more accurate analysis of the great moderation leads to interesting and novel findings about macroeconomic volatility dynamics in the last decades the main empirical result of the paper is that the great moderation has diversely affected macroeconomic volatility at different horizons short run business cycle and medium run i refer to this phenomenon as the heterogeneous great moderation across frequencies i formally test these findings by defining a frequency domain structural break test that detects the presence of a break in the variance of real macroeconomic variables at different frequencies i derive its asymptotic and small sample properties and i apply it to u s macroeconomic variables to provide statistical evidence that the great moderation is mainly confined to short run fluctuations i finally use a dsge model to investigate which elements of the model can generate the heterogeneous great moderation i find that whereas just a decline of the magnitude of the shocks and a change in the monetary policy cannot replicate the stylized facts accounting for the increased persistence of the exogenous disturbances is the key feature for generating the heterogeneous great moderation

5 years in juntos new evidence on the program s short and long term impacts this study presents results from a quantitative impact evaluation of the conditional cash transfer cct program juntos in peru using instrumental variable techniques it estimates the overall impact of juntos five years after its initial rollout and explores the differential impacts among beneficiaries according to the length of time they spent in the program in so doing the analysis explores whether it takes time for the program to make significant and sizable impacts and whether some impacts change in magnitude the longer the beneficiaries spend in the program the results seem to confirm both hypotheses almost all indicators of interest are significantly higher among beneficiaries with longer treatment spells however in many cases these improvements are too small to be picked up in the analysis of overall effects when beneficiaries are compared to non beneficiaries these findings suggest that while the program has a non negligible impact on welfare there is room for improvement

an empirical analysis of oil price shocks in the interwar period i introduction post world war ii experience demonstrates that disturbances to aggregate supply are important determinants of aggregate economic performance a casual glance at the post 1970 data strongly suggests a correlation between shocks to the price of oil and recession hamilton 1983 formally demonstrates that this correlation arises from what appears to be a causal link that runs from oil price increases to reduced economic activity the sequence of oil price increases followed by recession characterizes every post world war ii economic downturn in the u s with the exception of 1960 61 other research confirms the critical role of supply shocks in explaining post world war ii macroeconomic performance burbidge and harrison 1984 employ vector autoregressions vars to examine the impact of oil price shocks over the 1962 82 period for several countries they conclude that these shocks played a large role in deepening the recessions of the 1970s with the impact on the 1973 74 recession much greater than that of 1979 80 tatom 1988 estimates the impact of the 1979 80 increase in the relative price of oil and reports that this shock reduced the amount of output that could be produced with available labor and capital by 5 7 percent thoma 1992 re examines the work of litterman and weiss 1985 and finds that the ex ante real interest rate is not exogenous to supply shocks contrary to what is reported in litterman and weiss using annual data over the 1948 82 period loungani 1986 shows that any correlation between an index of the dispersion of unemployment across industries and the aggregate unemployment rate is due to the dispersion index s collinearity with oil price shocks once this collinearity is accounted for the dispersion index has no explanatory power to account for movements in the aggregate unemployment rate while the evidence for the causal link between supply shocks and output appears most dramatic for the post 1970 data hamilton 1983 argues that the entire post war period be treated as a continuous whole the enduring regularity of the oil price shock recession relation in this period leads to a natural question is there any evidence that oil price shocks either positive or negative played any role in the cyclical fluctuations and secular expansion of the 1920s and the great depression figure 1 presents a plot of the relative price of oil defined precisely in section ii for the 1921 1 1938 6 period we observe a number of sharp movements in the relative price of oil that suggest an assessment of the empirical impact of oil price shocks during the interwar period is warranted accordingly we investigate the effects of oil price shocks during the interwar period within the context of a small macroeconomic model 1 the empirical framework is a var model that consists of output the price level the monetary base the m2 money multiplier the commercial paper rate government spending a financial intermediation variable and a measure of oil price shocks these are variables frequently found in small macroeconomic models monthly data for the period 1924 2 1938 6 are used to specify and estimate the model we evaluate the impact of oil price shocks on prices and output through computation of variance decompositions the standard errors reported are generated through monte carlo simulations historical decompositions for the 1929 9 1938 6 period are also computed so we can specifically examine the effects of oil price shocks over the sample period that includes the great depression we chose the var modeling approach because there is little agreement on the appropriate structural model and var estimation places few restrictions on the way in which the system s variables interact in the specification and estimation of the model all variables are treated as jointly determined no a priori assumptions are made about the exogeneity of any of the system s variables at this stage of analysis

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

the baby boom and world war ii a macroeconomic analysis we argue that one major cause of the u s postwar baby boom was the rise in female labor supply during world war ii we develop a quantitative dynamic general equilibrium model with endogenous fertility and female labor force participation decisions we use the model to assess the impact of the war on female labor supply and fertility in the decades following the war for the war generation of women the high demand for female labor brought about by mobilization leads to an increase in labor supply that persists after the war as a result younger women who reach adulthood in the 1950s face increased labor market competition which impels them to exit the labor market and start having children earlier the effect is amplified by the rise in taxes necessary to pay down wartime government debt in our calibrated model the war generates a substantial baby boom followed by a baby bust

multiproduct supply and input demand in u s agriculture two sets of u s agricultural output supply and input demand relationships including cross price effects are reported for five commodity groups and four variable input groups for the 1951 82 period they are obtained by direct econometric estimation on u s data and by geographic aggregation from published econometric estimates for each of ten regions comprising the contiguous forty eight states the supply and demand formulations are specified on the assumptions of competitive behavior and an underlying normalized quadratic profit function the effects of upward sloping input supply curves are examined at the national level

the structural dynamics of output growth and inflation some international evidence we examine the dynamics of output growth and inflation in the us euro area and uk using a structural time varying coefficient var there are important similarities in structural inflation dynamics across countries output growth dynamics differ swings in the magnitude of inflation and output growth volatilities and persistences are accounted for by a combination of three structural shocks changes over time in the structure of the economy are limited and permanent variations largely absent changes in the volatilities of structural shocks matter

limits on price analysis in a recent book sir peter medawar distinguishes between those questions that scientific research can and cannot answer my paper has a more modest goal price analysts have never pretended to answer deep philosophical questions but rather have tried to understand agricultural markets the general objective of price analyses is to make forecasts and simulations that assist private and public decision makers progress has been made toward this general goal but limitations clearly exist to obtaining precise forecasts and useful simulations this paper is about the progress that has been made and the limitations that exist examples from the supply demand and marketing margin literature are used to illustrate the progress and limitations in particular i contrast the progress that has been made in supply analysis with the progress in demand analysis i then suggest ways in which some of the problems might be addressed space constraints however do not permit an exhaustive discussion of these topics

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

the family of inverse demand systems abstract a set of inverse demand systems derived from some well known utility functions is presented in which the hotelling wold identity has been used for such a derivation the functional forms of the inverse demand systems obtained by this study are theoretically integrable and empirically operations

optimal control of heteroscedastic macroeconomic models summary this paper analyses the implications of heteroscedasticity for optimal macroeconomic policy and welfare we find that changes in the variance structure driven by exogenous processes like generalized autoregressive conditional heteroscedasticity garch affect welfare but not the optimal feedback rule however changes in the variance structure driven by state dependent processes affect both we also derive certainty equivalent transformations of state dependent volatility models that allow standard quadratic dynamic programming algorithms to be employed to study optimal policy these results are illustrated numerically using a reduced form model of the us economy in which changes in volatility are driven by a garch process and the rate of inflation copyright 2015 john wiley sons ltd

spillovers to low income countries importance of systemic emerging markets this article documents the expanding economic linkages between low income countries lics and a narrow group of emerging market em leaders that have become major players in international trade and financial flows var models show that these linkages have increased the share of growth volatility that can be attributed to foreign shocks in lics dynamic panel models further analyse the impact of lic trade orientation and production structure on the sensitivity to foreign shocks the empirical results demonstrate that the elasticity of growth to trading partners growth is high for lics in three out of the five regions asia latin america and the caribbean and europe and central asia however for commodity exporting lics in sub saharan africa and the middle east terms of trade shocks and demand from the em leaders are the main channels of transmission of foreign shocks

the u s business cycle 1867 2006 a dynamic factor approach we estimate a stock watson index of economic activity to assess u s business cycle volatility since 1867 we replicate the great moderation of the 1980s and 1990s and find exceptionally low volatility also in the golden age of the 1960s postwar moderation relative to pre 1914 occurs under constant but not time varying factor loadings suggesting structural change toward more volatile sectors for comparable series the u s postwar business cycle was as volatile overall as under the classical gold standard but much less so during the great moderation and the golden age

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

the politics of success in the fight against malnutrition in peru abstract the dramatic reduction in children s chronic malnutrition in peru observed in recent years has defied the patterns of stunting reduction worldwide after nearly a decade of stalled progress the government reported a reduction in stunting rates of nearly 10 points from 29 8 in 2005 to 18 1 in 2011 the specialized literature has acknowledged the critical role that immediate e g increasing breastfeeding promotion and underlying e g investments to improve household food security interventions have played in reducing stunting black et al 2013 as well as the contributing role of enabling factors related to economic performance this paper offers an alternative explanation to success by looking at the shift in the government s nutrition strategy after 2006 with the formation of the child malnutrition initiative cmi a civil society working platform and the adoption of a national poverty reduction strategy prioritizing nutrition interventions known as crecer and conditional cash transfers juntos the paper uses veto players theory to explain how these changes effectively contributed to policy change by reducing the effective number of nutrition stakeholders involved and facilitating policy agreements around a common policy platform and established goals the peruvian case also highlights the importance of the government s public commitment to reduce chronic malnutrition in children under five by 5 percent in 5 years 5 by 5 by 5 and the accompanying role advocacy and monitoring from civil society organizations the paper looks at the success of implementing the nutrition strategy in three dimensions horizontally it looks at the coordination between government and non government agencies to converge around a common policy discourse vertically it looks at the implementation of the nutrition strategy across national regional and municipal governments and financially it looks at the coordinated and conditional allocation of nutrition funding and how this created greater incentives for horizontal and vertical coordination the paper draws some theoretical and policy implications for improving the effective and accountable delivery of nutrition interventions in peru and other countries outside latin america

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

what do british historical data tell us about government spending multipliers british data from the early 1700s through world war i reflect the results of numerous high quality natural experiments of government spending britain frequently participated in wars increasing military spending massively wartime distortions were relatively limited because the government generally adopted tax smoothing policy and rarely implemented interventions government spending multiplier estimates are low or negative and significantly below unity this paper finds no evidence that the multiplier was higher in the slack state than in the normal state jel e32 e62

demand for farm output in a complete system of demand functions demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices a conceptual model based on reduced form specifications for retail and farm prices is formulated and applied empirically to a set of eight disaggregated food commodities this approach circumvents the need for retail quantities which are frequently unavailable for disaggregated food commodities the results are consistent with theory and generally indicate significant substitution between farm and marketing inputs except for poultry derived demand elasticities are at least 40 larger compared to those derived assuming fixed proportions

structural changes in the us economy is there a role for monetary policy this paper investigates the contribution of monetary policy to the changes in output growth and inflation dynamics in the us we identify a policy shock and a policy rule in at ime varying coefficients var using robust sign restrictions the transmission of policy shocks has been relatively stable the variance of the policy shock has decreased over time but policy shocks account for a small fraction of the level and of the variations in inflation and output growth volatility and persistence we find little evidence of a significant increase in the long run response of the interest rate to inflation a more aggressive inflation policy in the 1970s would have produced large output growth costs

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

the impact of monetary policy in the midst of big shocks abstract this paper studies the impact of federal reserve policies that created the largest deviations from price stability during the fed s first 100 years the post world war i deflation the deflation of the great depression the inflation of world war ii and the great inflation of the 1970s in terms of their macroeconomic impacts i find that deflation was uniquely depressing in the 1930s because of cartel policies that prevented nominal prices and wages from adjusting to clear markets and not because deflation is generically depressing i find that the biggest impact of monetary policy during world war ii was in debasing debt through inflation i find that the main drivers of the 1970s economy were long run changes in productivity and the labor market and that there may have been little that the fed could have done at this time to expand employment and output more broadly i find that macroeconomic performance would have been better over the fed s first century had the fed followed a monetary policy to deliver stable prices